Evaluation Study - Canada Revenue Agency’s Administration of the Tax-Free Savings Account

Final report

Audit, Evaluation, and Risk Branch

April 2016

Table of Contents

• Executive Summary
• Introduction
• Background
• Evaluation Methodologies and Approach
• Findings from the Evaluation
  • The administrative aspects of the TFSA program have been designed and implemented as planned
  • TFSA system is performing as expected
  • TFSA program is achieving expected compliance outcomes however opportunities to increase the effectiveness of the program have been identified
• Conclusion
• Acknowledgement
• Appendix A

Executive Summary

The Tax-Free Savings Account (TFSA) was introduced by the Department of Finance Canada as part of Budget 2008 tabled on February 26, 2008 and was part of Bill C-50 that received royal assent on June 18, 2008. Canadians^{Footnote 1} could begin contributing to a TFSA as of January 1, 2009 to allow them to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing Canadian registered savings plans such as the registered retirement savings plan (RRSP). Unlike an RRSP where tax is deferred until such time as the money is withdrawn, TFSAs are not taxable upon withdrawal. Canadians were initially allowed to contribute $5,000 annually into their TFSA(s) and the contribution limit was increased to $5,500 in 2013 and $10,000 in 2015.

In February 2015, the Management Audit and Evaluation Committee of the Canada Revenue Agency (CRA) approved the evaluation framework for the CRA’s Administration of the TFSA Evaluation Study. The Department of Finance Canada develops and evaluates federal tax policies and legislation, while the CRA is the agency responsible for the administration of tax laws, including the Income Tax Act (ITA) of Canada. As such, the scope of this evaluation was limited to CRA’s administration of the provisions of the ITA related to TFSA. This evaluation study attempts to answer the question to what extent have the administrative aspects of the TFSA program been designed and implemented by the CRA to achieve expected outcomes as well as potential alternatives or modifications that could improve CRA’s administration of the TFSA.

The CRA’s administration of TFSA cuts across multiple programs. The Assessment, Benefit and Service Branch (ABSB) was the office of primary interest for the design, development and implementation of the TFSA program with the collaboration of other headquarter branches including Legislative Policy and Regulatory Affairs (LPRAB), Compliance Programs, Collections and Verification, Appeals, Public Affairs (PAB), Information Technology and Strategy and Integration.

The CRA took a new approach when designing and implementing TFSA as this was the first program that:

• required transmission of all data to be electronic;
• incorporated vigorous upfront validities;
• proactively identified non-compliance involving potential tax payable; and
• electronically issued pre-populated proposed returns.

Ultimately the test of effective implementation of the TFSA program is the execution of activities in such a manner as to reasonably achieve expected outcomes. For the CRA this means that program activities are carried out in a manner to ensure compliance with TFSA legislation, rules and regulations. For financial institutions^{Footnote 2}, they must understand and comply with the requirements for marketing qualified arrangements, educate their clients on TFSAs and file annual information returns and amendments. For Canadians, they must understand and comply with the rules, restrictions and filing requirements of the TFSA. On all fronts, and for the most part, this study revealed that these implementation objectives have been met.

Our analysis determined that the TFSA program was well designed, planned and implemented. The CRA has a system in place to accept electronic TFSA transactions from financial institutions, processes are in place to review and approve TFSA arrangements for marketing by financial institutions and effective linkages were made with existing CRA compliance activities. External interviews with the financial institutions revealed that they have a good understanding of the TFSA legislation and regulations. They also acknowledged that the electronic filing process is relatively straightforward with the exception of reconciliation of records which they find, in some circumstances, to be an administrative burden. For Canadians, as of 2013 over 10.7 million individuals have one or more active TFSA and are contributing, for the most part, within annual TFSA limits.

We also observed that the CRA and the financial institutions have worked collaboratively and demonstrated a high level of commitment to the design and implementation of CRA’s administration of the TFSA program. This has allowed Canadians to contribute and earn tax-free investment income to more easily meet their lifetime savings needs.

Our analysis also identified opportunities to potentially increase the effectiveness of the TFSA program from the perspective of Canadians, financial institutions and the CRA. We recommended that:

• PAB, as part of the TFSA communication review, emphasize messaging related to the responsibility of financial institutions and Canadians to comply with TFSA legislation, rules and regulations.
• LPRAB share the TFSA design and implementation experience with the Department of Finance Canada to potentially allow for more advanced notice when proposed legislation requires new systems and processes for both the CRA and external stakeholders.
• LPRAB review the application of penalties to financial institutions to ensure fairness in the administration of the ITA.
• ABSB explore and assess the feasibility of system and program enhancements related to filing timelines, reason codes for rejections and multi-year amendments to support TFSA compliance.
• ABSB refer repeat non-compliance with the filing of TFSA amendments to LPRAB for review as part of the TFSA audit program of financial institutions to ensure compliance with legislation, rules and regulations.
• ABSB explore and assess the feasibility to include enhanced data reporting requirements similar to TFSA, for other deferred income and savings plans, to support predictive analytics and business intelligence.

Introduction

In February 2015, the Management Audit and Evaluation Committee (MAEC) of the Canada Revenue Agency (CRA) approved the evaluation framework for the CRA’s Administration of the Tax-Free Savings Account (TFSA) Evaluation Study.

The Department of Finance Canada develops and evaluates federal tax policies and legislation, while the CRA is the agency responsible for the administration of tax laws, including the Income Tax Act (ITA) of Canada. As such, the scope of this evaluation was limited to CRA’s administration of the provisions of the ITA related to TFSA. The evaluation framework identified the following two evaluation issues:

Issue 1: To what extent have the administrative aspects of the TFSA program been designed and implemented by the CRA to achieve expected outcomes?

• Has the program design of the TFSA been implemented as planned?
• Has the system performed as expected?
• Has the TFSA program achieved expected outcomes?

Issue 2: Are there alternatives or modifications to current system and program delivery that could improve CRA’s administration of the TFSA?

• Are there best practices or lessons learned from implementing the TFSA?
• What alternative approaches or modifications to system and program delivery could be adopted from strategies or best practices of other tax administrations with a similar program?

This report summarizes the findings related to these issues and research questions. Findings are to provide CRA senior management with information on the design and implementation of the administrative aspects of the TFSA program to achieve expected outcomes as well as potential alternatives or modifications that could improve CRA’s administration of the TFSA.

Background

The TFSA was introduced by the Department of Finance Canada as part of Budget 2008 tabled on February 26, 2008 and was part of Bill C-50 that received royal assent on June 18, 2008. Canadians^{Footnote 3} could begin contributing to a TFSA as of January 1, 2009 to allow them to earn tax-free investment income with the objective to more easily meet lifetime savings needs. For the tax years 2009 to 2013, CRA administered over 273.4 million TFSA transactions^{Footnote 4} held by 10.7 million Canadians.

