TFSA over-contributions: How would the penalty apply in this scenario?
If my TFSA account is maxed and I want to transfer 5000 shares at .00 on August 2nd, 2011, and I was to sell the shares at .00 on January 3rd, 2012, would I have to pay tax on the gain plus 1% per month or only the 1% penalty?
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First, if your stock is trading at and you transfer the 5000 shares in-kind to your TFSA on August 2, 2011, you are deemed to have disbursed that stock in your (assumed) non-registered account. This may have tax consequences depending on the ACB of the original purchase.
As for your TFSA overcontribution, you will only have to pay the 1% monthly penalty on the value of the overcontribution, i.e. 00. You will pay 1%/month for each month the overcontribution exists, regardless of what the value of the overcontributed assets end up being. Thus, you'll pay a 0 penalty for an overcontribution life of 5 months.
The stock price could go to or [CO], but you'll pay a fixed tax of 0 for the value of the initial overcontribution.
See these articles at the CRA website for more information:Tax payable on excess TFSA amount and Examples - Tax payable on excess TFSA amount.
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