Gekas v. Canada – CRA Is Forced to Overturn TFSA Over-Contribution Penalties

Section 207.02[1] imposes a tax on over-contributions to an individual’s tax-free savings account (TFSA) of 1 percent each month of the individual’s highest excess TFSA amount that month.  Section 207.03 imposes a similar tax on contributions by non-residents.


Section 207.06(1) provides the Canada Revenue Agency (CRA) with the discretion to waive or cancel the taxes imposed under sections 207.02 and 207.03 in certain circumstances.


It is the CRA’s policy to send a warning letter to a first-time over-contributor.  If the excess amount is not removed, the CRA will assess the tax.  Repeat over-contributors will be assessed without warning.[2]  The CRA is aggressive in imposing TFSA over-contribution taxes.


The recent case of Gekas v Canada (Attorney General)[3] (“Gekas”) illustrates the CRA’s aggressiveness in imposing over-contribution taxes and the willingness of the Federal Court to intervene.


In 2016, George Gekas had a TFSA contribution limit of $10,045.18.  In early 2016, he contributed $10,000 to his TFSA.  Ten days later he contacted his financial institution and inquired whether the contribution had been processed.  The clerk Mr. Gekas spoke to failed to see that a colleague had already processed the contribution and re-made the contribution, which resulted in an over-contribution of $10,000.


Several months later, Mr. Gekas was advised by his financial institution to split his deposits between two separate entities owned by the financial institution to benefit from deposit insurance.  The applicant followed the advice and gave instructions to split his accounts.  His instructions were mistaken for an order to contribute an additional $10,000 to his TFSA.  Therefore, in 2016, Mr. Gekas had contributed $30,000 to his TFSA ($20,000 in excess of his limit).


Mr. Gekas requested relief from the tax, which the CRA denied.  The CRA denied the request as Mr. Gekas was a repeat over-contributor (Mr. Gekas had over-contributed in 2014, the tax on which was cancelled after the CRA agreed that the basis for the excess contribution in that year was due to a transfer between financial institutions).


The Federal Court ruled in Mr. Gekas’ favour.  The over-contributions arose due to miscommunications with his financial institution and were outside his control and that he had over-contributed in 2014 is not connected to whether relief should be granted in 2016.  Mr. Gekas was not able to prevent mistakes made by others (ie, his financial institution).


There is limited case law concerning the CRA’s discretion under subsection 207.06(1) (in Gekas, the court looked to case law concerning over-contributions to RRSPs).  This case is important because it illustrates that the CRA is aggressive in the application of over-contribution taxes and that the Federal Court is willing to intervene when the CRA fails to exercise its discretion reasonably.


[1] Income Tax Act, RSC 1985, c. 1 (5th Supp.).  All statutory references are to the Income Tax Act unless otherwise noted.

[2] See CRA Views, 2015-0599851I7, “TFSA Arbitrary Assessment.”

[3] 2019 FC 1031.