The TFSA complements existing Canadian registered savings plans such as the registered retirement savings plan (RRSP). Canadians were initially allowed to contribute $5,000 annually into their TFSA(s). Unlike an RRSP where tax is deferred until such time as the money is withdrawn, TFSAs are not taxable upon withdrawal. In 2013 the annual TFSA contribution limit was increased to $5,500 and in 2015 it was increased to $10,000.

The Assessment, Benefit and Service Branch (ABSB) was the office of primary interest for the design, development and implementation of the TFSA program with the collaboration of other headquarter branches including Legislative Policy and Regulatory Affairs (LPRAB), Compliance Programs (CPB), Collections and Verification (CVB), Appeals, Public Affairs (PAB), Information Technology (ITB) and Strategy and Integration (SIB). The logic model in Appendix A illustrates a holistic view of the main activities, outputs and outcomes related to CRA’s administration of the TFSA program and the inter-relationships with financial institutions (issuers) and Canadians (holders).

Financial institutions must apply^{Footnote 5} to the CRA and receive a TFSA identification number in order to market and administer qualified TFSA arrangements. Once approved, financial institutions are expected to educate and inform their clients of the rules, restrictions and filing requirements of the TFSA product. The CRA also provides information to financial institutions and Canadians through electronic and paper media^{Footnote 6}.

TFSA legislation and regulations require that financial institutions^{Footnote 7} electronically file the transaction details for each TFSA holder to the CRA by the last day of February following the calendar year to which the information return applies. The transaction details include information such as the social insurance number, personal identification information, TFSA number, the closing fair market value of each account, details on each contribution and withdrawal made, and any change in status of the TFSA holder such as death or marital status.

In general terms, when a TFSA annual information return is electronically filed to the CRA, a series of upfront system validation checks are performed to confirm that the data was submitted correctly and is for the correct TFSA holder. For those that meet the validation checks, the system will reconcile the contribution and withdrawal information received from the financial institution to calculate the TFSA room and whether there are excess contributions. If an excess situation exists, the TFSA holder will receive a proposed tax return^{Footnote 8} to correct the over-contribution.

For those that do not meet the validation checks, the CRA requires that the record be corrected and resubmitted by the financial institution for processing to ensure that the information reported is accurate. A downloadable file of rejected records is available to financial institutions in both “My Business Account” and “Represent a Client”.

CRA uses the transaction details filed by financial institutions to calculate and advise Canadians of their TFSA contribution room or over-contributions. Complete contribution and withdrawal information is available on “My Account”.

CRA is responsible to ensure that all TFSA transactions comply with the ITA by deterring, identifying and addressing non-compliant transactions and identifying emerging non-compliance trends. Accordingly, the CRA uses the annually-reported TFSA summary information to develop compliance audit plans and risk assessment strategies.

Evaluation Methodologies and Approach

For this evaluation study, we used the following methodologies and approach:

• A Working Committee was formed with representatives from ABSB, LPRAB, CPB, CVB, Appeals, SIB, ITB and PAB. This committee supported the gathering of branch specific information and the review of preliminary findings and recommendations.
• Internal interviews were conducted with 52 CRA managers and staff. Participants were selected from ABSB, LPRAB, CPB, CVB, Appeals, SIB, ITB and PAB and the TFSA Processing Unit in the Ontario Region.
• Examination and validation of our understanding of CRA policies, procedures, business rules and systems with responsible branches.
• External interviews were conducted with representatives from the Canadian Bankers Association, the Investment Industry Association of Canada and the Investment Fund Institute of Canada.
• A series of analyses on the outputs and outcomes of CRA’s administration of the TFSA, for the period 2009 to 2013 was undertaken. Analysis included a review of completed TFSA audits as they moved through the various program areas of the CRA. These taxpayer accounts were selected from the Platinum Reporting Facility (PRF) and reviewed against the Audit Information Management System (AIMS), Automated Collections and Source Deductions Enforcement System (ACSES), Random Access Personal Information Data (RAPID) and Case Appeals. This review occurred from December 17, 2014 to March 10, 2015.
• A review of the United States’ Roth-Individual Retirement Arrangements and the United Kingdom’s New Individual Savings Account was undertaken. The limited available administrative data, by program activity, did not support comparisons against the TFSA.

Findings from the Evaluation

Ultimately the test of effective implementation of the TFSA program is the execution of activities in such a manner as to reasonably achieve expected outcomes. For the CRA this means that program activities are carried out in a manner to ensure compliance with TFSA legislation, rules and regulations. For financial institutions, they must understand and comply with the requirements for marketing qualified arrangements, educate their clients on TFSAs and file annual information returns and amendments. For Canadians they must understand and comply with the rules, restrictions and filing requirements of the TFSA. On all fronts, and for the most part, these implementation objectives have been met.

Our analysis revealed that the CRA has a system in place to accept electronic TFSA transactions from financial institutions, processes are in place to review and approve TFSA arrangements for marketing by financial institutions and effective linkages were made with existing CRA compliance activities. External interviews with the financial institutions revealed that they have a good understanding of the TFSA legislation and regulations. They also acknowledged that the electronic filing process is relatively straightforward with the exception of reconciliation of records which they find, in some circumstances, to be an administrative burden. For Canadians, as of 2013, over 10.7 million individuals have one or more active TFSA and are contributing, for the most part, within annual TFSA limits.

The next section of the report outlines the results of our analysis on the extent to which the administrative aspects of the TFSA program have been designed and implemented by the CRA to achieve expected outcomes. It also identified best practices and opportunities for improvement that could potentially increase the effectiveness of the program from the perspective of financial institutions, Canadians and the CRA.

The administrative aspects of the TFSA program have been designed and implemented as planned

The TFSA implementation plan incorporated the necessary elements and linkages that were needed for an effective program; and was successfully operationalized as planned. This assessment is based on the evaluation findings as outlined in the following sections:

• Financial Resources
• Design and Implementation
• Communication

Financial Resources

CRA built a system for mandatory electronic reporting and to develop processes for program management, business intelligence, communication, and compliance activities. The logic model in Appendix A illustrates the main activities, outputs and outcomes related to CRA’s administration of the TFSA program.

From 2008-2009 to 2012-2013 expenditures were $72.6 million which included $15.5 million for the annual program and maintenance costs. TFSA project costs are outlined in Table 1.

Table 1 – TFSA Project Costs (including indirect costs)
2008-2009 to 2012-2013
(million)

Component	Expenditures
Business	$44.9
Information Technology (IT)	$27.7
Total Business and IT	$72.6

Source: Project Charter: Project Close-out Report for the TFSA, June 2013

Design and Implementation

As the TFSA was a major project investment, oversight of the design and implementation of the TFSA program was undertaken by the CRA Finance Committee. This committee is chaired by the CRA Chief Financial Officer with a senior management representative from each branch and region. This allowed for senior management oversight of financial and control risks as well as the management and progress of the TFSA project to achieve deliverables. CRA stakeholders interviewed identified this as a best practice as it supported transparent accountability, from a horizontal perspective, from the start to the end of the project.

