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 fair market value (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.
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