Tax-Free Savings Accounts

From: Canada Revenue Agency

This circular is only available electronically.

¶ 1. This circular explains certain provisions of the Income Tax Act (ITA) that apply to tax-free savings accounts (TFSAs) and outlines the registration requirements of the Canada Revenue Agency (CRA) for issuers of TFSAs. Additional information is available in the publications listed in Part V below.

Note 

This document reflects the provisions of the law in force at the time it was published. The reader should, therefore, take into account any relevant amendments to those provisions or relevant court decisions occurring after this circular’s publication date.

Authority

¶ 2. Section 146.2 of the ITA contains the provisions governing TFSAs. Subsection 207.01(1) of the ITA defines qualified investments for a trust governed by a TFSA and includes the prescribed investments in section 4900 of the Income Tax Regulations. Part XI.01 of the ITA contains the tax rules for an advantage, non-qualified investment, and prohibited investment with respect to a TFSA. The circular does not explain the rules for qualified investments or Part XI.01 taxes with respect to TFSAs. In addition, it does not explain the rules for the death of a TFSA holder. Detailed information on these and other topics can be found in the publications listed in Part V below.

Personal information

¶ 3. Information that we obtain for taxation purposes is strictly confidential. Only the taxpayer or a person the taxpayer or the law authorizes has access to this information. The Privacy Act and the Access to Information Act reinforce this protection.

Part I – What is a TFSA?

¶ 4. As described under subsection 146.2(5) of the ITA, an arrangement becomes a TFSA at the time it is entered into if: 

  1. it is a qualifying arrangement (see ¶ 6); and
  2. the issuer (see ¶ 7) files, in prescribed form and manner, an election with the Minister of National Revenue to register the arrangement as a TFSA under the social insurance number (SIN) of the holder (see ¶ 8). The election must be filed before March of the calendar year following the calendar year the arrangement was entered into.

¶ 5. An arrangement ceases to be a TFSA if any of the following events occurs:

  1. The last holder of the arrangement dies;
  2. The arrangement ceases to be a qualifying arrangement; or
  3. The arrangement is not administered in accordance with the conditions in subsection 146.2(2) of the ITA (see ¶ 13).

Qualifying arrangement

¶ 6. In order for an arrangement to be a qualifying arrangement at any particular time: 

  1. It must be entered into after 2008 between a holder who is at least 18 years of age and an issuer;
  2. It must be:
    1. an arrangement in trust with an issuer that is a Canadian trust company (see ¶ 7(a));
    2. an annuity contract with an issuer that is a licensed annuities provider (see ¶ 7(b)); or
    3. a deposit with an issuer that is a depositary (see ¶ 7(c));
  3. it must provide for contributions to be made by the holder to the issuer to be used, invested, or applied for the purpose of making distributions under the arrangement to the holder;
  4. The issuer and the holder agree, at the time the arrangement is entered into, that the issuer will file with the Minister an election to register the arrangement as a TFSA; and
  5. At all times since the arrangement was entered into, it complies with the conditions in subsection 146.2(2) of the ITA (see ¶ 13).

Issuer

¶ 7. The following entities can become a TFSA issuer: 

  1. a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee (a Canadian trust company);
  2. a company licensed to carry on an annuities business in Canada (such as an insurance company);
  3. a depositary:
    1. a person who is, or eligible to become, a member of Payments Canada; or
    2. a credit union that is a shareholder or member of a corporate body referred to as a “central” for purposes of the Canadian Payments Act.

Holder

¶ 8. Holder is the only term the ITA recognizes to describe the individual who enters into an arrangement with an issuer. After the death of the individual, the surviving spouse or common-law partner (here referred to as the survivor) can become the successor holder if the survivor acquires all of the individual’s rights as holder of the arrangement including the unconditional right to revoke any beneficiary designation made (or similar direction imposed) by the individual under the arrangement or relating to property held in connection with the arrangement. After the death of the survivor, a new spouse or common-law partner of the survivor can become the successor holder provided the aforementioned conditions to become a successor holder are met.

