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If you owe tax on non-permitted TFSA investments

Not all investments are permitted in a Tax-free Savings Account (TFSA). Non-permitted investments include any investment that is prohibited, non-qualified, or that has an advantage.

For information on permitted investments: Types of permitted investments

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How a prohibited investment is taxed

What is a prohibited investment

A prohibited investment is an investment that a TFSA trust acquires that is closely connected to the TFSA holder. For example, this can happen if a TFSA holder has a significant interest in a company (10% or more ownership).

To review the definition of a prohibited investment, refer to Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs (Income Tax Folio S3-F10-C2).

Tax you may owe on a prohibited investment

If at any time in the calendar year your investment is or becomes prohibited, it will be taxable at 50% of the fair market value (FMV) of the investment.

To calculate the amount you owe, complete and submit a TFSA Return (RC243), including “Part D – Tax on prohibited investments”.

If a prohibited investment stops being prohibited, the trust is considered to have disposed of the prohibited investment and immediately re-acquired it as a permitted investment at FMV.

If the prohibited investment earns any income or has capital gains, you will also be liable for the 100% advantage tax.

For more information: How an advantage is taxed

If your investment is also non-qualified

If an investment is both prohibited and non-qualified, the CRA will consider it a prohibited investment only.

For information: What is a non-qualified investment

Refund of prohibited investment tax

You may be able to get a refund of the 50% tax on a prohibited investment if the investment was disposed of or stopped being prohibited before the end of the calendar year that follows the year it was taxed (or a later time permitted by the Minister of National Revenue).

Details on requesting a refund of the tax on a prohibited investment

The CRA will not issue a refund if it is reasonable to expect the holder knew, or should have known, that the investment was or would become prohibited.

If the tax on the prohibited investment and the entitlement to the refund happen in the same calendar year, then you do not have to pay the tax. However, you must still file a TFSA Return.

How to request a refund

To request a refund of the 50% tax on a prohibited investment, send us a written request for a refund when you submit your TFSA Return (RC243).

Be sure to attach documents that detail the following:

  • Name and description of the investment
  • Number of shares or units
  • Date the investment was acquired or became prohibited
  • Date the investment was disposed of or stopped being prohibited

If you disposed of the prohibited investment in the same year you acquired it, enter the refundable amount on the line in Section 2 of the TFSA Return and attach documents.

The refund only applies to the 50% tax on prohibited investments, not the 100% tax on an advantage.

Submit your refund request using one of the following methods:

  • Online: Option 1

    Use “Submit documents” in your CRA account to submit your forms online

  • By mail: Option 2

    Mail your forms to one of the following:

    Sudbury Tax Centre

    TFSA Processing Unit
    Canada Revenue Agency
    Sudbury Tax Centre
    Post Office Box 20000, Station A
    Sudbury ON   P3A 5C1

    Winnipeg Tax Centre

    TFSA Processing Unit
    Canada Revenue Agency
    Winnipeg Tax Centre
    Post Office Box 14000, Station Main
    Winnipeg MB   R3C 3M2

How a non-qualified investment is taxed

What is a non-qualified investment

A TFSA that is set up as a trust must limit its investments to qualified investments, such as mutual funds and other investment products that are provided by the TFSA issuer. Any investment that is not listed as a qualified investment below is considered non-qualified and is taxable.

List of qualified investments

Qualified investments include the following:

  • Money, GICs and other deposits
  • Most securities listed on a designated stock exchange (shares of corporations, warrants, options, units of exchange-traded funds and real estate investment trusts)
  • Mutual funds and segregated funds
  • Canada Savings Bonds and provincial savings bonds
  • Debt obligations of a corporation listed on a designated stock exchange
  • Debt obligations that have an investment grade rating
  • Insured mortgages or hypothecs

For more information: Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs (Income Tax Folio S3-F10-C1)

Tax you may owe on a non-qualified investment

If a TFSA trust acquires an investment that is or becomes non-qualified, it will be taxable at 50% of the fair market value (FMV) of the investment at the time it was acquired or became non-qualified.

To calculate the amount you owe, complete and submit a TFSA Return (RC243), including “Part C – Tax on non-qualified investments”. Do not report any increase in the value of a non-qualified investment at the time it is disposed on the TFSA Return. This is taxable to the trustee.

You may also have to pay a 100% advantage tax on any income the investment earns if that income is not withdrawn from the account promptly.

For more information: How an advantage is taxed

If your investment is also prohibited

If an investment is both non-qualified and prohibited, the CRA will consider it a prohibited investment only.

For more information: How a prohibited investment is taxed

TFSA issuers must inform holders

TFSA issuers must take care to minimize the possibility that a TFSA trust holds non-qualified investments. They must notify you before March of the following year if the TFSA acquired or disposed of a non-qualified investment, or if an investment became or stopped being non-qualified.

