Background
Trista Erin Verbonac opened a Tax-Free Savings Account in 2022 and contributed $50,000 when her available contribution room was calculated at $35,000. She contributed another $38,000 in March 2023. In June 2023, the Canada Revenue Agency sent her an education letter explaining that she had exceeded her contribution room, that excess amounts normally attracted a monthly 1% tax, and that she should withdraw any continuing excess immediately. She acknowledged receiving the letter but made no withdrawal in response and contributed another $7,000 in April 2024.
The Minister initially assessed $4,820 in tax on Verbonac’s 2023 excess contributions, plus a late-filing penalty and interest. After the CRA corrected information concerning her period of residence in the United States, it increased her available contribution room and reassessed the 2023 tax at $2,650. Verbonac withdrew $45,053.10 in January 2025 and sought cancellation of the tax, explaining that she had misunderstood the TFSA rules and believed the available contribution room was based on citizenship and a lifetime limit. The CRA denied relief on first and second review, prompting her application for judicial review of the December 1, 2025 second-review decision.
The Court’s Holding
Justice Aylen dismissed the application, holding that Verbonac had not shown the CRA’s refusal to cancel the tax was unreasonable. Under subsection 207.06(1) of the Income Tax Act, cancellation requires both that the liability resulted from a reasonable error and that the taxpayer removed the excess amount without delay. The CRA reasonably relied on the June 2023 education letter in finding that Verbonac’s 2023 overcontribution was not a reasonable error, particularly because she offered the CRA no explanation for failing to act on that warning.
The CRA also reasonably found that the excess was not removed without delay. Verbonac knew of the 2023 overcontribution no later than the July 16, 2024 assessment but waited approximately six months to withdraw funds—and approximately 18 months after the education letter. Her asserted difficulty accessing her CRA account was not supported by evidence before the decision-maker and did not explain the delay because TFSA withdrawals are made through a financial institution. The Court also rejected her remaining arguments, finding no unexplained reversal concerning the 2023 reassessment and no demonstrated failure to consider her residency history. The application was dismissed without costs.
Key Takeaways
- Relief from tax on excess TFSA contributions under subsection 207.06(1) requires both a reasonable error and removal of the excess without delay.
- The CRA may reasonably treat an education letter as notice that undermines a claim that a later or continuing overcontribution resulted from a reasonable error.
- Evidence not placed before the administrative decision-maker generally cannot establish that the resulting decision was unreasonable on judicial review.
Why It Matters
The decision underscores that taxpayers seeking discretionary relief from TFSA overcontribution tax must act promptly after learning of an excess and must give the CRA evidence explaining both the original mistake and any delay in correcting it. A misunderstanding of the contribution rules may not qualify as reasonable once the taxpayer has received a direct warning from the CRA.
For judicial-review practitioners, the judgment also illustrates the importance of building the evidentiary record during the administrative process. Explanations or supporting material first advanced in court ordinarily cannot be used to fault the decision-maker for failing to consider them.