Transcript

Record Filers

SLIDE 1

Welcome to the Canada Revenue Agency's Tax-Free Savings Account Webinar for TFSA record filers. This is a recording of a Webinar that was done in November 2011. If you have any questions about this Webinar, please call our Business Enquiries number at 1-800-959-5525, that's 1-800-959-5525 and an agent will be able to help you. Thank you and we hope you enjoy this Webinar.

Welcome to the Canada Revenue Agency's Tax-Free Savings Account Webinar for TFSA record filers. My name is Rick and I am from the Tax-Free Savings Account section at the Canada Revenue Agency.

During this Webinar, we will have one question period break which will be after slide 10 and a general question period after this presentation. Throughout the Webinar, you are invited and encouraged to submit any general questions that you may have and we will try to respond to them during these breaks.

If we should not have time to respond to your question during this Webinar, we will respond directly to you in the following days. Please note that if your question is complex, technical, or case specific, it will not be responded to during this presentation, but we will respond to it in the following days. Also, at the end of this Webinar, we will be showing you the Tax-Free Savings Account video.

Okay, we're going to start off on slide 2.

SLIDE 2

Topics for discussion: Today we will be discussing submission of amendments, types of beneficiaries, reporting of qualifying transfers.

SLIDE 3

Moving on to slide three: Faxes, common errors, and important references.

SLIDE 4

Starting off with slide number four: Submission of amendments. On a side note before I get into this, I just want to make sure that you are aware that our system will be shut down from December 6th and will start up again on January 9, 2012. During this period, if you are to submit any records, they will not be processed until January 9th.

Continuing on with the submission of amendments. MYBA, My Business Account, should be checked on a regular basis for rejected records and resubmitted within a 30-day turnaround time. The quicker you can get your rejected records corrected, the faster we can update your client's TFSA information and hopefully, if applicable, avoid any tax consequences for them. Please ensure you have a backup employee who also has access to MYBA. This is necessary to avoid any unnecessary delays.

We have experienced in the past where some financial institutions have only one person assigned to the MYBA access number I.D. Please ensure that they do have a backup because sometimes they will be away on vacation and nobody can access their rejected records. Therefore, they have to wait until that person returns from their vacation to get the amendments resubmitted correctly.

Prior year Amendments: Any prior year amendment should be worked first. The faster we can get these amendments completed, the faster your client will have their correct room available to them.

We cannot process any 2010 records until your client's 2009 record has been accepted by the Agency.

It is very important, as I stated, to get your 2009 error codes done first and allow time for these amendments to process and get accepted. Usually if you could wait at least 48 hours and then, if you have to submit a 2010 record, do so at that time. If you happen to submit your records under the 48 hours, you may run into a potential timing issue with the 2010 amendments if they're submitted at the same time. Once the 2009 record is accepted, the 2010 can now be resolved with an amendment correcting whatever action was required of it.

Keying information: When keying information, please use extreme caution. Many numbers get transposed incorrectly. A good example would be a social insurance number. You've got the two spouses, the husband, wife; they both have tax-free savings accounts. You're submitting their records but you happen to put the wife's social insurance number on the husband's account, the husband's social insurance number on the wife's account. When they come in to be validated, chances are, they will reject because it's not the correct person.

Also, when filing your summary for a new year, please make sure to update your contact information if necessary. If this is not done, then it may take us a while to find a new contact person and again cause unnecessary delays on both sides.

Duplicates: Please do not send in a duplicate record. This serves no purpose to the CRA. Continuing on to slide 5.

SLIDE 5

Types of beneficiaries: We do have a guide called the RC4477, Tax-Free Savings Account (TFSA) - Guide for Issuers. In this guide, you will find the procedures for completing records for the types of beneficiaries.

Successor holder versus survivor: A spouse or common-law partner of a TFSA holder can be recognized as being either a successor holder or a survivor, designated beneficiary, in all provinces other than Quebec. Successor holder is the best option as a spouse/common-law partner simply takes ownership of the account immediately upon the holder's death. All money in the account remains tax-free along with any gains that happen after death. Also, no special form is required to be filed by the spouse or common-law partner.

