The Minister of Finance issued a press release on Friday about some technical changes to the TFSA in light of some tax planning schemes surrounding the TFSA that have surfaced since January.
1. Deliberate Over Contributions – The general anti-avoidance provisions (GAAR) will apply to deliberate over contributions and prohibited investments. This seems to be in response to those who have over contributed or placed non-qualified investments in a TFSA and accepted the 1% penalty tax in return for larger tax-free returns.
2. Non-Qualified Investments Fully Taxed – Any non-qualified investments held in the TFSA will be included in your regular income. Again, this appears to be in response to limit the tax on these investments to the 1% penalty tax.
3. Limits On Contribution Room – Withdrawals of deliberate over contributions and of non-qualified investments will no longer increase or affect the TFSA contribution room.
4. Asset Swaps Prohibited – This means that swaps of investments between RRSPs & RRIFs and the TFSA will be prohibited. It appears that some taxpayers had been swapping growth assets out of the RRSP and into the TFSA to keep the RRSP value low and thereby lowering the taxable value of the RRSP.
These rules are to take effect on all transactions occurring after Friday October 16, 2009.
You can read the full text of the news release here.