A project charter was established at the onset of the TFSA project which was intended to provide the vision and mandate to the TFSA project team. This charter included clearly defined governance and oversight structures^{Footnote 9}, goals, objectives, scope, timelines, cost estimates, risks, assumptions and constraints. This supported the creation of all key components of the TFSA program including risk assessments, business requirements, communication activities, policies, procedures, forms and other work instruments including internal training. The integrated and co-located project team, with both business and IT experts, was identified as a best practice by CRA stakeholders interviewed. This promoted open and transparent two-way communication and allowed for clarification of business and system issues to be addressed in a timely manner.

The CRA has put in place a process to monitor and report on TFSA data (i.e. TFSA take-up rates and characteristics of holders). SIB provides the Department of Finance Canada with TFSA data twice a year, as a preliminary file in July and a final file the following year in February. This provides the Department of Finance Canada with relevant information to support informed tax policy decisions on the TFSA. The CRA uses this information for monitoring and planning of the administration of the TFSA program. Our review of the 2009 to 2013 reports and interviews with SIB revealed that the methodology and system scripts developed to extract the information from CRA systems are appropriate, with a high degree of quality assurance built into the process. Beyond reporting to the Department of Finance Canada, we confirmed that program areas have monitoring and reporting processes in place to support the horizontal nature of the work required in CRA’s administration of the TFSA.

For the TFSA system, the CRA took a new approach by building and implementing a system independent from the current T1 system. This reduced the potential for added complexity or unintended negative impacts to the existing T1 tax program. For the CRA this was the first program that:

• required transmission of all data to be electronic;
• incorporated vigorous upfront validities;
• proactively identified non-compliance involving potential tax payable; and
• electronically issued pre-populated proposed returns.

Based on best practices outlined in the Application, Data and Technology Framework, ITB completed a threat and risk assessment and a statement of sensitivity for the TFSA system^{Footnote 10}. This resulted in the decision that the TFSA data be posted on the CRA’s Information Declaration System (INFODEC), where third party information provided by employers, financial institutions and government agencies is securely captured and validated. This also allowed integration to other existing applications to meet TFSA requirements, i.e. T1 accounting, Financial Input Processing, Revenue Ledger, etc.

The CRA took a phased in approach in the development of the TFSA system to ensure needs vs. wants were defined and implemented as it was recognized that the timing for system development was relatively short at 10 months. The major components of the TFSA system were implemented as planned with the exception of:

PROTECTED

The CRA made the decision that these five remaining enhancements would be re-examined and re-prioritized when the program had matured as the timeline for system development was relatively short at 10 months. Given the short system development timeline, the CRA was in constant competition for resources with other CRA system initiatives. This resulted in the majority of the TFSA system development being performed by private IT consultants due to the limited availability of ITB staff. ITB advised that this resulted in increased human resources costs to the project as the use of consultants is, on average, 30% higher than when CRA personnel are used. For financial institutions the short timeframe resulted in additional human and financial pressures on their organizations especially for the smaller financial institutions.

Interviews with CRA stakeholders and financial institutions revealed no significant issues with the program design and implementation of TFSA with the exception of the pressures related to the timeframe for system development. An opportunity exists for the CRA to share the TFSA design and implementation experience with the Department of Finance Canada to potentially allow for more advanced notice when proposed legislation requires new systems and processes for both the CRA and external stakeholders.

Communication

Consultation and communication occurred during the TFSA design and implementation phase and, for the most part, was considered successful by both CRA stakeholders and the financial institutions interviewed.

Outreach sessions with financial institutions were held in Toronto, Montreal and Vancouver in 2008. These sessions provided the CRA with an opportunity to share information with the financial institutions on topics such as the application, filing and amendment processes for the new TFSA program. Subsequent outreach sessions were held in 2009 and 2010 and two webinars were held in 2011. Regular meetings were and continue to be held by the CRA with the Canadian Bankers Association, the Investment Fund Institute of Canada, the Investment Industry Association of Canada, Central1 and Concentra Financial on TFSA related issues.

For Canadians, financial institutions are responsible for marketing and administering qualified TFSA arrangements approved by the CRA as well as to educate and inform their clients on the details and restrictions of the TFSA. To support financial institutions and Canadians, the CRA website provides tax guides^{Footnote 11} and information products on the TFSA. Our review of TFSA website data revealed that there have been over 1.8 million hits to the CRA TFSA web pages from 2009 to 2013 as outlined in Table 2.

Table 2 –TFSA website hits – Annual 2009 to 2013

Website	2009	2010	2011	2012	2013
English website	320,493	344,546	262,189	308,599	369,286
French website	43,969	47,688	41,067	53,619	57,320
Total website hits	364,462	392,234	303,256	362,218	426,606

Source: CRA website metrics

A telephone enquiries service also exists to support financial institutions and Canadians. Our review of TFSA call volume reports revealed that the CRA has responded to 613,926 TFSA related calls for fiscal years 2012-2013 to 2014-2015.

Our analysis of the TFSA call types revealed that over 70% of the enquiries, for all years, are related to contribution room and excess contributions in each year. This makes sense as determining the true contribution room at any time requires a consolidation of information maintained by the CRA for the previous tax year(s) and the current contributions or withdrawals which are maintained by financial institutions. Interviews with financial institutions revealed that there are also situations when Canadians may have multiple TFSAs at more than one financial institution or there may be unresolved TFSA transfers that have not been completed which may further complicate the Canadian’s ability to reconcile their TFSA transactions. The result of this ambiguity can create situations where Canadians have excess contributions or may be holding unqualified investments. Table 3 provides details on TFSA call volumes by type for fiscal year end (FYE) 2012-2013 to 2014-2015.

Table 3 –TFSA Call Volume by Type – FYE 2012-2013 to 2014-2015

Type	2012-2013 Number	2012-2013 %	2013-2014 Number	2013-2014 %	2014-2015 Number	2014-2015 %	Total Number	Total %
Total TFSA calls	222,801	100%	166,030	100%	225,095	100%	613,926	100%
Contribution room	57,483	25.80%	65,775	39.62%	101,909	45.27%	225,167	36.68%
Excess contributions	87,236	39.16%	58,053	34.96%	70,211	31.19%	215,500	35.10%
TFSA proposed returns	31,935	14.33%	13,142	7.92%	14,265	6.34%	59,342	9.66%
OtherFootnote 12	46,147	20.71%	29,060	17.50%	38,710	17.20%	113,917	18.56%

Source: Individual Income Tax Enquiries 2012-2013 to 2014-2015 Fiscal Report

The CRA also developed a monitoring tool, via “My Account”, to support Canadians to better track their TFSA contributions, withdrawals, and transfers that are electronically transmitted by financial institutions to the CRA.