Part II – Specimen approval and TFSA registration

Application package approval

¶ 9. Before filing an election to register a qualifying arrangement as a TFSA, the issuer must have a TFSA identification number. To get this number, the issuer must complete Form RC236, Application for a Tax-Free Savings Account Identification Number, and send it as part of their application package to the CRA’s Registered Plans Directorate (Directorate). The Directorate will review the package to make sure that it is complete and complies with CRA and ITA requirements. If Form RC236 is not complete or a required document is missing, we will reject the package and will not assign a TFSA identification number. The issuer can only file an election to register a qualifying arrangement as a TFSA after:

  1. receiving a TFSA identification number; and
  2. receiving our approval of their application package.

We may ask the issuer to send us the commercial copy of the specimen to ensure industry compliance.

¶ 10. The TFSA identification number is not a registration number since the specimen itself is not registered. In addition, the word registered cannot be used to refer to the specimen on the application form or other specimen documents. Only the arrangements the issuer enters into with each holder are registered as TFSAs. The issuer must use the TFSA identification number when referring to the specimen or a TFSA conforming to the specimen. The holder’s SIN and contract number (i.e. account, certificate, or other identifying number assigned to the arrangement) must be used when referring to a particular TFSA.

Specimen documents

¶ 11. The following documents make up a specimen:

  1. For a trust – the holder application form and the declaration of trust that sets out the terms and conditions of the qualifying arrangement.
  2. For an insurer – the holder application form, the policy (including all riders and schedules), and the TFSA endorsement that sets out the terms and conditions of the qualifying arrangement.
  3. For a depositary – the holder application form and the terms and conditions of the qualifying arrangement.

¶ 12. For an insurer’s specimen, the endorsement must incorporate all necessary provisions of subsection 146.2(2) of the ITA not included in the policy and must override all provisions of the policy which are inconsistent with the endorsement. An explicit statement to this effect is required. If the TFSA provisions are self-contained within the policy, an endorsement is not required. For a depositary’s specimen, the arrangement must provide that contributions will be kept on deposit (that is, they cannot be self-directed). 

Statutory conditions

¶ 13. The arrangement must meet the definition of qualifying arrangement in subsection 146.2(1) of the ITA (see ¶ 6). The specimen must stipulate that an arrangement is a qualifying arrangement only if the holder is at least 18 years of age when it is entered into. In addition, the specimen must comply with subsection 146.2(2) of the ITA by including the following provisions:

  1. 146.2(2)(a) – The arrangement requires that it be maintained for the exclusive benefit of the holder.
  2. 146.2(2)(b) – The arrangement prohibits, while there is a holder of the arrangement, anyone that is neither the holder nor the issuer of the arrangement from having rights under the arrangement relating to the amount and timing of distributions and the investing of funds.
  3. 146.2(2)(c) – The arrangement prohibits anyone other than the holder from making contributions under the arrangement.
  4. 146.2(2)(d) – The arrangement permits distributions to be made to reduce the amount of tax otherwise payable by the holder under section 207.02 or 207.03 of the ITA.
  5. 146.2(2)(e) – The arrangement provides that, at the direction of the holder, the issuer shall transfer all or any part of the property held in connection with the arrangement (or an amount equal to its value) to another TFSA of the holder.
  6. 146.2(2)(f) – If the arrangement is an arrangement in trust, it prohibits the trust from borrowing money or other property for the purposes of the arrangement.
  7. 146.2(2)(g) – The arrangement complies with prescribed conditions. (There were no prescribed conditions at the date of this circular.)

¶ 14. Every effort should be made by the issuer to use in their application package the definitions found in the ITA, as applicable. If it is necessary to substitute other terms for those definitions, the substituted terms must be defined in accordance with the definitions in the ITA. All terms must be used uniformly throughout the documents.

