TFSA Questions And Answers

by Tax Guy - Burlington Accountant on January 30, 2011 Print This Post Print This Post

Who is Eligible to Open a TFSA?

Any individual (other than a trust) who is a resident of Canada and is the age of majority, who has a valid SIN number is eligible to open a TFSA account.

What are the TFSA Contribution Limits?

Starting in 2009, individuals will receive $5,000 of TFSA contribution room each year. The $5000.00 limit will be indexed to inflation and the annual additions to contribution room will be rounded to the nearest $500.00.

Unused contribution room is carried forward to future years and there is no limit on the number of years that unused contribution room can be carried forward.

Any amounts withdrawn from an individual’s TFSA in a year will be added to the individual’s contribution room for the following year.

Excess TFSA contributions will be subject to a tax of one percent per month.

Treatment of TFSA Income for Tax and Income Purposes

Since contributions are made from after tax income, they are not tax deductible and amounts withdrawn from the TFSA will not be taxed upon removal from the account. Capital gains and other investment income earned will not be taxed.

What Are The Attribution Rules For TFSA Accounts?

An individual’s spouse can contribute to their TFSA, however, the individual would need to have contribution room available and income earned on that property is income of the individual.

Non-Residents

If an individual becomes a Non-Resident they will be allowed to maintain their TFSA, benefiting from the tax fee investment income and withdrawals. However, they will not be allowed to contribute to the account while they are a Non-Resident and contribution room will not accrue for any year throughout which the individual is a Non-Resident.

Reporting

The Canada Revenue Agency (CRA) will determine TFSA contribution room for each eligible individual who files an annual income tax return. Individuals who have not filed returns for prior years (because, for example, there was no tax payable) will be permitted to establish their entitlement to contribution room by filing a return for those years or by other means acceptable to the CRA.

To provide the CRA with adequate means to determine contribution room and monitor compliance, TFSA issuers will be required to file annual information returns. The information required to be reported is expected to include, for example, the value of an account’s assets at the beginning and end of the year and the amount of contributions, withdrawals and transfers made in the year.

For more Information see Questions about the TFSA.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 27 comments }

Kristi Robinson December 14, 2009 at 12:13 pm

Question: If I make a $5000 contribution to my TFSA in January 2010 and then move out of the country in March 2010, will there be any penalties? Am I allowed to make a full contribution at the start of the year even if I will not reside in the country for the complete year?

Tax Guy December 15, 2009 at 2:52 pm

@ Kristi – Your TFSA contribution room is based on residency. Assuming you were age 18 at the time you made the contribution, then there is no issue. If you become a non resident you cam leave the funds in the TFSA to grow tax-deferred (in Canada) but will no longer be able to make contributions.

Be aware that the TFSA may not be tax-free in the country you are moving to.

Howie January 27, 2010 at 11:54 am

I would like to use funds in my TFSA to start a qualified smal business with 9 other investors so we don’t exceed the 10% ownership limit each and then be able to pass the proifts of the company to the shareholders tax free. Does anyone know where I can get some additional information on how to proceed with that or if there is a company out there that provides the services to set up such a company.

Tax Guy January 28, 2010 at 6:21 am

@Howie: This type of ownership seems to be permitted in the Act provided the shareholder does not have significant influence. Significant influence is considered to be ownership in excess of 10% by the CRA.

I briefly discussed your question with Phi Hogan and he mentioned that you will need to find and administrator to set up the account for the shareholders. This may be handled by a lawyer or potentially an accountant.

My concern is the administrative cost and willingness of your TFSA provider of holding the shares. The administrator is going to have initial and possibly annual fees. The TFSA account provider may or may not be willing to hold your shares on their book.

Sandy April 11, 2010 at 1:18 pm

Dear Tax Guy,
Re: HRTC and eligible expenses.
I know doors are eligible but what about door handles, cubboard knobs and pulls?
Paint is but what about paint supplies?
Are any of the following items eligible: light bulbs, wall plates, dimmer knobs, new child proof receptacles, wire stripper, cleaning supplies(eg. gloves, shampoo for carpet cleaning machine)/products for reno? Gardening tools, burlap, closet organizers, storage containers used for reno, green tape, sand paper, screw, bolts, floor stain and all supplies needed for that project, shop vac?

Is there any exception to the rule when it comes to tools and rentals? What about renting and buying floor sanders for resurfacing hardwood floors?

thanks

Sandy April 11, 2010 at 1:24 pm

Tax Guy,
One more question…

How do I go about submitting home renovations for tax credit for 2010? Will the same expenses be eligible, as the 2009 HRTC?
Can you direct me to get more information?

thanks

Tax Guy April 12, 2010 at 9:33 am

Sandy,
All HRTC eligible expenses are claimed on your 2009 return.

DIY related expenses are permitted. Please have a read through the following CRA link: http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/hmwnr/hrtc/lgbl-xpns-eng.html

It will answer your questions.

Ross January 21, 2011 at 1:03 pm

If I contribute a stock “in kind” that has a capital gain (or loss), is the stock deemed sold at that point, thereby triggering reporting the gain/loss? (and then future gains/losses within the TFSA not reported)

Tax Guy January 23, 2011 at 7:00 pm

The transfer to a TFSA would be considered a deemed sale at fair market value. Any capital gains would be taxable any capital losses would be fully denied.