As the province of Quebec does not recognize TFSA beneficiary designation, the only option for the surviving spouse who receives money from the TFSA after death of a spouse is to complete a form called the RC240 designation of an exempt contribution. This is so that their room is not affected by the deposit of the survivor payment into their own tax-free savings account. The survivor payment exemption is allowable up to the Fair Market Value at death of the holder. While a family member can be named as a beneficiary, they cannot be named as a successor holder or survivor. Continuing on to slide 6.

SLIDE 6

Please note the following slides from slide 6 to 10 and slides 12 and 13 do not mirror your XML files that you submit to us. However, the data elements that are required to be completed are indicated as shown. In this slide, when filing a successor account record, it must be submitted under the S.I.N. of the holder and the deceased holder information is completed for the original holder of the account and successor account indicator "yes" field is selected.

The Date of Death, Fair Market Value, the DODFMV, should not be completed on a successor account unless the successor has also died. No separate records should be filed for the deceased on a successor account. The image that you have in front of you now indicates the proper way that a successor holder information should be submitted. Moving on to slide 7.

SLIDE 7

Deceased, no successor holder reporting error: One of the big issues that we are seeing at the Agency is that slips for deceased accounts where there are no actual successors are being completed showing the original deceased holder as a successor of his or her own account. You will see in the boxes in red, you can see under the social insurance number, for example, it's the same number for the holder and it's showing the deceased holder's social insurance number being identical. This cannot happen. No information should be completed under the deceased holder information field for a non-successor account. Continuing on to slide 8.

SLIDE 8

This is just a reminder that we will be breaking at slide 10 for a question period so if you have any questions, I might suggest right now that you start typing them in to us, so our team in the back can research them and give you a reply during the break.

Successor holder reporting error: The second most common successor holder reporting error issue we are seeing is cases where a true successor account exists. However, the field "TFSA holder date of death" is being completed as well as a "TFSA deceased holder date of death" field. This then appears to the system as if the new holder, the successor, is also deceased and results in a reject. Moving on to slide 9.

SLIDE 9

Beneficiary: On an account where there is simply a beneficiary, we need to see the date of death of the holder along with the Fair Market Value, FMV, at death. If the account has been settled in that year, you need to show withdrawal from the account and the account should be closed. Moving on to slide 10.

SLIDE 10

Beneficiary error: Please do not show your record like the one pictured here on this slide. We require the date of death Fair Market Value, as well as an amount in the withdrawal area only if the account is settled in the same year. Many records are being received with the date of death FMV, DODFMV, equalling zero and no withdrawal amount. This may have possible tax implications for your client if it is not completed correctly.

Okay, we are going to take a quick break right now. There will be a few minutes of a music interlude and we'll be back for some questions. Thank you.

Hi and welcome back. Thank you, we have been receiving some questions and I'm going to pass it over to my colleague, René, who has a few of your questions and he will provide the answers. René?

Thanks, Rick. Our first question, T asks "Will this webcast be available as reference going forward for staff training purposes?"

T, yes, we will post the webcast on the CRA website in the near future.

Our following question comes in from Oliver. He asks, "Does MYBA notify the Financial Institution when there are new items in this box?"

Yes, Oliver. You'll receive an email message if you are the designated person indicating that there are new rejects to be actioned.

John asks, "Can you name both a beneficiary and a successor holder when opening a TFSA account?"

Yes, John, you can designate both a successor holder and a beneficiary on a contract. The most common reason for doing this is to cover off the remote possibility that both the holder and the person designated a successor died at the same time. Where both the successor and the beneficiary are designated, the successor designation will take precedence. This is implied within the definition of holder where a TFSA is considered to continue without interruption and the designated successor becomes a holder. Once a successor acquires all the rights to the TFSA, he or she can amend the designation of beneficiaries. For example, in the event that the original holder and one of the named beneficiaries dies in something like a car accident, it would be expected that the successor will eventually have the deceased beneficiary's name deleted from the designation.

Following question, Esther asks, "Would it be possible to send amendments to previously rejected records every two months instead of the requested 30 days? This would give our clients time to communicate with the CRA and to make the required changes."