Application form

¶ 15. The application form must include a space for:

  1. the number assigned to the qualifying arrangement (the contract, account, or identifying number);
  2. the holder’s name, address, date of birth, and SIN;
  3. the date on which the holder enters into the arrangement with the issuer;
  4. the holder’s signature (see below);
  5. the issuer’s name and address; and
  6. the issuer’s signature.

¶ 16. The signature of the holder confirms that the holder is asking the issuer to file an election with the Minister of National Revenue to register the qualifying arrangement as a TFSA under section 146.2 of the ITA. If an organization (see ¶ 25) sponsors the specimen, the application form must include a clause in which the holder authorizes the sponsor to act as the holder’s agent and for what purpose.

¶ 17. The issuer may also want to include on the application form:

  1. a statement that the holder must notify the issuer when they are not resident in Canada;
  2. a warning to the holder that they may be liable for certain tax consequences arising in connection with a non-compliant qualifying arrangement; and
  3. a space where the holder can indicate whether, in the event of their death, the holder’s survivor (with space for the spouse’s or common-law partner’s name and social insurance number) acquires all of their rights as the holder of the arrangement, and the unconditional right to revoke any beneficiary designation made, or similar direction imposed, by the individual under the arrangement or relating to property held in connection with the arrangement.

¶ 18. The Directorate will not accept a multi-purpose TFSA holder application form that accommodates other products such as retirement savings plans (RSPs) or retirement income funds (RIFs).

¶ 19. The following changes to the application form do not require our approval before the form is printed or marketed (also see ¶ 29):

  1. changing the logo of the fund management company or investment dealer;
  2. changing the address, telephone number or fax number of the fund management company or investment dealer, or adding an electronic mail address to the application;
  3. adding or deleting the name of a fund or investment;
  4. adding or deleting the commission or fee options available to the applicant;
  5. adding, amending or deleting the particulars of an automatic re-alignment program;
  6. adding, amending or deleting the particulars of a pre-authorized chequing plan;
  7. changing the information required in respect of a distributor or sales representative;
  8. adding, amending or deleting the banking information particulars on the application; and
  9. adding, amending or deleting the particulars of a provision in respect of automatic switches between mutual funds.

Online, electronic, or telephone applications

¶ 20. Issuers have various options for obtaining information from potential holders. When issuers gather client information using an online, electronic, or telephone (hereafter referred to as paperless) application process, they must meet the following requirements:

  1. The information to be captured on the paperless application must be the same as what is required on the paper application form of an approved specimen. As long as the information on the approved application form is captured on the paperless version, the paperless application does not need to be submitted for our review.
  2. If the issuer does not have an approved specimen and wishes to capture information using a paperless application process then, in addition to the required specimen documents (declaration of trust; terms and conditions; or policy and endorsement (as applicable)), a hard copy of the screen shots, electronic form(s), or telephone script must be submitted for our review and approval. In this situation, the regular specimen approval process will be followed.
  3. The holder must be provided with the following:
    1. a copy of the declaration of trust, terms and conditions, or policy and endorsement (as applicable) that is consistent with the approved specimen;
    2. a contract number; and
    3. a confirmation of the date and time of application.
  4. The issuer will consider the completed application as a request to file an election to register the qualifying arrangement as a TFSA once the holder has provided consent. The issuer is responsible for determining what constitutes consent (such as the electronic or digital signature, or telephone acceptance).
  5. The issuer’s records must abide by the retention requirements found in the latest versions of IC78-10, Books and Records Retention/Destruction, and IC05-1, Electronic Record Keeping.

Registering a TFSA

¶ 21.  To register a qualifying arrangement as a TFSA, an issuer must submit, in prescribed form and manner, an election with the Minister of National Revenue to register the arrangement as a TFSA under the SIN of the holder. The election must be filed before March of the calendar year following the calendar year the arrangement was entered into. For details on the how to file an election to register an arrangement as a TFSA, consult the Guide RC4477, Tax-Free Savings Account (TFSA) Guide for Issuers.

