As someone who has worked in financial services practically all my working life, and been life and health insurance licenced for over thirty years, and approaching twenty-nine years for investment funds, I can say that I offer "cradle to the grave" financial services advice to my clients and their families. Many people, perhaps I should say most people, don't fully understand what advisors do
for and on behalf of our clients and their families.
In this first "The value of sound advice" post, I'll share this situation:
PLEASE NOTE: The name and some of the circumstances were changed to protect the privacy and identity of the client.
Susan is a lovely lady from Great Britain, a widow, who have lived in Canada since her early twenties. She was referred to my by a friend of hers and fellow dance enthusiast and became a client in the late 1990's. She returned to her home country to be with family and friends she left behind so many years ago. While she was gone, the Canadian Government introduced the Tax Free Savings Account (TFSA) but you have to be a resident for tax purposes to benefit from this account. After just about a decade back home Susan started missing her Canadian lifestyle and so in 2012 she returned to Canada for good. Susan has her RRIF account and non-registered funds invested through my dealer, and stopped in to catch up during her yearly visit while she lived abroad. Upon returning to Canada Susan quickly re-established her residency status and settled back in to her circle of friends and family here; resettlement included wiring her savings back to the local branch of her bank, one of the "big six".
Knowing that she was not entitled to TFSA contribution for the years she lived abroad, on a recent visit I discussed utilizing the TFSA to reduce the amount of taxable investment income she earned and probed her to find out if she had made any TFSA contributions at the bank. She didn't think so, but from my experience I want to be sure so she promised to looked over her papers and get back to me. She left my office promising to call me with the information. The next day I received a frantic call from Susan. She had just picked up her mail and received a letter from the Canada Revenue Agency and they wanted close to $7,000 more in taxes. She couldn't understand why as she had sent a cheque in for the amount she owed when her 2016 tax return was filed and the cheque was cashed.
I knew immediately what the problem was, but asked her to read the first part of the letter from the CRA. Of course, it was about the TFSA over-contribution which included penalties, interest and also an additional tax due to non-resident status. Susan was beside her self! I asked her to bring all of her papers and statements from the bank so I can help her sort out the problem. It didn't take long before I found the cause of this nightmare. In 2015 she had some Term Deposits matured, and because she didn't have a TFSA at the time, the bank advisor plunked $41,000 in a TFSA without asking these vital questions: From 2009 (the year the TFSA was introduced) to 2015 did you live outside of Canada? If yes, were you considered a "non-resident" for tax purposes? When did you return to Canada, and are you now a full-time resident?
These are costly mistakes, and it made me wonder just how many people, in particular senior citizens, have been burdened with penalties for TFSA over-contributions that far exceed any money they have made in these accounts? In the end, I helped Susan by drafting a letter to the CRA detailing the changes in residency status, providing proof with returning documents and copy of T1 tax return showing declaration of date returned; and also "begging for mercy" in interest charges due to ignorance and age. She is waiting to for a response, fingers and toes crossed.
Stay tuned,
BEVERLEY ALLEN, FLMI
Beverley
Investment Fund Advisor & Life and Health Insurance Advisor
Desjardins Financial Security Investments Inc.
Desjardins Financial Security Independent Network
Ontario Central Region (OCR), GTA West Branch
5070 Dixie Road
Mississauga, On L4W 1C9
#MoneyTalkwithBevAllen #TheValueOfSoundAdvice #TFSA #overcontributionnightmare