Esther, we currently ask that amendments be submitted within 30 days when possible. However, we do understand that at times, depending on the reject that this may take a longer period of time. You should attempt to clear up as many rejects as possible within the 30-day turn around period as it is important to get the records accepted and your clients' contribution room correctly calculated. If this is not possible, you should contact the TFSA processing unit to request an extension of time to submit the amendments.

This is all for now, I'll hand it back to Rick for the second part of our presentation.

Thanks René. Okay, we're going to move on now to slide 11 and I'll just remind you again to keep sending in your questions, because at the end of slide 16 we'll have some more question and answer period.

SLIDE 11

Slide 11, Reporting of Qualifying Transfers: All qualifying transfers must be done directly, either within the same institution or between different institutions. Upon the death of a spouse, where there is no successor holder, the money cannot simply be transferred from the original holder to the TFSA of a spouse. It must be shown as being withdrawn from the original account and then showing as a contribution into the account of the beneficiary. Marriage transfer in and out fields should not be completed when a direct qualifying transfer has occurred and there is no breakdown of marriage. On the next two slides are examples of a transfer out and transfer in situation. Moving on to slide 12.

SLIDE 12

Qualifying direct transfer out: On a direct qualifying transfer from one tax-free savings account to another tax-free savings account within the same or different financial institution, owned by the same client, the bank that is transferring the money out does not show the transfer as a withdrawal. If you look at the slide indicated, you will see that the withdrawal, we have no amount in it. We should see the account as closed if all of the money has been removed and a zero dollar Fair Market Value at the end of the year. The transfer in/transfer out FMV, Fair Market Value, fields should only be completed for direct qualifying transfers due to a breakdown in marriage. Continuing on to slide 13.

SLIDE 13

Qualifying direct transfer, transfer in: On a direct qualifying transfer from one TFSA account to another TFSA account, again, within the same or different financial institution, owned by the same client, the bank that is receiving the money does not show the transfer as a contribution. You will see on this slide that the transaction contribution box is showing zero. The year end Fair Market Value should reflect the transfer in amount. If you look, you will see that there's a dollar figure indicated in the Fair Market Value. Moving on to slide 14.

SLIDE 14

Faxes: Our Tax-Free Savings Account processing unit, as we refer to as the TPU, deals with financial institutions to help them fix their rejects and records which are referred to the TPU. Many F.I.s have requested TPU to send any requests to them by fax instead of telephone contacts. TPU has been doing this, however, many financial institutions are not responding to their faxes that are being submitted.

This causes unnecessary delay for the TPU to assist you, the financial institution, with correcting your records as well as ensuring that the client, your client, has the correct information on file with the Agency. TPU will, at times, send a follow-up fax. Please ensure that these faxes are actioned so we can get the matter cleared up as soon as possible.

Most faxes that are sent by the processing unit are related to cases that are not on your MYBA list. These are requests from your clients to have an incorrect record changed, possibly your client has received a proposed return that indicated they had over-contributed to their TFSA when, in fact, they didn't. After review of the record submitted, TPU has noticed that it was reported incorrectly and is attempting to have you, the Financial Institution, correct the error.

It is very important to action these requests as soon as possible. If the requested action is not corrected, it may mean that your client could possibly face tax implications. A good example of this is a direct transfer that is not reported correctly. Therefore, your client's information shows two contributions which, if the record was completed properly, as previously shown, it would only show one contribution. The result, your client may receive a proposed Tax-Free Savings Account return from the Canada Revenue Agency indicating that they had made excess contributions and may, in fact, be subject to a tax.

SLIDE 15

Moving on to slide number 15, common errors: The common errors that we have been noticing over the past year or two are clients used their TFSA like a bank account, put in a contribution, withdrew some money, put in another contribution, withdrew additional amounts, but their balance never exceeded their contribution room limit for 2010.

This can't be, because a good example of this would be if you put in $5,000 in January, took out $2,000 in April, put back another $2,000 in July, this, in fact, would mean that your client has contributed $7,000 to their Tax-Free Savings Account and if their contribution room maximum is only $5,000, they have now exceeded this by $2,000 and will be subject to the 1% tax.