Contact information

¶ 22. Send the application package for approval to one of the following addresses:

If using regular mail, send it to:

Registered Plans Directorate, Canada Revenue Agency, Ottawa ON  K1A 0L5

If using a courier service, send it to:

Information Holdings Operation Section – Registered Plans
Registered Plans Directorate, Canada Revenue Agency, 875 Heron Road A-200, Ottawa ON  K1A 1A2

Note 

Information related to particular TFSAs is sensitive information and must be handled securely

Part III – TFSA administration

Agency agreement

¶ 23.  An issuer may have an agreement with an agent, such as an investment broker, that allows the agent to provide certain administrative or investment functions. It is not necessary to submit the agency agreement with the specimen. If an agent is appointed as custodian of the securities, and the securities are registered in the agent’s name, then the agency agreement, the identity of the trustee, and the contract or identification number of the TFSA that governs the trust should be clearly disclosed in the security registration form.

¶ 24. The specimen must state that the ultimate responsibility for administering each TFSA under that specimen remains with the issuer. The agent may not make changes to the approved specimen. The issuer must deal directly with the CRA concerning all TFSA matters and reporting requirements unless we have written authorization to deal with another person.

Group arrangements

¶ 25. An association, employer, or other organization (hereafter referred to as an organization) can sponsor a group TFSA. A group TFSA is a collection of individual TFSAs for the employees or members of the applicable organization. Individuals belonging to the organization or their spouses or common-law partners are eligible to participate. The organization can act as an agent for the holder for certain purposes, such as receiving contributions. If this is the case, the text of the arrangement and its application form must clearly show that the holder has authorized the organization to act as their agent and for what purpose.

¶ 26. When the organization acts as an agent for the holder, the specimen must state that the ultimate responsibility for administering each TFSA remains with the issuer. The agent may not make changes to the approved specimen. The issuer must deal directly with the CRA concerning all TFSA matters and reporting requirements unless we have written authorization to deal with another person.

Amending the application package

¶ 27. If changes are made to an approved application package, the amendment and a covering letter indicating the TFSA identification number and identifying the changes must be sent to the Directorate. Do not complete Form RC236, Application for a Tax-Free Savings Account Identification Number, when you amend an approved application package. If information that was originally provided on Form RC236 is changed, you must notify us of those changes. For example, if the types of investments permitted are changed, you must send us a letter describing the changes.

¶ 28. All amendments to an approved specimen, including those required by legislative changes, must be sent to one of the addresses provided in ¶ 22 for approval before the amendments can be put into effect. When a specimen is amended, all TFSAs conforming to that specimen must also be amended and all holders must be advised.

¶ 29. If changes are made to the holder application form, a copy of the amended form must be sent for our approval before it is printed and marketed. However, certain changes to the application form do not require our approval (see ¶ 19).

Terminating the specimen

¶ 30. The issuer should let the Directorate know when there are no longer any outstanding TFSAs that conform to the specimen and that the specimen is no longer being marketed. We will then terminate the specimen and close our files.

Part IV – Transfers

Individual transfer

¶ 31. An individual transfer of arrangements occurs when one or more qualifying arrangements are being transferred from one specimen to another and the transfer cannot be completed by specimen amendment. The transfer of arrangements can occur between specimens of the same issuer or between specimens of different ones. Each holder must enter into a new arrangement and complete a new holder application form, whether the new arrangement is with the same issuer or with a different one. The issuer is not required to inform the CRA of the transfer. The CRA does not have a prescribed transfer form that issuers must complete; however, both the transferring and receiving institutions must keep an internal record of the transfers.

Transfer by specimen amendment

¶ 32. A transfer of arrangements can be done by specimen amendment in two situations:

  1. All arrangements under a specimen are transferred to another specimen; and
  2. A portion of the arrangements (identifiable as a group) under a specimen is transferred to another specimen. This situation is referred to as a specimen split, an example of which is the transfer of all arrangements for one particular employer in a group general specimen to another issuer’s specimen while the remaining employers’ arrangements stay under the original specimen.