CDC January 30, 2011 at 12:55 pm

Here is my situation.
2009 – Contributed $5000 to TSFA and purchased a stock which today is worth $400.
2010 – Contributed $5000 to TSFA and purchased a stock which today is worth $4800.
2011 – Have not contributed anything yet.

So, as you can see the $10000 that I put in my TSFA in 2009 and 2010 did not do well and is only worth $5200 today. If I sell the stock and withdraw the $5200 which would put my TSFA at $0 balance, will it free up the original $10000 worth of room which would allow me to contribute $15000 in 2011, or will it only free up $5200 worth and I will only be able to contribute $10200 in 2011? Also, you cannot claim any capital losses taken in a TSFA right?

Thanks,

Tax Guy January 31, 2011 at 11:04 am

CDC,
If you withdraw $5,200 this year, it will only add back $5,200 to your contribution room. This will be added back next year.

You will only be able to contribute $5,000 this year.

The TFSA is tax-free. There are no tax implications whatsoever…this includes losses. You can’t claim them.

chris February 18, 2011 at 3:13 pm

Hi Tax Guy,

Thank you for answering these questions.
I contributed (5000(shares)+$100(fees)) $5100 to my TFSA in November 2009. How and when do I pay the 1% taxes on this excess of $100 from 16 months ago?

Thanks again,
Chris

Tax Guy February 18, 2011 at 3:28 pm

You should have received a letter from the CRA. You can look at this page: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/txtn/rpt-eng.html

Ben March 9, 2011 at 1:11 pm

Hi there, my question is… How did I sign up for this TFSA? I do not remember registering for this at all.. do all Canadians have one of these accounts? Where does this annual $5000.oo come from?

David February 8, 2012 at 10:51 am

If I pull out of an unregistered investment to load up a TFSA can I claim the a capital loss? or is this considered moving from one investment to another?

Rak March 1, 2012 at 11:05 pm

Hi Tax Guy,

My 2010 assessment had a section saying I have $5000 of unused room in my TFSA. However, I have contributed $5000 every year into TFSA. How do I find out where this unused room comes from? Or could it be that the TFSA provider has not reported a contribution (which I would doubt, since it is ING Direct)?

Thanks,
Rak.

Tax Guy March 2, 2012 at 2:23 pm

When the Notice of Assessment was made, you likely had not made the TFSA contribution.

You should call the CRA.

Carm March 24, 2012 at 2:32 pm

Hey tax guy …..can I transfer funds from my registered account to my TFSA account and then pull it out?

Tax Guy March 24, 2012 at 6:24 pm

Not tax free!

chris December 2, 2012 at 1:17 pm

Dear Tax guy,
Someones 2011 TFSA is already maxed at $20K. Under the current rules any future deposit in 2011 will be liable to a tax of 1% on your highest excess TFSA amount in that month.

Hypothetical question to the above situation:
Lets says this person contributes an excess of $100,000 to his TFSA for 1x month and takes his money out at the end of the month. However, this person makes 11% in the stock market and pays his excess 1% tax… So does he get to walk away with $10,000 of tax free money?

Tax Guy - Burlington Accountant December 2, 2012 at 9:37 pm

The TFSA limit in 2011 was $15,000. New rules introduced will impose a 100% tax on any advantage received from abusing the contribution limits.

Chris December 6, 2012 at 7:22 pm

Let’s say your you contributed $20K to your TFSA in early 2012 and it grew to $40K by the end of Dec31 2012. Can you still contribute another $5.5K in Jan 2013 so that your total contribution is maxed at $25.5K and you will have a balance of $45.5K?

Burlington Accountant December 7, 2012 at 10:18 am

Chris,
You might want to take a read through this article: http://blog.taxresource.ca/understanding-tfsa-contribution-room/

It explains the TFSA limits

Freddie February 1, 2013 at 10:50 pm

If you withdraw funds from a TFSA that was funded by a gift from your spouse, and then you invest those funds in an income property, does the income from the property attribute back to the spouse that gave you the funds for the TFSA. I know, no atttribution while funds are in the TFSA but what happens when they are removed….do normal attribution rules apply or do the funds now belong to the TFSA account holder and thus not attribution applies?

It’s a tough one.

Tax Guy - Burlington Accountant February 1, 2013 at 11:48 pm

This article was originally drafted in 2008 before the TFSA came into effect. At that time the statement from Finance was that there was to be no attribution. The income attribution while in the TFSA does not mke logical sense since the TFSA itself is not taxable and how can income that is not taxable be attributed? The attribution rules apply once the funds are withdrawn unless they were part of a spousal loan arrangement. I have removed the paragraph as it is no longer valid.

Freddie February 1, 2013 at 11:54 pm

Have you ever got a ruling from CRA on this? When I called they told me that ” since there are no spousal TFSA’s , any or all withdrawals are the property of the TFSA account holder and thus no attribution if the funds are reinvested”.

I do find that weird given that this is then a way to get around the normal attribution rules if you pass it through the TFSA.

Freddie February 6, 2013 at 4:41 pm

So I got a ruling from CRA and sent me a text version of the document found on this website:

http://www.taxmentor.ca/av/2010-0354491E5.pdf

It spells it all out.

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