Over the last few years I have received a number of questions about the Tax Free Savings Account (TFSA). Below is a number of “quick questions” I have answered lately.
Qualified Investments & TFSA
Question: I am being told by my investment broker that because the stock I own is on the CNSX exchange , it is therefore not eligible to transfer “in kind” to a tax free savings account,
Why is the CNSX ineligible?
Note: This e-mail was sent to us January 5, 2009.
Only shares listed on a designated exchange are allowed in a TFSA. The list of designated stock exchanges is listed in the Income Tax Regulations. The legislation that added the TFSA to the Income Tax Act was only approved in late 2008. As a result some of the regulations, policies and procedures around the TFSA will take some time to be implemented.
However, there was a news release January 5th, 2009 from the Minister of Finance announcing the CNSX has been added as a designated stock exchange allowing securities listed on the CNSX to be eligible for registered accounts such as RRSPs and TFSAs.
Click here for the link to the news release.
How Does TFSA Contribution Room Work?
Question: If a person, who turned 18 in 2008, does NOT set up a TFSA now and waits several years before opening a TFSA. Does that person LOSE the benefit of contribution room” for tax years BEFORE (s)he opened a TFSA?
Your TFSA contribution room accumulates from the year in which you turn 18. There is no need to open an account to save the contribution room.
Transfer of Investments To TFSA
Question: If I open a TFSA today, and put nothing into the account for the next 20 years. At this time I decide to sell some stock I have already owned before opening the TFSA, I can draw out $100,000 of stock I just sold through my TFSA tax free?
You do not have to open a TFSA to generate contribution room. You automatically receive $5,000 of room this year and $5,000 each subsequent year (indexed to inflation). In 20 years you would be able to put over $100,000 in to the TFSA.
Shares must be purchased in the TFSA in order to benefit from the tax free growth. In your scenario, when you move the shares to the TFSA the CRA considers you to have sold the shares for their fair market value (FMV) and your TFSA to have bought the shares at FMV. This means you will have a taxable capital gain when you transfer the shares to the TFSA.
In Kind Transfers to TFSA
One question we receive frequently is how to contribute investments from non-registered accounts in kind to the TFSA.
If you contribute investments “in-kind” to a TFSA you are considered to have sold the investment for its fair market value. If there is a capital gain, you will be taxed on the gain. However, if there is a loss the loss is denied and you cannot apply it against capital gains.
Similarly, if you sell your investment and there is a capital loss and then you repurchase the same investment in your TFSA within 30 days of the sale, your loss will be denied and it cannot be used. You can wait 31 days before repurchasing the investment.
Related Articles
- TFSA Questions And Answers
- Understanding TFSA Contribution Room
- TFSA Over Contributions
- The Tax Free Savings Account (TFSA)
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I want to transfer 5K in bonds to my TFSA ‘in-kind’. Will the value of the transfer be the fair market value of the bond, or the fair market value of the bond + interest previously earned? If the latter, why?
Thanks
The transfer is at FMV. Any interest you previously received in the tax year is already taxable income.
If i opened a TFSA acct in 2010 and contributed 4500 for that year, how much can i contribute for 2011? If i contribute 4000 for 2011 and have to withdraw 2000 for some reason, how much contribution room would i have left for 2011?
Jim,
You will have $10,500 for 2011. Jim,
Assuming you were 18 in 2009, you got $5,000 of contribution room for each of 2009, 2010 and 2011. Deduct the $4,500 contribution last year and you are left with $10,500.
To find how withdrawals work see TFSA contribution room.
My contribution limit for 2011 is $10,000
If I was to invest $10,000 into a TFSA and buy some poor shares with it which and i loose $2,000 than if i take the remaining $8,000 out of the TFSA account and close that account. Would be my contribution limit for 2012 be $13,000 given that the yearly increase is still $5,000. Does that mean i loose that $2,000 contribution limit on top of loosing the the $2,000.
Yes. You loose the $2,000.
You loose $2000
Each year I have invested $5000 into my TFSA… I have $20,000 in my TFSA and I invest it in a penny stock… in a short period of time the penny stock does extremely well and I sell it and my TFSA is now valued at $100,000… we have a family emergency and I’m required to withdraw the whole amount ($100,000)… it is a short term problem and the money is returned to me in a couple of months… the following year can I invest another $5000 (eligible amount each year) plus reinvest the $100,000 total that I had in it before for a total of $105,000 or am I only eligible to invest the accumulated amount of $5000 for each year of the five years which would equal $25,000?
Thanks for your help,
Adam
Hi there. See the link under How Does TFSA Contribution Room Work? In the article.
where or what line do I input my TFSA contribution amount?
TFSA contributions are not reported on your tax return.
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