At the end of each calendar year, financial institutions that you have a Tax Free Savings Account (TFSA) with will send a summary of your contributions and withdrawals to the Canada Revenue Agency (CRA). CRA then uses this information to calculate your contribution room for the new year, as any unused room rolls forward, and is added to the new years contribution room ($5,500 in 2017). While this seems like a simple enough process, errors are all too common.
CRA states that the information they have on record is not guaranteed to be correct, as they receive it from your bank. If the information the bank sends is wrong, then the CRA will be wrong too. To make matters even more unsavoury, the banks make no guarantees that the information they have is correct. Both the CRA and your bank are leaving it up to you to confirm that what they have is correct.
We have seen this go wrong a few times already this year. We had a client make a $30,000 contribution to their TFSA, however the bank did not report this to CRA. Now the client’s contribution room is overstated by $30,000. If you don’t keep track of this and you end up over-contributing (despite the fact that both CRA and your bank would make it seem that this is OK) you will still be held liable should the CRA discover the error in the future (and they likely will). The penalty is 1% per month that the over contribution is in the TFSA, so on a $30,000 deposit that is $300/month! It gets pricey pretty quick.
So ensure that you are properly tracking your TSFA contributions, as you might be the only one doing it.