Tax implications

On this page

• Tax payable on non-qualified investments
• Tax on an advantage
• Taxes on excess and non-resident contributions
• Tax payable on prohibited investments

Tax payable on non-qualified investments

If a TFSA holds a non-qualified investment or carries on a business, the TFSA trust is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business. You must report such income on Form T3RET, T3 Trust Income Tax and Information Return.

The TFSA issuer has to report details of the non-qualified investment on the TFSA annual information return. For more information, see Appendix A – Data elements – TFSA individual electronic record.

In addition, the TFSA issuer must provide the TFSA holder with the following information by the end of February following the reporting year:

• a description of the investment
• the date of acquisition or disposition, as applicable, and the FMV of the investment at that date
• the TFSA contract or account number

Responsibility for compliance with the qualified investment rules generally lies with TFSA issuers. In this regard, TFSA issuers must take reasonable care to ensure that TFSAs do not hold non-qualified investments.

For more information on non-qualified investments, see Guide RC4466, Tax-Free Savings Account (TFSA), Guide for Individuals, and Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, and TFSAs.

Tax on an advantage

In most cases the holder is liable for the advantage tax. However, if the advantage is considered to be extended by the TFSA issuer, or by a person not dealing at arm’s length with the issuer, the issuer is liable to pay the tax, rather than the holder.

For more information, see Guide RC4466, Tax-Free Savings Account (TFSA), Guide for Individuals, and refer to "Tax payable on an advantage." Also see Income Tax Folio S3-F10-C3 Advantages RRSPs, RESPs, RRIFs, RDSPs, and TFSAs.

If you are liable to pay tax on an advantage, you must fill out and send Form RC298, Advantage Tax Return for RRSP, TFSA FHSA or RDSP issuers, RESP promoters or RRIF carriers, by June 30th after the end of the calendar year.

Taxes on excess and non-resident contributions

TFSA holders are liable for a 1% per-month tax on their excess contributions and non-resident contributions. For more information, see Guide RC4466, Tax-Free Savings Account (TFSA), Guide for Individuals.

The application of these taxes will be administered by us. You, the issuer, do not have to specifically identify any withdrawals made by the holder to avoid the continued application of these taxes. Any such withdrawals will be reported as regular withdrawals. You also do not have to report to us when a holder becomes a non-resident.

Tax payable on prohibited investments

If, in a calendar year, a trust governed by a TFSA acquires property that is a prohibited investment or if previously acquired property becomes prohibited, there are consequences for the TFSA holder in terms of reporting requirements and tax payable.

For more information, see Guide RC4466, Tax-Free Savings Account (TFSA), Guide for Individuals, and refer to “Tax payable on prohibited investments.” Also see Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs, and TFSAs.