Section 146.2

Old Paragraph 146.2(1)(c)

See Also

Dep. MNR v. Bonair Leisure Industries Ltd., 82 DTC 6217, [1982] CTC 188 (FCA)

It was stated respecting the use of the word "homes" in the Excise Tax Act: "The word is not qualified by any adjective. There is thus no reason for not according it the fullest or broadest meaning it may bear that is consistent with the context in which it is found".

Subsection 146.2(2)

Paragraph 146.2(2)(e)


Max Reed, "TFSA: US Tax Classification", Canadian Tax Highlights, Vol. 22, No. 7, July 214, p. 5

TFSA not a trust for Code purposes (p.6)

[I]f an entity is separate from its owner, it is subject to the entity classification regime unless it is specifically classified in the Code or regulations; the TFSA is not. A TFSA also does not meet the definition of a trust for US tax purposes. A foreign trust is defined in Code section 7701(a)(31)(B) as any trust that is not domestic. A trust is defined in regulation 301.7701-4(a) as an arrangement in which the trustee "take[s] title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts." A bank does not take title to property deposited into a TFSA. A statutory precondition to the establishment of a TFSA (ITA paragraph l46.2(2)(e)) is that at the customer's direction the financial institution "shall transfer all or any part of the property held in connection with the arrangement (or an amount equal to its value) to another TFSA of the holder," a right that assumes that the customer retains title to the property. ...

Default classification as disregarded entity (p. 6)

In summary, the precise classification of a TFSA is not certain, but a TFSA is not a foreign trust because it is not an entity separate from its owner; thus, the entity classification rules do not apply and no special reporting of the TFSA is required. Even if the entity classification rules apply, the default classification of a TFSA is that of a disregarded entity for US tax purposes, and a form 8858 must be filed annually.

Paragraph 146.2(2)(f)

Administrative Policy

22 October 2015 Memorandum 2013-0486491I7 - Overdrafts in a TFSA

administrative accommodation of short term inadvertent overdrafts but not of cashless warrant exercise

A short-term overdraft in a TFSA may arise, for example, as a result of a settlement mismatch (e.g. a security sold with three-day settlement and a purchase with same-day settlement, a trading error, funding of a purchase with an NSF cheque, a client-initiated purchase with insufficient funds or fees exceeding available balances. CRA stated:

It is clear that monies were provided to the TFSA trust in order to complete the payment out of the TFSA trust thereby creating a lender/borrower relationship. … As a result, the TFSA trust would be considered to have borrowed money”.

… However, where an overdraft is created in respect of fees charged to the TFSA but which remain unpaid… [this] would not constitute borrowing of money or other property for the purposes of paragraph 146.2(2)(f). …

Turning to the cashless exercise of warrants, CRA stated:

[T]he broker advanced the funds to the TFSA trust necessary to exercise the warrants in question. The broker, acting as an agent of the TFSA trust, exercised the warrants, obtained the underlying shares, and then sold the shares to a third party. Using the sale proceeds, the broker recovered their portion of monies used to exercise the warrants plus any fees or charges and provided the remaining monies to the TFSA trust.

…[T]his is a form of buying on margin which clearly involves a lender/borrower relationship and therefore would be considered borrowing money.

Respecting administrative accommodation, CRA stated:

The CRA will not apply paragraph 146.2(5)(c) to an overdraft in a TFSA if it:

  • is temporary in nature and covered without undue delay;
  • arises as a result of (i) a mismatch of cash flow due to differences in standard settlement cycles for securities, (ii) a reasonable error, or (iii) an unintended infrequent event; and
  • does not have the character of leveraged investing.

This… is intended to accommodate certain overdrafts of very short duration that are quickly or naturally reversed or that are infrequent and inadvertent…[and] does not apply to borrowing… in connection with a cashless exercise of warrants... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 201-220 - Section 207.01 - Subsection 207.01(1) - Unused contribution room deemed proceeds under s. 146.2(8) are not a distribution 139
Tax Topics - Income Tax Act - 141-160 - Section 146 - Subsection 146(6) - Paragraph 146(4)(a) accommodation only of temporary technical breach of borrowing prohibition for registered plans 218

Subsection 146.2(4)

Administrative Policy

28 August 2015 T.I. 2013-0514261E5 - Using the Assets of a TFSA as Security for a Loan

assets of TFSA trust may not be used as security

May the underlying assets of a TFSA trust be used by the TFSA holder as security for a loan or other indebtedness? CRA responded:

When the TFSA is an arrangement in trust subsection 146.2(4) would not permit the underlying assets of the TFSA to be used by the TFSA holder as security for a loan or other indebtedness.

Subsection 146.2(6)


Arthur B.C. Drache, "TFSAs as a Business", The Canadian Taxpayer, January 2, 2015 – Vol. xxxvii No. 1, p. 5.

TFSA audit project (p.5)

Sources from the tax and legal sectors of the CRA have apparently confirmed to the Financial Post that the CRA has rolled out a TFSA audit project that has become increasingly active in the past couple of years….

Impending litigation re TFSA day trading


Now a Calgary law firm says it is readying for a legal fight with Ottawa. As quoted in the Financial Post:

"There are a lot of people, day traders, with online brokerage accounts and they sit and buy and sell securities. Maybe 10 to 15 trades a day," says Tim Clarke, a lawyer with Calgary's Moodys Gartner Tax Law LLP, which is preparing to challenge the tax agency's interpretation. "The CRA says that means you are trader in securities and you are carrying on a business."

…"There is no case law on this business of carrying on a business in a TFSA," said Lauchlin MacEachern, another lawyer with Moodys Gartner, who says he can't comment on specific cases. "In the next year or two we expect there to be a case that goes to court and we'll know whether carrying on a business in your TFSA means trading securities actively. We say that's a question of fact and we also disagree with their legal interpretation."