CRA finds that a set-off right of an issuer of a TFSA put the TFSA offside
S. 146.2 (2)(a) requires that a TFSA generally “be maintained for the exclusive benefit of the holder,” and s. 146.2 (2)(b) prohibits “anyone that is neither the holder nor the issuer of the arrangement from having rights under the arrangement relating to … distributions.” Ss. 146.2(3) and (4) provide that these conditions do not apply to prevent the holder of a TFSA from using his or her interest in the TFSA as security for a loan or other indebtedness.
CRA concluded that a TFSA specimen plan (respecting a deposit with a bank) that gave the issuer the right to apply a positive balance from the account to satisfy any debts owing by the holder to the issuer or any of its affiliates was offside. Respecting s. 146.2 (2)(a), CRA noted that the “arrangement benefits the issuer and its affiliates,” so that it was not for the exclusive benefit of the TFSA holder. S. 146.2 (2)(b) was not complied with because the issuer’s affiliate had set-off rights.
The terms are not saved from offending the conditions in paragraphs 146.2(2)(a) and (b) by subsections 146.2(3) and (4) because the right of setoff does not confer a property interest on the issuer or its affiliates and so does not rise to the level of security.
Although the quoted passage is opaque at best, CRA’s analysis seems to suggest that the TFSA would have been offside even if the set-off rights had only been accorded to the issuer – which may be at odds with the most likely interpretation of ss. 146.2(2)(b) and 146.2(4) as setting out a safe harbour for lender security.