Opportunities for improvement related to the TFSA communication products have been recognized by the CRA and some improvements have been made. For example, a message was included on “My Account” in January 2012 to advise Canadians that there is a possibility that CRA may not have received or processed the information about previous year transactions. As a result, they are asked to compare the TFSA transaction information on “My Account” with their own records to ensure that it is up to date. Further review of TFSA communication products is currently being undertaken by PAB as part of Phase 2 of the CRA external administrative correspondence review, which is scheduled for the winter 2015/spring 2016.

Beyond the design and implementation of TFSA, financial institutions interviewed are seeking clarification on the issue of what constitutes “carrying on of a business” within the context of a TFSA^{Footnote 13}. Interviews with CRA stakeholders revealed that it would be difficult for the CRA to provide more specific guidance than what currently exists due to the vast number of multi-faceted investments and arrangements available. Currently, the CRA reviews each particular case based on its own merit before making a determination. This approach is taken to ensure fairness in the application of the ITA. When there is uncertainty, Canadians may request an advanced income tax ruling from the CRA to clarify the tax implications of a financial decision they are considering. Our analysis revealed that the CRA is exercising due diligence and has processes in place to ensure fairness in the administration of the ITA by reviewing each particular case based on its own merit.

Communication is a powerful tool when it is written in a manner that is clear, well-organized and easy to understand. The experience of the CRA is consistent with the United Kingdom when they introduced their Individual Savings Account in 1999 as they had to modify their communications products several times to make them easier to understand. Continued efforts to improve the content of TFSA guides and website have the potential to reduce the volume of TFSA telephone enquiries and could decrease the number of Canadians having excess contributions as they are better able to calculate their contribution room.

TFSA system is performing as expected

A review of TFSA system reports and interviews with financial institutions revealed that the system is performing as expected and there are no issues with capacity, reliability or accessibility.

The TFSA system has administered over 273.4 million transactions that were electronically submitted by financial institutions to the CRA for tax years 2009 to 2013. Of the 273.4 million transactions, 87% represent contributions made by the 10.7 million Canadians who held a TFSA as of December 31, 2013. The total contributions were $40.2 billion with a reported fair market value of over $118.3 billion. Table 4 provides an annual and cumulative summary of TFSA information by tax year.

Table 4 – TFSA Summary Information – Annual and Cumulative 2009 to 2013

Indicators	Type of reporting	2009	2010	2011	2012	2013
Number of TFSA transactions administered (contributions)	annual	17,503,900	35,953,890	48,295,940	62,421,690	74,262,220
	cumulative	17,503,900	53,457,790	101,753,730	164,175,420	238,437,640
Number of TFSA transactions administered (withdrawals)	annual	1,931,060	4,681,250	6,802,950	9,632,340	11,958,000
	cumulative	1,931,060	6,612,310	13,415,260	23,047,600	35,005,600
Number of Canadians (Holders) with a TFSA	annual	4,839,870	2,022,030	1,504,200	1,230,730	1,117,790
	cumulative	4,839,870	6,861,900	8,366,100	9,596,830	10,714,620
Total dollar value of TFSA contributions	annual	$18,963,461,000	$25,398,608,000	$31,105,422,000	$33,503,195,000	$40,163,568,000
	cumulative	$18,963,461,000	$44,362,069,000	$75,467,491,000	$108,970,686,000	$149,134,254,000
Total dollar value of TFSA withdrawals	annual	$1,936,540,000	$4,911,624,000	$8,129,476,000	$11,175,492,000	$14,603,331,000
	cumulative	$1,936,540,000	$6,848,164,000	$14,977,640,000	$26,153,132,000	$40,756,463,000
Total TFSA Fair Market Value	cumulative	$18,155,746,000	$40,701,051,000	$62,584,189,000	$87,502,763,000	$118,258,675,000

Source: Tax-Free Savings Account 2011-2015 Statistics (2009-2013 contribution years) ^{Footnote 14}

TFSA program is achieving expected compliance outcomes however opportunities to increase the effectiveness of the program have been identified

Analysis of the TFSA program, for the purpose of determining the achievement of compliance outcomes, was based on the logic model (Appendix A). We focused on business intelligence and compliance activities as findings related to program management and communication were, for the most part, discussed above. We analyzed TFSA information related to:

• arrangements approved for marketing by financial institutions;
• reconciled records, summaries and amendments;
• audits completed and assessments issued;
• outstanding balances resolved; and
• decisions made on notices of objection and appeals to the Tax Court of Canada.

TFSA arrangements approved for marketing by financial institutions

The first step in our analysis related to the marketing of TFSAs in order to ensure, as with all CRA programs, that compliance with legislation remains as the cornerstone of the integrity of the tax system and ensures fairness to all Canadians.

The compliance activities for financial institutions begin at the TFSA application stage. Financial institutions must apply^{Footnote 15} to the CRA, have their TFSA specimen plan^{Footnote 16} approved and receive a TFSA identification number in order to market and administer qualified TFSA arrangements to Canadians. Upon receipt of an application from a financial institution, LPRAB will review to make sure it contains all relevant and prescribed information and is in compliance with the ITA. Those that are complete and meet requirements are approved and financial institutions can market them to their clients. Those that do not meet CRA requirements are returned to the financial institution with the reason for rejection.

Review of LPRAB data revealed that the CRA had approved 732 TFSA specimen plans as of November 19, 2014. This has allowed 10.7 million Canadians to have a TFSA.

External interviews with the financial institutions revealed no issues with the application process with the CRA for the marketing of TFSAs. Table 5 provides details of the breakdown of TFSA holders by province from 2009 to 2013.

Table 5 – TFSA Holders by Province – Cumulative 2009 to 2013

Province	2009	2010	2011	2012	2013 Holders	2013 %
Ontario	2,026,370	2,852,690	3,450,720	3,952,160	4,389,180	40.96%
Quebec	972,140	1,409,580	1,745,160	2,013,560	2,254,490	21.04%
British Columbia	768,740	1,059,190	1,270,740	1,430,360	1,569,110	14.64%
Alberta	546,500	778,370	954,760	1,103,490	1,250,530	11.67%
Manitoba	165,160	230,140	280,100	322,690	360,550	3.37%
Saskatchewan	137,120	194,640	238,510	273,440	305,880	2.85%
Nova Scotia	97,130	143,060	177,700	206,010	230,290	2.15%
New Brunswick	65,910	97,850	122,270	142,570	161,440	1.51%
Newfoundland & Labrador	37,130	57,940	76,300	91,860	105,480	0.98%
Prince Edward Island	12,440	18,520	23,170	27,130	30,690	0.29%
Non-residentsFootnote 17	2,280	5,830	8,510	11,640	30,590	0.29%
North West Territories	3,990	6,230	8,060	9,830	11,700	0.11%
Yukon	3,860	5,930	7,560	8,890	10,250	0.10%
Nunavut	1,110	1,930	2,560	3,190	4,460	0.04%

Source: Tax-Free Savings Account 2011-2015 Statistics (2009-2013 contribution years)^{Footnote 18}

Reconciled records, summaries and amendments

Once registered, TFSA legislation and regulations require that financial institutions electronically file the transaction details for each TFSA holder to the CRA by the last day of February following the calendar year to which the information return applies. The transaction details include information such as the social insurance number, identification information, TFSA number, the closing fair market value of each account, details on each contribution and withdrawal, and any change in status of the TFSA holder such as death or marital status.