Any gains made through a non-qualified TFSA investment are taxable to the trustee using a T3 Trust Income Tax and Information Return (T3RET). However, the trustee may recoup these amounts from the TFSA, reducing its value.

Refund of non-qualified investment tax

You may be able to get a refund of the 50% tax on a non-qualified investment if the investment was disposed of or stopped being non-qualified before the end of the calendar year that follows the year it was taxed (or a later time permitted by the Minister of National Revenue).

Details on requesting a refund of the tax on a non-qualified investment

The CRA will not issue a refund if it is reasonable to expect the holder knew, or should have known, that the investment was or would become non-qualified.

If the tax on the non-qualified investment and the entitlement to the refund happen in the same calendar year, then you don't have to pay the tax. However, you must still file a TFSA Return.

How to request a refund

To request a refund of the 50% tax on a non-qualified investment, send us a written request for a refund when you submit your TFSA Return (RC243).

Be sure to attach documents that detail the following:

  • Name and description of the investment
  • Number of shares or units
  • Date the investment was acquired or became non-qualified
  • Date the investment was disposed of or became qualified

If you disposed of the non-qualified investment in the same year you acquired it, enter the refundable amount on the line in Section 2 of the TFSA Return and attach documents.

Submit your refund request using one of the following methods:

  • Online: Option 1

    Use “Submit documents” in your CRA account to submit your forms online

  • By mail: Option 2

    Mail your forms to one of the following:

    Sudbury Tax Centre

    TFSA Processing Unit
    Canada Revenue Agency
    Sudbury Tax Centre
    Post Office Box 20000, Station A
    Sudbury ON   P3A 5C1

    Winnipeg Tax Centre

    TFSA Processing Unit
    Canada Revenue Agency
    Winnipeg Tax Centre
    Post Office Box 14000, Station Main
    Winnipeg MB   R3C 3M2

How an advantage is taxed

What is an advantage

TFSA holders must avoid investments or transactions that are structured in way to artificially shift value into or out of the TFSA or result in certain advantages.

An advantage can be a benefit or a debt that is conditional on the existence of the TFSA, subject to certain exceptions for normal investment activities and conventional incentive programs.

Review what a benefit advantage may include

An advantage can include 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

To review the definition of an advantage, refer to: Advantages – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs (Income Tax Folio S3-F10-C3).

Tax you may owe on an advantage

If you have an advantage in relation to your TFSA during the year, there is a 100% tax payable.

  • If the advantage is a benefit, the tax is 100% of the fair market value (FMV) of the benefit
  • If the advantage is a loan or a debt, the tax is 100% of the loan or debt

To calculate the amount you owe, complete and submit a TFSA Return (RC243), including “Part E – Tax on an advantage”.

If the advantage is extended by the issuer to the TFSA, then the issuer is liable for the tax and must file an Advantage tax return for RRSP, TFSA, FHSA or RDSP issuers, RESP promoters or RRIF carriers (RC298).

How to report non-permitted investments

Submit your TFSA Return and your payment to the CRA by June 30 of the calendar year after the year the tax applies. Depending on the payment option you choose, you may submit your forms separately from your payment.

If you disagree with your TFSA notice of assessment (NOA), you may request a tax waiver or cancellation.

  1. Dispose of the non-permitted investment

    Before you pay, contact your issuer and remove the non-permitted investment from your TFSA portfolio

  2. Complete the TFSA tax return form

    Go to: TFSA Return (Form RC243)

  3. Send your TFSA tax return form to the CRA

    Submit your form using one of the following methods:

    • Online: Option 1

      Use “Submit documents” in your CRA account to submit your form online

    • By mail: Option 2

      Mail your form to one of the following:

      Sudbury Tax Centre

      TFSA Processing Unit
      Canada Revenue Agency
      Sudbury Tax Centre
      Post Office Box 20000, Station A
      Sudbury ON   P3A 5C1

      Winnipeg Tax Centre

      TFSA Processing Unit
      Canada Revenue Agency
      Winnipeg Tax Centre
      Post Office Box 14000, Station Main
      Winnipeg MB   R3C 3M2

      If you send your form by mail, you may include your payment.

  4. Choose a payment method and submit the amount owing:

    To view TFSA payment methods, go to Payment options and provide the following answers:

    1. What type of payment are you making? Other benefit, tax, fee or amount owing
    2. Should you make the payment to the CRA? Yes
    3. Are you making the payment on behalf of: An individual
    4. What type of payment (or repayment) is being made? TFSA

You can access your filed TFSA forms online in your CRA account.

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2025-10-10