Definitions for TFSA

Advantage

An advantage is any benefit or debt that is conditional on the existence of a 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 payment received in substitution for a payment for services rendered by the controlling individual (or non arm's length person) or for a return on investment on non-registered property.
  • a swap transaction
  • a specified non-qualified investment income that has not been paid from the TFSA within 90 days of the controlling individual receiving a notice from CRA requiring removal.

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

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

Arm's length

Refers to a relationship or a transaction between 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:

a. 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.

b. is the parent of the holder's child by birth or adoption

c. has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and the child is wholly dependent on that person for support.

Deliberate over-contribution

A contribution that an individual makes to the TFSA that results in, or increases, an excess TFSA amount, unless it is reasonable to conclude that the individual neither knew nor ought to have known that the contribution could result in liability for a penalty or tax. Income that is reasonably attributable, directly or indirectly, to a deliberate over-contribution is an advantage subject to the special tax on advantages.

Excess TFSA amount

The total of all contributions made by the holder to all their TFSAs at or before a particular time in the calendar year, excluding a qualifying transfer or an exempt contribution,

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.

Exempt contribution

A contribution made during the rollover period and designated as exempt by the survivor on prescribed Form RC240, Designation of an Exempt Contribution Tax-Free Savings Accounts (TFSA) in connection with a payment received from the deceased holder's TFSA.

Exempt period

Period that begins when the holder dies and that ends at the end of the first calendar year that begins after the holder's death, or when the trust ceases to exist, if earlier.

Fair market value (FMV)

Usually the highest dollar value you can get for property in an open and unrestricted market between a willing buyer and a willing seller who are acting independently of each other. For information on the valuation of securities of closely-held corporations, see Information Circular IC89-3, Policy Statement on Business Equity Valuation.

Holder

The individual who entered into the TFSA arrangement and, after the death of the holder, the individual's spouse or common-law partner (the survivor) if designated as the successor holder of the TFSA. The surviving spouse or common-law partner can designate a subsequent survivor as their successor holder.

Issuer

A trust company, a licensed annuities provider, a person who is, or is eligible to become, a member of the Canadian Payments Association or a credit union with which an individual has a qualifying arrangement.

Non-arm's length

Refers to parties that are not dealing with each other at arm's length. A non-arm’s length transaction is generally a transaction that does not reflect 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.

Non-qualified investment

Any property that is not a qualified investment for the trust. For more information, see Income Tax Folio S3-F10-C1, Qualified Investments - RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

Prohibited investment

This is property to which the TFSA holder is closely connected. It includes any of the following:

  • 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, taking into account non-arm's length holdings)
  • a debt or share of, or any 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 investment funds and certain widely held investment 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.

Qualified donee

The Income Tax Act permits qualified donees to issue official tax receipts for donations they receive from individuals or corporations. Some examples of qualified donees are registered charities, Canadian municipalities, registered Canadian amateur athletic associations, the United Nations or one of their agencies, or a university outside Canada that accepts Canadian students.

Qualified investment

An investment in properties, including money, guaranteed investment certificates, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange. The types of investments that qualify for TFSAs are generally similar to those that qualify for registered retirement savings plans. For more information see Income Tax Folio S3-F10-C1, Qualified Investments - RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

Qualifying arrangement

An arrangement that is entered into after 2008 between an issuer and an individual (other than a trust) who is at least 18 years of age, that is any of the following:

  • 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

Qualifying portion of a withdrawal

The portion of a withdrawal from the TFSA (excluding a qualifying transfer or a specified distribution), made in the year, that was required to reduce or eliminate a previously determined excess amount.

Qualifying transfer

A direct transfer between a holder's TFSAs, or a direct transfer between a holder's TFSA and the TFSA of their current or former spouse or common-law partner if the transfer relates to payments under a decree, order, or judgment of a court, or under a written agreement relating to a division of property in settlement of rights arising from the breakdown of their relationship and they are living separate and apart at the time of the transfer.

Rollover period

The period that begins when the TFSA holder dies and ends at the end of the calendar year that follows the year of death.

Self-directed TFSA

A vehicle that allows you to build and manage your own investment portfolio by buying and selling various types of investments.

Specified distribution

A distribution from the TFSA to the extent that it is, or is reasonably attributable to, an amount that is any of the following:

  • an advantage
  • specified non-qualified investment income
  • income that is taxable in the 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.

Specified non-qualified investment income

Income (excluding the dividend gross-up), or a capital gain that is reasonably attributable, directly or indirectly, to an amount that is taxable for any TFSA of the holder (for example, subsequent generation income earned on non-qualified investment income or on income from a business carried on by the TFSA).

Spouse

A person to whom the holder is legally married.

Successor holder

In provinces or territories that permit the TFSA beneficiary designation, a successor holder is a spouse or common-law partner of the holder at the time of death, named by the deceased as the successor holder of the TFSA, who acquires all of the rights of the holder under the arrangement including the right to revoke any beneficiary designation. This spouse or common-law partner becomes the new account holder.

Survivor

An individual who is, immediately before the TFSA holder’s death, a spouse or common-law partner of the holder.

Note

A survivor may designate a successor holder (for example, a new spouse or common-law partner of the survivor in case of remarriage of the survivor). A successor holder designation is effective only if it is recognized under applicable provincial or territorial law and the successor holder acquired all of the survivor’s rights as holder, including the right to revoke any previous beneficiary designation made by the survivor in relation to the TFSA.

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

This 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, see Income Tax Folio S3-F10-C3, Advantages - RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

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

Minus:

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