TFSAs: What the CRA isn’t telling advisors

TFSAs: What the CRA isn’t telling advisors

TFSAs: What the CRA isn’t telling advisors By Barb Amsden

The government’s intention for the TFSA was to help Canadians better save for retirement. The debate rages whether advisors should put traditionally safe investments such as GICs into TFSAs or potentially high-growth investments. To push their agenda some firms are now amending the TFSA acronym to TFIA, with the “I” standing for “Investment”.  At least one is super-charging the TFSA to TFTA, with the “T” meaning “Trading”.

Which brings up the subject of trading limits.

H&R Block’s Tax Talk Blog says there are no trading limits in TFSAs.  A 2014 Tax Court of Canada decision took the position that taxpayers could carry on a business – for example, trade frequently and speculatively – in registered plans, namely RRSPs.  The logic the judge used for RRSPs has been extended by some tax practitioners to trading in TFSAs.

However, a knowledgeable tax professional who writes frequently on tax issues believes many investment advisors – and also tax preparers making their living preparing income tax returns – remain unaware of the provisions of an out-of-date CRA interpretation bulletin (issued originally in 1984).  It provides that Canadians who trade in securities as a business (trade frequently, speculatively, and as the full or a large part of their occupation) are to be taxed like dealers.  That is, capital gains and dividends are taxed fully as – and capital losses are deductible against – ordinary business income.

The tax authority’s views disagreeing with the 2014 Tax Court decision were provided in a closed forum for tax experts only, and no CRA alert to taxpayers has been issued.  Small wonder that confusion reigns.  And at least until early last month, CRA staff managing help lines for taxpayers and issuers responded to six calls saying there is no issue with the number of trades in a TFSA; all the CRA is interested in is that there is not an over- or early re-contribution and that investments are qualified.

What to do when the rules may seem as clear as mud for some clients and on which the CRA and some tax professionals seem at odds with each other? 

Financial advisors and their firms should monitor developments from the CRA on trading in TFSAs.  Both should review what they have already provided to or discussed with clients or posted on the subject, and provide caveats or refer clients who may be at risk to their tax professional or the CRA. 

Remember, ignorance of the (tax) law is deemed no protection.

Barb Amsden is a veteran of the financial services industry with more than 25 years’ experience. Most recently she was the managing director of IIAC. A CRM2 expert, she is currently on a sabbatical. Passionate about the issues facing the industry, Amsden looks forward to her next career adventure.