Louie – Tax Court of Canada places a temporal limitation on the advantages considered to arise from TFSA swap transactions
From May 15 to October 17, 2009, the taxpayer directed 71 “swaps” under which TSX-listed shares were transferred between her self-directed TFSA and her taxable trading account at a discount brokerage (“TDW”), or between her TFSA and her self-directed registered retirement savings plan (also with TDW). The transfers were made near the close of trading for the day, and at the high price if she was transferring out of her TFSA, and at the low price where she was transferring in. She ceased directing the swaps on the introduction of specific “swap transaction” rules effective October 17, 2009. However, she was assessed under s. 207.01(2) in amounts equalling 100% of the increase in the fair market value of her TFSA in 2009, 2010 and 2012 of $200,795, $70,841 and $29,217, respectively (her TFSA having decreased in value in 2011), on the basis that those FMV increases were “advantages” described in s. (b)(i) of the s. 207.01(1) definition.
Lamarre ACJ found that the swaps were a series of transactions described in s. (b)(i), i.e., they were transactions that “would not have occurred if the parties had been dealing at arm’s length and were acting prudently, knowledgeably and willingly” and she inferred that one of the main purposes of the series was to benefit from the ability to ultimately withdraw amounts from the TFSA tax-free.
She concluded that although it was reasonable to regard the 2009 increase in the FMV of the TFSA as being directly or indirectly attributable to the series of swaps, she did not consider that it was reasonable to so regard the 2010 and 2012 increases. She was troubled that the attributable test had “no easily defined or delineated end point … regarding the length of time during which an increase may still be attributed to an impugned transaction” and noted that “A more restrictive interpretation of paragraph (b) … avoids these difficulties.” Accordingly, she concluded that the 2010 and 2012 FMV increases should be attributed to the stock market appreciation in those years rather than to the 2009 swaps.