Importance of TFSA contribution rules
“I think the majority of problems that people run into with TFSAs is a misunderstanding of the contribution rules. So the generals as we all know as you can put in $5,500 a year, there's a cumulative total over around $52,000. If you over contribute to a TFSA the penalty is 1 percent per month. And I think that is where most of the 75 million dollars of penalties have come from because effectively if you put money in a TFSA at institution A then you withdraw it and walk across the street and put it into a TFSA with Institution B. That is a withdrawal and a re-contribution in the same year that could give rise to over contribution tax because it wasn't done via a direct transfer. If you want to move your TFSA from Institution A to B you must do it via a direct transfer which is not recorded as a withdrawal and a contribution because the rules for a TFSA say, that any amount withdrawn from a TFSA can be re-contributed including all the income and growth, beginning the following calendar year. So if you do it the same year you could be caught. And that's why it's important that if you are transferring between one institution and another, it's done as a direct transfer.”