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The tax-free savings account (TFSA) is a no-brainer for millions of Canadians looking to save money. The rules are seemingly straightforward: You make after-tax contributions annually within your contribution limit, the funds are invested tax-free, potentially forever, and if you withdraw them, or you die, they also come out tax-free. What can possibly go wrong? Apparently, for some taxpayers, quite a bit.

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It seems that taxpayers are regularly getting into TFSA trouble with the Canada Revenue Agency, either for accidentally overcontributing, or, in rarer situations, for breaching the TFSA “advantage” rules. This month alone, the courts have already released two TFSA decisions. One went well, the other did not.

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The first case involved a Quebec taxpayer whose troubles began in 2015 when he opened up a TFSA and began automatic monthly transfers of $350. He contacted his bank several times to ensure that he could continue to contribute to his TFSA without exceeding his contribution limit, which his bank had always confirmed.

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In June 2020, the taxpayer received an email notification from the CRA informing him that he had received a message in his CRA My Account. The taxpayer attempted to access My Account but his account was blocked and could only be unlocked by a phone call. In addition, he thought that the email was “unimportant” since he had always received important letters from the CRA through other means of communication, and had never authorized the CRA to only send him notices via My Account.

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The taxpayer testified that he tried to contact the CRA to unfreeze his My Account on several occasions, but since he was working full-time, in person, and services were reduced due to COVID-19, he was never able to unblock his account in a timely manner.

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It turns out the taxpayer had been overcontributing to his TFSA in 2020, 2021 and 2022, and was being assessed the one per cent per month overcontribution tax by way of annual TFSA notices of assessment, which were sent to the taxpayer’s My Account, with email notifications.

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During these tax years, the taxpayer continued to receive annual tax refunds, so he did not suspect anything was amiss. His tax returns were always completed and filed by his accountant, who never mentioned any problem to him. Not being able to view the CRA’s notices because his My Account remained blocked, the taxpayer was completely unaware that he had overcontributed to his TFSA.

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On May 1, 2024, the taxpayer contacted a CRA agent as he wanted to use the funds in his TFSA to purchase a home. The CRA then informed him that he had first made overcontributions to his TFSA in 2019 and that the message he had received in June 2020 in My Account was in fact a “TFSA educational letter” informing him of this problem. He also noticed that the taxes related to the excess contributions were automatically deducted from his tax refund each year, without him noticing since he still received tax refunds, albeit reduced by the overcontribution tax.