Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether subsection 146.2(4) permits a TFSA holder to use the underlying assets of a trust governed by a TFSA as security for a loan or other indebtedness.
Reasons: See below.
Faye Kravetz, JD/MBA
August 28, 2015
Re: Using an Interest in a Tax Free Savings Account (“TFSA”) as Security for a Loan
We are responding to your email of November 25, 2013, concerning whether the underlying assets of a TFSA that is an arrangement in trust may be used by the TFSA holder as security for a loan or other indebtedness, pursuant to subsection 146.2(4) of the Income Tax Act (the "Act"). We apologize for the delay.
This technical interpretation provides general comments about the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R6 Advance Income Tax Rulings and Technical Interpretations. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (“CRA”).
Subsection 146.2(4) provides that a TFSA holder may use his or her interest, or for civil law purposes, right in the TFSA as security for a loan or other indebtedness provided the following conditions are met:
(a) the terms and conditions of the indebtedness are terms and conditions that persons dealing at arm's length with each other would have entered into; and
(b) it can reasonably be concluded that none of the main purposes for that use is to enable a person (other than the holder) or a partnership to benefit from the exemption from tax under Part I of the Act of any amount in respect of the TFSA.
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.
We trust that our comments will be of assistance.
Mary Pat Baldwin, CPA, CA
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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