In these situations only, the holders do not have to request that their arrangements be transferred from one specimen to another nor do they have to complete new holder application forms.

¶ 33. The transfer of arrangements can occur between specimens of the same issuer or between specimens of different ones. The terms of the specimen must permit the transfer of arrangements and, if applicable, a change of issuer. The arrangements may be transferred to an existing specimen or to a new specimen that has been reviewed and accepted by the Directorate. If the transfer of arrangements is between specimens of different issuers, the original issuer must be willing to relinquish its authority over the arrangements being transferred out of its specimen and the new issuer must take over the arrangements being transferred into its specimen.

¶ 34. If a new specimen is being opened to receive the transferred arrangements, the issuer must first submit to the Directorate a completed Form RC236, Application for a Tax- Free Savings Account Identification Number, along with the new specimen for review. The terms of the original specimen may also have to be amended to permit the transfer of arrangements and, if applicable, a change of issuer. The transfer of arrangements can only take place once we have accepted the new specimen and any amendments that may be required to the original specimen.
 
¶ 35. To process the transfer of arrangements from one specimen to another, we need the following information:

  • the effective date of the transfer;
  • an outline of the situation explaining what changes were made and why;
  • the names of any other issuers involved;
  • the names and TFSA identification numbers of all the specimens involved;
  • the number of arrangements that have been transferred; and
  • in the case of a specimen split, an explanation of how the arrangements that were transferred were determined to be an identifiable group.

Send the required information to the Directorate within 60 days of the effective date of the transfer of arrangements so that we can update our records.

¶ 36. The issuers must keep the following documentation and/or information on their files:

  • if the issuer has changed, a letter of resignation from the original issuer and a letter of acceptance from the new one indicating their agreement to the change, the effective date, and the reason for the change;
  • confirmation that the holders have been advised of the transfer of their arrangements to another specimen, and the change in issuer, if applicable, and they will receive a copy of the new declaration of trust, policy, or terms and conditions of the arrangement; and
  • confirmation from the new issuer that an internal process is in place to cross-reference the holders’ old account numbers with their new ones, if applicable. Holder account numbers must be unique under each specimen, which means you cannot have identical holder account numbers under the same TFSA identification number.

¶ 37. When all arrangements under one specimen are transferred to another specimen, we will need confirmation from the resigning issuer that, once the transfers have been completed, no existing arrangements remain under the original specimen and the issuer is no longer marketing that specimen. This will allow us to close the specimen.

Part V – General information

Forms and publications

¶ 38. The following forms and publications give information about TFSAs and related subject matter. They are available at the canada.ca/cra-forms website.

Form

  • RC236, Application for a Tax-Free Savings Account Identification Number

Publications

  • RC4466, Tax-Free Savings Account (TFSA) Guide for Individuals
  • RC4477, Tax-Free Savings Account (TFSA) Guide for Issuers
  • S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs
  • S3-F10-C2, Prohibited Investments – RRSPs, RRIFs and TFSAs

More information and help

¶ 39. For more information about TFSAs, you can contact the Directorate by telephone, facsimile, mail or courier. Or you can visit our webpage at canada.ca/registered-plans-administrators.

Telephone:

In the Ottawa area

For service in English: 613-954-0419
For service in French: 613-954-0930

Toll free elsewhere in Canada

For service in English: 1-800-267-3100
For service in French: 1-800-267-5565

Agents are available Monday to Friday (except holidays) from 8:00 a.m. to 5:00 p.m. (Eastern Time). Any calls we receive after these hours will be directed to a voicemail system. Calls will be returned on the following business day.

Facsimile:

613-954-0199

Mail or courier:

Our mail and courier addresses are found under the heading Contact information in ¶ 22.

Glossary

¶ 40. The list below contains the abbreviation, acronyms, and initialisms used in this document.


CRA - Canada Revenue Agency
Directorate - Registered Plans Directorate
ITA - Income Tax Act
RIF - Retirement Income Fund
RSP - Retirement Savings Plan
SIN - Social Insurance Number

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