TFSA overcontribution - on purpose

[three.eighteen.]

I've been running a small stock portfolio thru TD waterhouse but my last trade ended up giving me a negative cash balance (-16.00) due to brokerage fees. To settle it I figure I'll just overcontribute and eat the 1% of overcontribution/month penalty till the end of the year (16*.01*9) = $1.44. TD advised me not to do it, but I assume they're just doing their due dilligence in telling me not to. Can anyone here think of a good reason not to do this?

[TYMSMNY]

Just leave it or worse case, have them sell enough equity to cover it.

[kenny]

edit... guess my post doesn't really apply

New penalties are 1% + 100% tax on gains made by over-contribution, but your overcontribution is pretty negligible.

[three.eighteen.]

Originally posted by kenny
edit... guess my post doesn't really apply

New penalties are 1% + 100% tax on gains made by over-contribution, but your overcontribution is pretty negligible.

hmm that's interesting, have a link to this? all my sources just say 1% on overcontribution.

technically there are no gains on my over-contribution if i'm just covering brokerage fees right (i have made a significant amount of cash in my tfsa and would not like that taxed/penalized)?

[Wrinkly]

This might help:

http://www.fin.gc.ca/n08/09-099-eng.asp

[TYMSMNY]

Section on it...

Deliberate Overcontributions

The TFSA rules allow a holder to contribute, for 2009, a maximum of $5,000. Contributions and associated earnings may accrue tax-free in the TFSA and may be withdrawn at any time without any adverse tax consequences. Contributions in excess of the contribution limit are subject to a tax of 1% per month on the highest amount of excess contributions for the month. This tax is generally sufficient to neutralize the tax benefit of overcontributions. The Government of Canada has become aware that in certain situations, and subject to the existing anti-avoidance rules in the Income Tax Act, some TFSA holders are attempting to generate a rate of return on deliberate overcontributions over a short period of time sufficient to outweigh the cost of the 1% tax. On its introduction, it was not anticipated that the TFSA would be subject to this type of deliberate overcontribution.

Under the proposed amendments, any income reasonably attributable to deliberate overcontributions will be made subject to the existing advantage rules (as described above) and taxed accordingly. Pursuant to the advantage rules, the tax payable on the income will be 100%.

The Minister of National Revenue will maintain the discretion to waive or cancel all or part of the tax payable and the authority to adjust the taxpayer's TFSA contribution room accordingly in appropriate circumstances.

[three.eighteen.]

from wrinkly's post:

Under the proposed amendments, any income reasonably attributable to deliberate overcontributions will be made subject to the existing advantage rules (as described above) and taxed accordingly. Pursuant to the advantage rules, the tax payable on the income will be 100%.

is the coverage of my brokerage fees "reasonably attributable"? apparently i can also request extra contribution room if my request is reasonable, but the less flags i throw up, the better off i probably am

[max_boost]

Originally posted by kenny
edit... guess my post doesn't really apply

New penalties are 1% + 100% tax on gains made by over-contribution, but your overcontribution is pretty negligible.

When did they change it? My buddy was telling me how some of his friends were abusing the system by making MASSIVE over contributions $100K+. Pay the 1% penalty while all gains were tax free haha

[three.eighteen.]

Originally posted by max_boost


When did they change it? My buddy was telling me how some of his friends were abusing the system by making MASSIVE over contributions $100K+. Pay the 1% penalty while all gains were tax free haha

oct 09 apparently...well if cra has to deal with those guys first, i think i'm in the clear lol

[Xtrema]

Originally posted by max_boost


When did they change it? My buddy was telling me how some of his friends were abusing the system by making MASSIVE over contributions $100K+. Pay the 1% penalty while all gains were tax free haha

And they would have made a killing at the tail end of the market rise in 09. Everyone I know has at least 60% increase in the portfolio in 2009.

[bg_27]

They made a bunch of changes including holding real estate type investments, etc.