To ensure the accuracy of information, the CRA has a reconciliation process in place to correct discrepancies identified on TFSA records submitted by financial institutions. This ensures accuracy of the data posted to the TFSA database and information provided to Canadians via “My Account”.

The CRA will advise the financial institution by email if a TFSA record has been rejected and that a downloadable file is available either in “My Business Account” or in “Represent a Client”. Financial institutions are to correct the data and resubmit within 30 days. Failure to resubmit an amended TFSA may result in the account not being registered as a TFSA and that their client may be subject to tax on the investment earnings or it can affect the calculation of contribution room. From 2009 to 2013 there were a total of 2.4 million amendments to TFSA records as outlined in table 6.

Table 6 – Amendments to TFSA records – Annual 2009 to 2013^{Footnote 19}

	2009	2010	2011	2012	2013	Total
Number of Amendments	899,687	692,517	445,141	167,066	150,100	2,354,511

Source: TFSA INFODEC production statistics

Once TFSA data from the financial institutions has been reconciled, CRA sends proposed returns^{Footnote 20} to Canadians that have made excess TFSA contributions. CRA uses a proposed return to calculate estimated tax liabilities on these excess contributions. When Canadians over contribute to their TFSA, they are required to file a TFSA return^{Footnote 21} and pay the excess tax the following year. Our data analysis revealed that from 2009 to 2013, the CRA had issued 419,532 proposed tax returns to Canadians that had excess TFSA contributions.

To better understand the level of effort related to the volume of proposed return workload, we analysed the number of proposed returns issued against the number of Canadians who contributed to a TFSA by year from 2009 to 2013. This analysis revealed that the number of proposed returns workload has decreased from 1.7% to 1% while the number of Canadians who contributed to a TFSA had increased by 49% from 2009 to 2013. Table 7 provides details on the number of Canadians who have contributed and the TFSA proposed tax returns issued by year from 2009 to 2013.

Table 7 – Number of Canadians who contributed to a TFSA and proposed tax returns issued by year – 2009 to 2013

	2009	2010	2011	2012	2013
Number of Canadians (Holders) who contributed to a TFSAFootnote 22	4,520,700	5,088,920	5,804,110	6,174,590	6,763,630
Number of proposed returns sent	75,045	108,704	84,746	81,765	69,272
% of Canadians who over contributed	1.7%	2.1%	1.5%	1.3%	1.0%

Source: Tax-Free Savings Account 2011-2015 Statistics (2009-2013 contribution years) and DataMart, IT data and TFSA Processing Unit workload plan

The downstream impact of the proposed returns revealed that a significant number of administrative relief^{Footnote 23} requests must be processed by the TFSA Processing Unit. In 2009 the Minister of National Revenue encouraged Canadians who over-contributed to a TFSA to explain the circumstances of that over-contribution. In cases of genuine misunderstanding of the rules, the Minister indicated that the tax resulting from that over-contribution could be waived. This is a commitment to the fair treatment of Canadians who inadvertently over-contributed to a TFSA, which is consistent with Article 5 of the Taxpayer Bill of Rights^{Footnote 24}.

Our analysis revealed that over 25% of the proposed returns sent from 2009 to 2013 resulted in administrative relief requests. In total the TFSA Processing Unit processed 124,058 administrative relief requests from 2009 to 2013 of which over 97% were granted. Table 8 provides details on the number of Canadians who received a proposed return compared to the administrative relief requests received by the TFSA Processing Unit from 2009 to 2013.

Table 8 – Number of Canadians who received a proposed return and requested administrative relief^{Footnote 25} – Annual 2009 to 2013

	2009	2010	2011	2012	2013
Number of proposed returns sent	75,045	108,704	84,746	81,765	69,272
Number of administrative relief requests received	26,251	26,815	26,054	23,598	21,340
% of administrative relief requests to number of proposed returns	35.0%	24.7%	30.7%	28.9%	30.8%
% of administrative relief granted	97.9%	96.6%	97.0%	97.0%	96.8%

Source: DataMart, IT data and TFSA Processing Unit working plan

In an effort to reduce the proposed return workload and impacts on other CRA administrative processes^{Footnote 26} including administrative relief requests, ABSB initiated a TFSA nudge intervention project with the intention of supporting Canadians in understanding their TFSA situation. Nudge interventions aim to impact economic decision-making by adding, changing or re-arranging information individuals use to make financial decisions in an attempt to improve compliance.

As part of the TFSA nudge intervention project, three letters (two nudge and one traditional compliance), replaced the proposed return for a randomly selected group of Canadians^{Footnote 27} who had excess TFSA contributions in 2013. The letters developed for this project were expected to simplify the contribution limit rules, increase compliance and reduce excess contributions in future years. A review of the preliminary results^{Footnote 28} revealed that 69% of the random selected group did not over-contribute to their TFSAs in 2014 despite doing so in 2013. This was deemed positive and recognized the importance of how clear messaging can have a positive impact on compliance behavior. This project is still underway with a phase two planned which will assess future compliance with TFSA contribution limit rules in 2015 including impacts on other CRA administrative processes.

As previously noted clear communication is a powerful tool and continued efforts to improve Canadians’ understanding of the TFSA rules and restrictions has the potential to further improve overall compliance and reduce the number of TFSA proposed returns issued by the CRA.

Interviews with financial institutions also identified several constraints with the reconciliation of TFSA records, summaries and amendments activities that they would like the CRA to explore. This included:

• filing timelines;
• reason codes for rejections;
• system logic for acceptance of TFSA data;
• multi-year amendments; and
• TFSA transfers between financial institutions.

Interviews with financial institutions revealed that although some financial institutions prefer the annual filing requirements others would prefer the option to file on a semi-annual or quarterly basis as this would assist them in maximizing their own human and financial resource capabilities to meet the TFSA filing obligations. ABSB interviews revealed that varied filing options were discussed with the financial institutions as part of the original design however the decision to implement annual filing was mutually agreed upon at the time. The option for varied filing timelines currently exists in other CRA programs^{Footnote 29} and as the TFSA program has matured, an opportunity exists to explore and assess the feasibility of varied filing options as a potential TFSA business and system enhancement to reduce the administration burden on financial institutions.

When TFSA transaction details received from financial institutions do not match or are incomplete, the CRA will return the record to the financial institution as a reject. The reason codes for rejections, in some circumstances, do not provide a sufficient level of detail to properly correct an error. For example they identified that the rejection notification for SIN does not indicate if it is as a result of an invalid SIN or missing SIN which requires additional efforts from their perspective to resolve. A review of the messaging of TFSA rejection codes could improve the timeliness of corrections by financial institutions.

