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:

An advantage also includes 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 with you in a conjugal relationship, and to whom at least one of the following situations applies. The person:

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.

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:

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)

Is generally considered to mean the highest price expressed in terms of money that can be obtained in an open and unrestricted market between informed and prudent parties, who are dealing at arm’s length, and under no compulsion to buy or sell.. 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

Generally refers to a relationship or transaction between persons who are related to each other.

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

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 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.

Qualified donee

The Income Tax Act permits qualified donees to issue 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 universities outside Canada that accept Canadian students.

Qualified investment

An investment in properties, (except real property) 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:

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 TFSA 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:

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 you are 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, and applicable transitional rules, 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:

Minus:

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