Types of investments
Generally, the types of investments that are permitted in a TFSA are the same as those permitted in a registered retirement savings plan (RRSP). This would include:
- mutual funds;
- securities listed on a designated stock exchange;
- guaranteed investment certificates;
- bonds; and
- certain shares of small business corporations.
Losses incurred within a TFSA investment
Depending on the type of investment held in your TFSA, you may incur a loss in your original investment. Any investment losses within a TFSA are not considered a withdrawal and therefore are not part of your TFSA contribution room.
Amanda opens a TFSA on March 20, 2015 and invests $5,000 in stocks. During the year the value of her stocks has decreased and on December 31, 2015 the fair market value of these stocks is $1,000. As a result, Amanda decides to withdraw the $1,000 left in her investment and close her TFSA.
The $4,000 loss that Amanda incurred during the year is not considered a “withdrawal”. The only amount that would form part of her TFSA room calculation is the $1,000 that was withdrawn when she closed her TFSA.
You can contribute foreign funds to a TFSA. However, your issuer will convert the funds to Canadian dollars (using the exchange rate on the date of the transaction), when reporting this information to us. The total amount of your contribution, in Canadian dollars, cannot exceed your TFSA contribution room.
If dividend income from a foreign country is paid to a TFSA, the dividend income could be subject to foreign withholding tax.
"In kind" contributions
You can also make "in kind" contributions (for example, securities you hold in a non-registered account) to your TFSA, as long as the property is a qualified investment.
You will be considered to have disposed of the property at its fair market value (FMV) at the time of the contribution. If the FMV is more than the cost of the property, you will have to report the capital gain on your income tax return. However, if the cost of the property is more than its FMV, you cannot claim the resulting capital loss. The amount of the contribution to your TFSA will be equal to the FMV of the property.
Transfer from your RRSP
If you transfer an investment from your RRSP to your TFSA, you will be considered to have withdrawn the investment from the RRSP at its FMV, and that amount will be reported as an RRSP withdrawal, and must be included in your income in that year. The tax withheld on the withdrawal can be claimed at line 437 of your income tax and benefit return. If the transfer into your TFSA takes place immediately, the same value will be used as the amount of the contribution to the TFSA. If the contribution to the TFSA is deferred, the amount of the contribution will be the FMV of the investment at the time of that contribution.
Except in certain circumstances, you cannot exchange securities for cash, or other securities of equal value, between your accounts, either between two registered accounts or between a registered and a non-registered account (swap).
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