CRA provides detailed guidance on the RRSP and TFSA advantage rules

Examples of situations where CRA considers that the 100% advantage tax is triggered include:

  • Private company employees whose registered plans are issued non-voting prefs that pay dividends well in excess of the subscription price taking into account the company’s performance relative to benchmarks receive a (b)(ii) advantage.
  • Where at the same time as an estate freeze an employee received common shares of the Freezeco (an arm’s length employer) for nominal consideration and immediately contributed the shares to her TFSA, there would be an advantage equalling the shares’ subsequent appreciation (as well as any dividends received thereon).
  • Where an individual contributed common share warrants to his TFSA for their nominal intrinsic value, the subsequent gain realized by the TFSA on exercise would be an advantage given that “The intrinsic value of a warrant or option is not reflective of the property’s FMV”.
  • A mutual fund dealer convinces an individual to switch mutual fund companies and agrees to share 40% of the 5% sales commission he will earn on the purchase of the new funds. The individual asks the dealer to allocate the rebates fully to his TFSA and RRSP and none to his taxable account. The amount of the advantage would be equal to the amount by which the actual rebates paid into the RRSP and TFSA exceeds the amount that would have been paid if the total rebates had been allocated to the three accounts on a pro rata basis. All future increases in the FMV of the plan property relating to the initial advantages would also give rise to advantage tax.

CRA computes an advantage on an annual basis so that where a security fluctuates up and down in the year in a situation where any increment in value is an advantage, CRA will only treat the net increase from January 1 to December 31 as the advantage amount.

Neal Armstrong. Summaries of S3-F10-C3 “Advantages – RRSPs, RRIFs and TFSAs” under 207.01(1) – advantage – (a), (a)(ii), (a)(v), (b)(i), (b)(ii), swap transaction, registered plan swap and s. 207.05(2).