The system logic for acceptance of TFSA data related to date of birth or death not matching existing CRA records was also identified as a challenge by the financial institutions. This was acknowledged by ABSB and new system logic was established in January 2015. Our review of ABSB data revealed that the rejections related to date of birth had reduced from 61,870 in tax year 2013 to 30,864 in tax year 2014, or a 50% decrease. No data was available for the date of death rejections. As this system change occurred in January 2015, the financial institutions may not have yet seen the benefits of this system change. ABSB should continue to monitor the rejections related to date of birth and death and communicate results to the financial institutions.

Currently financial institutions must amend a TFSA record on an individual basis and can only include changes for a maximum of one taxation year. Each amendment must be processed by the CRA before the financial institutions can make a change to a subsequent year(s). In circumstances where corrections^{Footnote 30} are required for more than one year, this process can be quite time consuming and was deemed as an administrative burden by the financial institutions. ABSB interviews revealed that the TFSA system was not designed to accept multi-year amendments. The ability to include multi-year amendments, in a single electronic transmission, has the potential to reduce the administrative burden for the financial institutions in situations where they are unable to correct TFSA records within established timeframes. In circumstances where ABSB identifies repeat non-compliance with the filing of TFSA amendments, they should refer these to LPRAB for review as part of the TFSA audit program of financial institutions.

Financial institutions are responsible to resolve issues with records they create, regardless of whether their client maintains the TFSA with their institution or transfers to another institution. Failure to submit an amended record in the case of a TFSA opened in the reporting year may result in the account not being registered as a TFSA and the TFSA holder being subject to tax on the investment earnings, including penalty and interest. Financial institutions advised that although efforts are undertaken to correct the TFSA record, Canadians often do not respond to their letters or telephone calls as they no longer deal with them. Although we recognize this as a concern for the financial institutions, it is the responsibility of Canadians to ensure that all contributions and withdrawals are accurately reported to the CRA no matter what financial institution the TFSA was initially opened with. An opportunity exists to educate Canadians on the impacts of not providing financial institutions with requested information.

Overall, the reconciliation of TFSA records, summaries and amendments are being administered as planned; however the program has matured since 2009 and opportunities for potential improvement exist. This includes the need to explore and assess the feasibility of system and program enhancements related to filing timelines, reason codes for rejections, and multi-year amendments. ABSB should also refer repeat non-compliance with the filing of TFSA amendments to LPRAB for review as part of the TFSA audit program of financial institutions to ensure compliance with legislation, rules and regulations.

Audits completed and assessments issued

As with other CRA programs, a national audit program is in place to ensure compliance with legislation, rules and regulations. Tax compliance research clearly demonstrates that the potential for non-compliance increases over time if Canadians believe the tax administration has a limited capability to detect non-compliance.

The TFSA national audit program has two components – LPRAB conducts reviews on financial institutions and CPB conducts reviews on individual Canadians. The TFSA national audit program is relatively new with business intelligence and predictive analytics still being developed and refined to ensure that files with the highest risk are identified, for both financial institutions and Canadians. This is important as the CRA has limited resources and does not have the capacity to audit all Canadians.

For audits of financial institutions, LPRAB undertakes reviews to ensure that financial institutions are marketing qualified investments, reporting properly, ensuring due diligence, correcting rejects and that they are maintaining all supporting documents concerning private investments. LPRAB developed eight (8) initial criteria to identify potential non-compliance and emerging trends:

PROTECTED

Our analysis revealed that as of March 31, 2014, LPRAB completed fifteen (15) audits of financial institutions which included forty (40) TFSA specimen plans^{Footnote 31} which included 6,464 Canadians. These audits also resulted in 2,266 referrals to CPB for additional review.

LPRAB recognized that the initial audits would be used to ensure compliance with the TFSA tax legislation reporting requirements while also recognizing the need to incorporate an education component. LPRAB worked with the financial institutions to correct accidental or unintentional errors such as improper specimen number for the TFSA holder or the specimen not belonging to the correct financial institution. LPRAB also reviewed how financial institutions monitor their TFSA plan. For example:

• What is the process to inform a holder of a non-qualified investment?
• Are they making the necessary effort to correct their rejects?
• Are supporting documents for private investments available?
• Are they doing their due diligence and adhering to the rules, restrictions and filing requirements?

Recognizing that TFSA was a new program, LPRAB had not applied penalties^{Footnote 32} to financial institutions on audit reviews completed as of October 2015. Since the TFSA was implemented in 2009 and considering the high degree of interaction between LPRAB and the financial institutions, the application of penalties should be reviewed to ensure fairness in the administration of the ITA.

For audits of Canadians, CPB aims to identify the most serious cases of non-compliance, take appropriate corrective measures, and generally deter non-compliance. The starting point for our analysis of the audits on Canadians was to review the 94 audits completed from the 2,179 referrals made from the LPRAB audits of financial institutions up to December 31, 2013. The end date of December 31, 2013 was chosen as we determined this date would provide a reasonable period of time, after the audit had been concluded, for Canadians to remit any outstanding balance or resolve any notices of objection or appeals to the Tax Court of Canada.

A comparison analysis of the 94 completed audits against the LPRAB risk criteria was undertaken. PROTECTED. The initial focus on these three criteria makes sense as contribution limits are capped on the amount that can be contributed to a TFSA within any given year. This reduces the tax risk that the spirit and intent of the TFSA legislation is not providing unqualified gains to a specific Canadian.

Based on our analysis of the results of the 94 completed audits, we determined that 34 audits or 36.2% resulted in assessments being raised. The total value of those assessments was $23.4 million of which $2.3 million was penalties and $1.6 million represented interest. These audits support CRA’s efforts to deter unqualified gains (36.2%) while also providing insight into the degree (63.8%) to which Canadians are contributing to a TFSA within the spirit and intent of the legislation. This is especially important at the introduction of a new tax program such as the TFSA.

Beyond our analysis of the audit results, we also determined that CPB and LPRAB were able to uncover abusive TFSA tax avoidance schemes that were developed and in use to defeat the tax policy objectives of the TFSA, resulting in potential loss of revenue to the Government of Canada. The identified tax avoidance schemes:

• created unintended permanent increases in TFSA savings and contribution room;
• sheltered large pools of assets and otherwise taxable capital gains inside TFSA; and
• transferred taxable or tax-deferred funds into TFSA without paying tax.

When these schemes were brought to the attention of the Department of Finance Canada, amendments were made to the TFSA legislation which came into force on October 17, 2009. The amended legislation included a ban on trading activities between a TFSA and the taxpayer’s registered or non-registered accounts (referred to as a swap transaction) and a 100% tax on any income earned on deliberate TFSA over-contributions or prohibited investments. CRA stakeholders interviewed positively remarked on the timeliness of the Department of Finance Canada to address the identified abusive transactions within the first year of the program to ensure fairness of the tax law to all Canadians.