Some clients were not aware of the rules surrounding a direct transfer between financial institutions. Transfers, as I mentioned earlier, must be done directly between financial institutions. Your clients cannot take the money out themselves and go across the street to another institution and open up another Tax-Free Savings Account without incurring possible tax implications.

Clients thought they could open up TFSAs at different financial institutions and contribute their total contribution room with each financial institution meaning they go to bank a, b and c. Their contribution room limit is $5,000. They've opened up a $5,000 Tax-Free Savings Account in each institution. This, as I'm sure you are aware, cannot happen. If their room limit, the maximum is only $5,000, they can only open up a total of $5,000 between all the institutions.

Your client can have multiple TFSAs but again, make sure they do not put in more than their maximum amount. Your client cannot contribute more than their TFSA contribution room in any given year. All withdrawals from the account that they do make in the current year will be added to their contribution room in the following year. It's very important to continue to emphasize and to explain that withdrawals only re-establish room at the beginning of the following year.

SLIDE 16

Moving on to our last slide, slide 16: Important References: The following are some of the reference sources which provide extensive information. We have, of course, our website which is indicated to you on this slide. We also have, as I previously mentioned early on in the presentation, Guide RC4477, the Tax -Free Savings Account (TFSA) - Guide for Issuers. This is very important, for you, the issuer, to ensure you are following the proper procedures. We keep updating this on an ongoing basis and we try to improve it the best we can. Okay. We're going to take another break for a few minutes now and my colleague, René, will be back with a few questions and we'll be back in a couple of minutes. Thank you.

Welcome back. We have been receiving quite a number of questions from you and it's greatly appreciated. There are, however, a few questions which we are going to have to do some research on and we will get back to you within the next week with the answers. I'm going to pass you back again to my colleague, René, who has some more questions. René.

Thanks, Rick. Our next question comes in from Fritz. Fritz asks, "We continue to have challenges in resolving our 2009 reject transactions. Will the CRA provide some guidance to Financial Institutions to expedite the process?"

Well Fritz, the Tax-Free Savings Account Processing Unit can assist you with your outstanding rejects. However, due to confidentiality, we are unable to provide certain types of information.

Our next question comes in from Nancy. Nancy asks, "Hi. Slide four duplicates, can you explain?"

A duplicate would be a situation where you filed an original slip and then sent in an amendment with no changes. This will create a duplicate.

Gillian asks, "When should the form RC240 be submitted by the beneficiary?"

The RC240 is required to be submitted within 30 days from the date that the contribution is made to the survivor's TFSA.

Fritz asks, "Can CRA please clarify the 30-day period for filing amendments from the date of rejection which is included in email correspondence when a financial institution is notified of rejected files?"

Fritz, the 30-day period begins once the reject appears on your MYBA list.

Robert asks, "If we are unable to resolve an outstanding error code for an account and it is decided that we will have to deregister the account, that CRA would be unable to accept it as a valid election, do we need to send a cancelled record for each year that we have filed slips?"

Robert, yes you would. If more than one year has been filed, the contract can be cancelled only by cancelling each year filed starting with the most current and working backwards to the year of election. Once the cancel for the most recently filed year has been accepted, you can then submit the cancel for the previous year.

Megan asks, "If we filed a slip in 2009 which rejected for date of birth and by the time we were ready to file the slip for 2010, we received the correct date of birth and filed the 2010 record correctly, would it be necessary to still submit an amendment for the 2009 record or would the new information submitted on the current record result in a 2009 slip being automatically accepted?"

Megan, you would be required to file an amended slip for 2009 record in order to get the election established. Once your amendment is accepted, your 2010 slip will also get processed.

Our next question asks, "If the surname changes during the year on an account that has been accepted by CRA, will we be reporting the new investor, or client's name, on the file the following year as this will be the account holder at that time? Our question is, what constitutes a non-financial change which would generate an amendment for reporting purposes?"

The answer to that is, a change to the date of birth or date of death could affect room for your clients, or have other implications for their TFSAs so we would need to have amendments filed in these situations. A surname or address change would not affect anything on an already accepted record and therefore, would not require the filing of an amendment.

