CRA will accommodate brief screw-ups resulting in a technical breach of the prohibition against TFSA or RRSP borrowings

Various types of glitches can cause a TFSA, RRSP etc. to go into overdraft (so that technically the brokerage is lending money to the plan in breach of the prohibition against borrowing) until the problem is remedied a day or so later. CRA states that it will not act on “an overdraft in a TFSA [etc.] 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.”

However, CRA will not accommodate a breach which results from a cashless exercise procedure in which the broker advances funds to the plan to exercise warrants and repays itself out of the sale proceeds of the acquired shares.

De-registration of an individual’s TFSA for breach of the borrowing requirement would cause a permanent loss of TFSA savings room for the individual.

Neal Armstrong. Summaries of 22 October 2015 Memo 2013-0486491I7 under s. 146.2(2)(f) and s. 207.10(1) – unused TFSA contribution room.