Our analysis also revealed a best practice to support audit risk assessments for other programs. The TFSA enhanced data reporting requirements includes fair market value of the investment and the withdrawals made. These data elements are valuable to support predictive analytics and business intelligence which could also benefit other deferred income and savings plans.

Although the administration of the national audit program for TFSA is relatively new with business intelligence and predictive analytics still being developed, our analysis revealed that it is being administered in a manner supportive of its objective to detect and address non-compliance. The practice of the application of penalties for audits of financial institutions should be reviewed to ensure fairness in the administration of the ITA.

Outstanding balances resolved

Upon receipt of a tax assessment or reassessment Canadians can voluntarily pay the amount outstanding or contest the assessment. Voluntary compliance contributes to the integrity of the tax system and ensures that Canada receives its fair amount of tax. In circumstances where amounts are unpaid, the CVB collects outstanding debts owed to the Crown through progressive and targeted enforcement approaches.

From the 94 completed audits undertaken by CPB, 34 assessments were issued to Canadians with a combined total assessed value of $23.4 million. Our review revealed that CVB was able to collect $15.0 million against those assessments of which $9.8 million was voluntarily paid, while waiting for the notices of objection to be resolved. Of the $8.2 million outstanding, 99.8% remain in appeal status and are not subject to collection activity. CVB advised that normal collection strategies will be utilized to recover any remaining balance owing once the notices of objections have been resolved. Table 9 provides details on the collections status of CPB completed audits reviewed.

Table 9 – Collection status of CPB completed audits reviewed

Numbers and dollar value	Appealed	Not Appealed	Totals
Total number of audit assessments / $ value	20 $18,211,673	14 $5,181,865	34 $23,393,538
Number of audit assessments / $ value collected	5 ($9,808,496)	11 ($5,166,351)	16 ($14,974,847)
Number of resolved audit assessments / $ value collected	1 ($215,491)	N/A	1 ($215,491)
Number of outstanding audit assessments / $ value outstanding	14 $8,187,686	3 $15,514	17 $8,203,200

Source: AIMS, ACSES and RAPID

Interviews with CRA stakeholders revealed that CVB works closely with the Appeals Branch to address notices of objections and with CPB and LPRAB to address TFSA schemes where Canadians are using the TFSA to shelter taxable growth in a manner contradictory to the intention of the ITA. These collaborative working relationships support the identification and timely collection of TFSA related debts.

Our review revealed that the TFSA collection workload is being administered as planned and is recovering outstanding balances to ensure Canadians respect their tax obligations.

Decisions made on notices of objection and appeals to the Tax Court of Canada

The CRA has recourse mechanisms in place to provide a fair and impartial process to resolve disputes arising from decisions made under the TFSA tax legislation. These processes include notices of objection or an appeal to the Tax Court of Canada. For this study we completed two reviews.

Our first review included only the notices of objection filed as a result of the 94 closed audits as of December 31, 2013. This analysis revealed that of 94 audits completed by CPB, 34 resulted in assessments being issued to Canadians of which 20 or 58.9% resulted in a notice of objection being filed. At the time of our review, the Appeals Branch had resolved one notice of objection, which was allowed in full while the remaining notices of objection are still under review.

Our second review was related to the use of notices of objection and appeals to the Tax Court of Canada for all Canadians holding a TFSA from the start of the program in 2009 up to May 18, 2015. This is an indicator to identify issues with the design and administration of the TFSA program. Our review of Appeals Branch data revealed that there were a total of 1,176 notices of objections filed of which 91.3% (1,074) have been resolved. Of the resolved notices of objection, 39% confirmed CRA’s decision and 37% were considered invalid^{Footnote 33}. For the 4 appeals to the Tax Court of Canada, 3 have been resolved of which 2 were allowed in full and one confirmed CRA’s decision. None of the resolved appeals to the Tax Court of Canada resulted in an actual hearing before a judge. Table 10 provides details on the decisions made on notices of objections.

Table 10 - Decisions made on notices of objections

Results	2010-2011	2011-2012	2012-2013	2013-2014	Total	%
CRA proposal confirmed	0	47	139	230	416	39%
Invalid	197	75	84	42	398	37%
Allowed in full and in part	0	27	39	79	145	14%
Other	0	16	17	34	67	6%
Late filed objections	1	13	8	26	48	4%
Total	198	178	287	411	1,074	100%

Source: Case Appeals – TFSA Intake workload and disposal plan

Overall the use of notices of objection and appeals to the Tax Court of Canada for TFSA are very low at 0.01% when compared to the total number of Canadians with a TFSA. This suggests that the TFSA program, including recourse mechanisms, are well designed and administered as Canadians are not raising significant issues of disputes related to TFSAs.

Conclusion

Our analysis has revealed that the CRA has designed and implemented the administrative aspects of the TFSA program as intended to achieve the expected outcomes. Communication activities are currently underway by the CRA which may improve financial institutions and Canadians understanding of TFSA rules and restrictions and have the potential to improve overall compliance. Opportunities for improvement have been identified to potentially increase the effectiveness of the TFSA program from the perspective of Canadians, financial institutions and the CRA. We recommend that:

Recommendation 1

PAB, as part of the TFSA communication review, emphasize messaging related to the responsibility of financial institutions and individuals to comply with TFSA legislation, rules and regulations.

Management Response

We concur with this recommendation. PAB will continue to implement communications efforts to use plain language and cross promote TFSA messaging where appropriate. In addition, PAB will build on existing messaging related to the compliance of the TFSA legislation, rules, and regulations to individuals, and will support the program branches in their communication to financial institutions.

PAB will review and update the existing TFSA communications strategy in the winter of 2016 in collaboration with the relevant program branches, and will take into consideration the external communications recommendations in this report as well as those specific to TFSA in Phase II of the External Administrative Correspondence review. The revised communications strategy will roll-out in the spring of 2016, and will target both financial institutions and individuals.

Recommendation 2

LPRAB share the TFSA design and implementation experience with the Department of Finance Canada to potentially allow for more advanced notice when proposed legislation requires new systems and processes for both the CRA and external stakeholders.

Management Response

We concur with this recommendation. We recognize that the short-time line to implement TFSA resulted in additional human and financial pressures for financial institutions. LPRAB will share the TFSA design and implementation experience with the Department of Finance by the end of this fiscal to advise them that more advanced notice would support both external stakeholders and the CRA when proposed legislation requires new systems and processes.

Recommendation 3

LPRAB review the application of penalties to financial institutions to ensure fairness in the administration of the ITA.

Management Response

We concur with this recommendation. We agree that the application of penalties needs to be consistent and that penalties act as a deterrent to non-compliance. In 2016-2017, LPRAB will review and disseminate procedures for their staff with respect to applying penalties to financial institutions related to the late filing of TFSA annual information returns and failure to provide information on a TFSA return.

