Definitions for Tax-Free Savings Account

Advantage – any benefit or debt that is conditional on the existence of the TFSA, subject to certain exceptions for normal investment activities and conventional incentive programs.

An advantage also includes any benefit that is an increase in the total fair market value (FMV) of the property of the TFSA that is reasonably attributable to any one of the following:

• a transaction or event (or series) that would not have occurred in a normal commercial or investment context between arm’s length parties acting prudently, knowledgeably, and willingly, and one of the main purposes of which is to benefit from the tax exempt status of the TFSA
• a payment received in substitution for a payment for services rendered by the holder (or non-arm’s length person) or for a return on investment on non-registered property
• a swap transaction
• specified non-qualified investment income that has not been paid from the TFSA within 90 days of the holder receiving a notice from CRA requiring removal

An advantage also includes any benefit that is income or a capital gain that is reasonably attributable to one of the following:

• a prohibited investment
• a deliberate over-contribution to a TFSA

For more information on advantages, see Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.

Arm's length – refers to a relationship or a transaction between unrelated persons who act in their separate interests. An arm's length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.

For more information see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Common-law partner – a person who is not your spouse with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. The person:

• has been living with you in a conjugal relationship and this current relationship has lasted at least 12 continuous months
  Note
  In this definition, "12 continuous months" includes any period that you were separated for less than 90 days because of a breakdown in the relationship.
• is the parent of your child by birth or adoption
• has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support

Minus all of the following amounts:

• the holder's unused TFSA contribution room at the end of the preceding calendar year
• the total of all withdrawals from the holder's TFSA in the preceding calendar year, other than a qualifying transfer or a specified distribution
• for a resident of Canada at any time in the year, the TFSA dollar limit for the calendar year; for any other case, nil
• the total of all withdrawals made in the calendar year from all of the holder's TFSAs, other than a qualifying transfer or a specified distribution, or the portion of the withdrawal that is more than the excess TFSA amount determined at that time

For more information, see the definition Qualifying portion of a withdrawal.

For information on the valuation of securities of closely-held corporations, see Information Circular IC89-3, Policy Statement on Business Equity Valuations.

However, a non-arm’s length relationship might also exist between unrelated individuals, partnerships or corporations, depending on the circumstances.

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

• a debt of the holder
• a debt or share of, or an interest in, a corporation, trust or partnership in which the holder has a significant interest (generally a 10% or greater interest, considering non arm's length holdings)
• a debt or share of, or an interest in, a corporation, trust or partnership with which the holder, does not deal at arm's length

A prohibited investment does not include a mortgage loan that is insured by the Canada Mortgage and Housing Corporation or by an approved private insurer. It also does not include certain investment funds and certain widely held investments which reflect a low risk of self-dealing. For more information, see Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

• an arrangement in trust with an issuer that is authorized in Canada to offer to the public its services as a trustee
• an annuity contract with an issuer that is a licensed annuities provider
• a deposit with an issuer that is a person who is a member, or is eligible to be a member, of the Canadian Payments Association, or a credit union that is a shareholder or member of a "central" for the purposes of the Canadian Payments Act

Related persons – are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, common-law partnership, or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.

• an advantage
• specified non-qualified investment income
• income that is taxable in a TFSA trust
• income earned on excess contributions or non-resident contributions

A specified distribution does not create or increase unused TFSA contribution room in the following year, nor does it reduce or eliminate an excess TFSA amount.

Survivor payment – a payment received by a survivor during the rollover period, as a consequence of the holder's death, directly or indirectly out of or under an arrangement that ceased to be a TFSA because of the holder's death.

Swap transaction – is any transfer of property between the TFSA and its holder (or non-arm's length person). Exceptions are provided for contributions to and distributions from the TFSA, purchase and sale transactions between the TFSA and another TFSA of the holder, and transactions relating to insured mortgages. For more information on swap transactions, and applicable transitional rules, see Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.

Unrelated persons – may not be dealing with each other at arm's length at a particular time. Each case will depend upon its own facts. The following criteria will be used to determine if the parties to a transaction are not dealing at arm's length:

• whether there is a common mind that directs the bargaining for the parties to a transaction
• whether the parties to a transaction act in concert without separate interests; ("acting in concert" means, for example, that parties act with considerable interdependence on a transaction of common interest)
• whether there is de facto control of one party by the other because of, for example, advantage, authority, or influence

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Unused TFSA contribution room – the amount, either positive or negative, at the end of a particular calendar year after 2008, determined by the holder's unused TFSA contribution room at the end of the year preceding the particular year.

Plus:

• The total amount of all withdrawals made from the holder's TFSA in the preceding calendar year, excluding a qualifying transfer or a specified distribution.
• The TFSA dollar limit for the particular year if, at some point in that year, the individual is at least 18 years of age and a resident of Canada. In all other cases, the amount is nil.

Minus:

• The total of all TFSA contributions made by the holder in the particular year excluding a qualifying transfer or an exempt contribution.