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Collection of 1,000 Questions - Investment Planning - Question 10 on Real Estate, LSIFS and TFSAs

Posted by David Gobeil on

 “The solution says that $36,500 - $4,750 - $2,750 - $6,000 - $8,000 = $14,000, but it actually equals $15,000.”

I have failed to add correctly. Apologies extended. I have also made the following changes to the solution to make sure that everyone can understand it.

Your client, Lloyd who is a Canadian resident and 35 years of age, has a tax-free savings account (TFSA). The fair market value of the TFSA is $68,600. Lloyd's unused TFSA contribution room at the end of last year was $4,750. Last year, Lloyd took a distribution from his TFSA of $2,750. He has never made a qualifying transfer or taken a prescribed distribution. This January, Lloyd made a withdrawal of $8,000 and then made TFSA contributions of $36,500. On January 31, 2019, Lloyd's excess TFSA amount was $15,000.

What is the amount of tax payable on Lloyd's excess TFSA amount?

Solution

Lloyd will be subject to a tax of 1% of the highest excess TFSA amount in the month, for each month that the excess amount remains in his account.

The amount of tax payable on Lloyd's excess TFSA amount is $150, calculated as:

  • (excess TFSA amount × 1%) or ($15,000 × 1%).
Note: Calculating Lloyd's excess TFSA amount as below is more complicated than you will find on any of the Personal Financial Planning Exams.

Lloyd's unused TFSA contribution room at the end of last year was $4,750. Last year, Lloyd took a distribution from his TFSA of $2,750. He has never made a qualifying transfer or taken a prescribed distribution. In January 2019, Lloyd made a withdrawal of $8,000 and then made TFSA contributions of $36,500.

Lloyd's excess TFSA amount is $15,000, calculated as:
  • (A – B – C – D – E); or
  • (TFSA contributions – TFSA contribution room at the end of last year – all withdrawals preceding calendar year – TFSA dollar limit for the calendar year – withdrawals in the calendar year); or
  • (TFSA contributions of $36,500 – TFSA contribution room at the end of last year of $4,750 – all withdrawals preceding calendar year of $2,750 – TFSA dollar limit for the calendar year of $6,000 – withdrawals in the calendar year of $8,000); or
  • ($36,500 - $4,750 - $2,750 - $6,000 - $8,000).

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