Matt asks, "With respect to the faxes from the TPU, should we be calling to advise submission numbers where an account in question was corrected, or can we just continue to file amendments to correct them and once the amendment is received, the contract will no longer appear on TPU's list of accounts to be faxed on?"

Matt, once you've sent an amendment which was requested by fax from the TPU, you will not need to do any further action. The TPU will be able to verify the amendment once it is received by CRA.

That's it for our questions. I'll now pass it back to Rick.

Thanks René. We have three additional questions that we thought we should get answered. The first question comes from David. David asks, "Not sure if this has come up already, but when will the referral list become available to the financial institutions so that they are not under the impression that the record passed and not rejected?"

David, any records that are referred to the processing unit, our TPU, will appear on your reject list as of February 2012.

Oliver asks, "If a client has $15,000 in their Tax-Free Savings Account, that TFSA made a substantial gain, let's say 50%, if the client withdraws all that, how much is able for re-contribution for the next year for this client?"

Oliver, amounts withdrawn from a TFSA in a year are added back to the individual's TFSA contribution room at the beginning of the next year. In your example, if the person withdrew $7,500 in 2011, that amount would be added to their TFSA contribution room as of January 1, 2012.

Oliver again asks, "Some financial institutions are using a T2033, some are using a letter of direction. Will CRA make known only one type of transfer from either T2033 or other in the future to ensure the ease of transfer?"

Oliver, for the Canada Revenue Agency, there is no prescribed form to be completed for direct transfers of TFSAs. There are currently no plans either to have a prescribed form developed.

This concludes the Webinar presentation. I would like to take this opportunity to thank you, the financial institution, for participating with us. I hope you have found it worthwhile and have learned something new. At the Canada Revenue Agency, we put a lot of emphasis on improving our services and we also value your input. Have a good day.

Transcript of video - Tax-Free Savings Account (TFSA)

MIKE
So how'd you get this money?

JIM
Investment came through. I'm really excited.

MIKE
Really, investment, eh? GICs? Bond markets?

JIM
Uhh... "Scratch and Win", actually. But it's all money in the bank!

MIKE
Nice. Well if you're really serious about investing, man, you should really look into a Tax-Free savings account.

JIM
Well, that's what I just said. I'm putting it in the bank. A savings account.

MIKE
Jim, a "Tax-Free Savings Account." A TFSA.

JIM
What's the difference?

MIKE
In a TFSA, you've a range of investments you can use, like listed securities, GICs, or mutual funds.

MIKE
Alright, don't worry about that right now Jim, a financial advisor can help you out with that. The point is, any money you make on this account, deposits or interest, are completely tax-free. And you can withdraw your money at any time, and that withdrawal is actually added back to your room the following year.

JIM
Added to my room the next year? Well, what does that mean?

MIKE
TFSAs have fixed contribution limits. That's how they do it. So you have a five thousand dollar annual limit that you can invest. Plus, any withdrawals you made the year before, any amount, you can re-contribute that following year. You still with me? Finally, if you didn't use all your room last year, that's available to you as well.

JIM
Okay, just give me a second to process this. So once I hit my five thousand dollar limit, I'm done?

MIKE
That depends...

JIM
Depends?

MIKE
Hold on Jim.

JIM
What are you doing man?

MIKE
Two years ago I invested five thousand in my TFSA. Last year, I invested thirty five hundred dollars. So, this year I've got my five thousand dollar limit, plus the unused portion of last year. Which is... Fifteen hundred dollars.

MIKE
So I've got my five thousand, plus, my fifteen hundred. Plus, I had to take out two thousand dollars last year for car repairs, which I can add back to my room this year. That's my two thousand dollars, which gives me...

JIM
Eight thousand five hundred dollars.

MIKE
Exactly. And the best thing about this is that, any money you make on a TSFA, through dividends, capital gains, or interest, completely tax-free.

MIKE
Jimbo, you can't go wrong.

JIM
I think I'd better get moving.

MIKE
It's a good idea buddy. And this time, invest early and wisely.

JIM
Yeah. Also, I don't want to see them get back to you, after you messed up their sign like that.

MIKE
Artist.

For more information about the Tax-Free Savings Account, go to www.cra-arc.gc.ca/tfsa