Tax payable on non-qualified investments
If, in a calendar year, a trust governed by a TFSA acquires property that was a non-qualified investment or if previously acquired property becomes non-qualified, there are consequences in terms of reporting requirements and tax payable on the part of the TFSA trust as well as the holder of the TFSA.
For the purposes of TFSA taxes, if a trust governed by a TFSA holds property at any time that is, for the trust, both a prohibited investment and a non-qualified investment, the property is not considered to be at that time a non-qualified investment, but remains a prohibited investment.
Income earned and capital gains realized by a TFSA trust on non-qualified investments will continue to be taxable to the trust, regardless of when the investment was acquired. If an investment is both a non-qualified and a prohibited investment, it is treated as a prohibited investment only and the trust is not subject to tax on the investment earnings.
For more information, see Income Tax Folio S3-F10-C1, Qualified Investments - RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
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