A new resident of Canada contributes $18,000 to a new TFSA in 2021 due to a misunderstanding of the rules (his contribution room was only $6,000), and the shares of the company in which the TFSA invested become worthless. Can he stop the TFSA over-contribution tax or request a waiver of the tax under s. 207.06(1), as he can no longer withdraw the over-contribution?
CRA indicated that the monthly 1% tax under s. 207.02 on the excess amount continues to apply for each month that the excess amount remains and that, here, the individual is unable to withdraw any amount to reduce or eliminate the excess amount. Instead, the excess TFSA amount will only be reduced by new contribution limits as they become available in future years.
The potential waiver of tax under s. 207.06(1) requires, inter alia, that the individual withdraw an amount from his TFSA sufficient to eliminate both the excess TFSA amount and any associated income and capital gains. Again, the individual cannot meet this condition. Thus, the excess TFSA amount will not be fully eliminated until January 1, 2023.