Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Can an individual contribute GICs into a TFSA of which the individual is the holder?
Position: Yes, if it is a direct contribution to the TFSA since proposed amendments are disallowing swap transactions.
Reasons: Wording of the Act and proposed amendments.
Legislative Policy and Regulatory Affairs Branch 2010-036751
Financial Sector and Exempt Entities Division
From: Tsang, Peky
Sent: June 7, 2010 15:03
To: XXXXXXXXXX
Subject: Investing GICs into a TFSA
Dear XXXXXXXXXX ,
This is in response to your correspondence of May 3, 2010 addressed to the office of the Honourable Jim Flaherty, Minister of Finance, forwarded to the Minister of National Revenue on May 12, 2010. In particular, you enquired whether an individual can contribute non-maturing guaranteed investment certificates ("GICs") into the individual's tax-free savings account ("TFSA").
Pursuant to the Income Tax Act, generally a GIC would be considered a qualified investment for a TFSA, and an individual would generally be allowed to contribute the GIC into his TFSA subject to his TFSA contribution limit.
However, you should be aware of the proposed legislative amendments released on April 30, 2010 by the Department of Finance Canada, which may affect the aforementioned transaction. In particular, an increase in the fair market value of property held in connection with a TFSA that is reasonably attributable to a "swap transaction" will be considered an "advantage". Consequently, the transaction will be subject to a tax equal to the fair market value of the advantage.
A "swap transaction", in relation to a TFSA trust, generally means any transfer of property occurring between the trust and the holder of the TFSA or a person with whom the holder does not deal at arm's length, other than a transfer that is a distribution from, or a contribution to, a TFSA trust. This prohibition would apply to transfers between accounts of the same taxpayer or that of the taxpayer and an individual with whom the taxpayer does not deal at arm's length. However, a taxpayer would still be able to make a transfer of a GIC to or from a TFSA provided the transfer is a contribution into or a distribution out of the TFSA. These proposed amendments apply to transactions occurring after October 16, 2009.
Should you have any questions on this matter, please do not hesitate to contact me by calling (613) 957-3494.
Sincerely,
Peky Tsang
Ruling Officer | Income Tax Rulings Directorate
Canada Revenue Agency | 320 Queen Street, Ottawa ON K1A 0L5
(613) 957-3494 | fax (613) 957-2088
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