TFSA and taxation

I finally got around to finishing my investigating the possible taxation of a TFSA. There are no grey areas in this registered account setup...yet.

An excerpt from the applicable page on the CRA website,

"All amounts in the account are not taxable, except in the following cases:
....
If property that is considered to be a prohibited investment or a non-qualified investment is acquired, or if property held in the account becomes such,..."

That severely abridged but the other cases have to do with death, excess contributions, non-residents, closing the TFSA...I have no concerns about these. Here is the link for the complete page so you can read it yourself, Taxation of a TFSA


To expand on "prohibited investments" and "non-qualified investments" for a moment.


Prohibited investments include non-arms length stuff and loans to yourself.


Non-qualified investments include property that is not a qualified investment for the trust...if your broker let's you buy it, it is qualified as they are administering the trust part.


Investment vehicles that are allowed in a TFSA are the same as allowed in an RRSP, here is the link to the CRA page referring to this, Types of Investments Allowed.


From the self directed RRSP page this little blurb is useful to know, "You do not need to report any transactions for items held in your RRSP.". This basically allows any kind of transactions as long as the transaction is based on a qualified investment, the bold was my emphasis. Timeframe is not a factor. Questrade is very clear that they do not enforce any American rules about pattern daytrading, a month, a week, a day or a minute are the same to them. I might suspect that other brokers may enforce these, high minimum balances, even push settle dates for buying power and in their TFSAs those same rules would apply.

Another page from the CRA site, an Income Tax Interpretation Bulletin that has some pertinent information and clarifies a number of issues.

More reading can be found in the actual Income Tax Act itself, this from the Department of Justice site.

I mentioned timeframe. Nowhere is a timeframe mentioned as a restriction in any registered plans, or even any kind of factor. In a regular non-registered account, timeframe is a factor in determining if a gain is of a capital nature or not as transactions involving "identical properties" from the Captial Gains 2008 Guide. See Page 35 under "Superficial Loss".

What this all boils down to is that if timeframe is not a factor and a stock traded is a qualified property under the plan then there shall be no tax implications on any gains, whether capital, interest, dividend or otherwise in nature.

Happy TFSA trading for any that are doing or planning to do so.

I suppose I should put this bit in...I am not a tax specialist nor do I have any qualifications to advise any one their particular tax situation. Please consult your own knowledgeable source before making any decisions that may affect your tax profile. If nothing else this entry can at least point you in the direction of doing your own research. Everyone should know what they are dealing with without having to rely solely on anyone else's opinion or interpretation.

Jeff.