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I’m hearing from many people who are surprised to find they have to pay tax on contributions to a tax-free savings account.

If you withdraw money from a TFSA, you can replace it the next year without any tax consequences. But if you pay back what you withdrew from your TFSA in the same year, you’re making an overcontribution — and you have to pay 1 per cent of the amount to the Canada Revenue Agency.

There’s a pretty good explanation here. But because the TFSA is new, many of those complaining say they didn’t know how the rules worked.

Sometimes, it’s the financial institutions at fault. I heard from someone who transferred his TFSA from a TD Waterhouse brokerage account to a ..read more

Here are two stories that show how important it is to know how much tax you owe and pay the right amount. If you don’t, the government can hit you with heavy penalties.

In the first case, a woman sent a cheque for what she thought she owed. The Canada Revenue Agency didn’t cash her cheque and sent her a big refund in error. Many months later, it demanded repayment, plus interest, even though it had made the mistake.

In the second case, a woman moved around so much that the tax department’s letters went astray. Eeventually, she got a request to pay a large amount. She said she would pay in instalments, but after the first cheque was sent, she found her bank account had been ..read more