Recommendation 4

ABSB explore and assess the feasibility of system and program enhancements related to filing timelines, reason codes for rejections and multi-year amendments to support TFSA compliance.

Management Response

We concur with this recommendation. We recognize that the TFSA program has matured and opportunities for potential system and program enhancements may exist to support TFSA compliance. ABSB will explore and assess the feasibility of varied timelines, reason codes for rejection and multi-year amendments for the TFSA program. ABSB has already started a review of the reason codes for rejections and is currently working on a help document for financial institutions. Implementation to occur in Q3. As the program enhancements related to filing timelines and multi-year amendments will involve multiple stakeholders such as INFODEC, ITB and the financial institutions, ABSB will undertake a review in 2016/2017. Implementation in 2017-2018.

Recommendation 5

ABSB refer repeat non-compliance with the filing of TFSA amendments to LPRAB for review as part of the TFSA audit program of financial institutions to ensure compliance with legislation, rules and regulations.

Management Response

We concur with this recommendation. We recognize the importance of ensuring that TFSA transactions details are reported correctly to the CRA as this information is used by Canadians to manage their TFSA. ABSB will review and refer repeat non-compliance with the filing of TFSA amendments to LPRAB for review as part of the TFSA audit program to ensure compliance with legislation, rules and regulations. ABSB will start referring repeat non-compliance with the filing of TFSA amendments to LPRAB. Implementation April 2016.

Recommendation 6

ABSB explore and assess the feasibility to include enhanced data reporting requirements similar to TFSA, for other deferred income and savings plans, to support predictive analytics and business intelligence.

Management Response

We concur with this recommendation. We recognize the importance of predictive analytics and business intelligence to support CRA tax compliance activities. ABSB will explore and assess the feasibility to include the TFSA enhanced data report requirements for other deferred income and savings plans. This review will be undertaken in 2016/2017. Recommendations originating from the review are to be implemented in Q4.

Acknowledgement

We would like to acknowledge and thank all CRA stakeholders and the financial institutions interviewed for their support. We observed that the CRA and the financial institutions have worked collaboratively and demonstrated a high level of commitment to the design and implementation of CRA’s administration of the TFSA program. This has allowed Canadians to contribute and earn tax-free investment income to more easily meet their lifetime savings needs.

Appendix A

Tax Free Savings Account (TFSA) Logic Model

The TFSA program is delivered to Canadians as holders:

• Understand the rules, restrictions and filing requirements of the TFSA
• Open a TFSA account with Financial Institutions
• Contribute to TFSA in accordance with the annual limit
• Comply with all rules, restrictions and filing requirements of the TFSA

The Financial institutions are the issuers of the TFSA:

• Market and administer qualified TFSA arrangements approved by the CRA
• Educate and inform clients on the details and restrictions of the TFSA
• Electronically submit TFSA accounts for registration
• Electronically file TFSA annual information returns and amendments

The logic model of the TFSA program is represented by three major actitivies that will lead to sub activities, outputs, immediate outcomes, intermediate outcomes and final outcomes.

The first major activity is Program management and business intelligence. This major activity is linked to a list of sub activities:

• Legislative review, policy and procedures development
• CRA stakeholder collaboration
• Resource and workload planning
• Functional direction, technical advice and training
• Performance monitoring and reporting
• System development and maintenance
• Risk assessment and strategy development

These sub actitivities are now linked to outputs:

• Legislation, policy and procedures
• Resource and workload allocation
• Sharing of information, advice and guidance with CRA stakeholders
• Guidance, manuals, training courses and tools
• System and performance monitoring reports
• System and program delivery changes

These outputs are linked to immediate outcomes:

• Effective legislative tax framework
• Improved use of CRA business intelligence
• Knowledgeable and trained personnel
• Consistent application of policies and procedures
• Improved ability to identify risks and implement strategies to address non-compliance
• Improved system and program delivery

These immediate outcomes are linked to intermediates outcomes:

• Improved effectiveness of the TFSA program to detect and address non-compliance
• Optimize resource utilization

These intermediates outcomes are linked to final outcomes:

• Efficient and effective program management and delivery
• Financial institutions and Canadians comply with Canada’s tax legislation related to TFSA
• Canadians have a registered general purpose savings vehicle to earn tax-free investment income to more easily meet lifetime savings needs

The second major activity is Communication. This major activity is linked to a list of sub activities:

• Telephone and written enquiry services
• Forms and publication development
• Outreach
• Website development
• Ministerial and media enquiry services

These sub actitivities are now linked to outputs:

• Information, advice and guidance provided to financial institutions and Canadians
• Electronic based information and publications
• Outreach presentations
• Responses to ministerial and media enquiries

These outputs are linked to immediate outcomes:

• Increased level of understanding by financial institutions and Canadians on tax legislation governing TFSA
• Increased confidence in CRA’s ability to administer the TFSA program

These immediate outcomes are linked to intermediates outcomes:

• Increased marketing of TFSA by financial institutions
• Increased confidence of Canadians to use TFSA

These intermediates outcomes are linked to final outcomes:

• Efficient and effective program management and delivery
• Financial institutions and Canadians comply with Canada’s tax legislation related to TFSA
• Canadians have a registered general purpose savings vehicle to earn tax-free investment income to more easily meet lifetime savings needs

From CRA, Compliance is a major activity. This major activity is linked to a list of sub activities:

• Review TFSA arrangements for marketing by financial institutions
• Review TFSA records, summaries and amendments from financial institutions
• Administer the national audit program
• Review taxpayer objections and taxpayer relief requests
• Resolve outstanding balances

These sub actitivities are now linked to outputs:

• Approved TFSA arrangements for marketing by financial institutions
• Reconciled TFSA records, summaries and amendments
• Audits completed and assessments issued
• Decisions made on notices of objection, appeals to the Tax Court and relief requests
• Outstanding balances resolved

These outputs are linked to immediate outcomes:

• Acceptable TFSA arrangements available to Canadians
• Increased accuracy of TFSA records, summaries and amendments filed by financial institutions
• Increased compliance with TFSA contribution limits by Canadians
• Increased compliance with investment rules by financial institutions and Canadians
• Increased detection of other TFSA non-compliance

These immediate outcomes are linked to intermediates outcomes:

• Improved compliance with TFSA rules, restrictions and filing requirements by financial institutions and Canadians

These intermediates outcomes are linked to final outcomes:

• Efficient and effective program management and delivery
• Financial institutions and Canadians comply with Canada’s tax legislation related to TFSA
• Canadians have a registered general purpose savings vehicle to earn tax-free investment income to more easily meet lifetime savings needs

Footnotes

Footnote 1

For TFSA, Canadians are defined as individuals who are 18 years or older with a valid social insurance number and includes both Canadian citizens and permanent residents of Canada.

Return to footnote 1 referrer

Footnote 2

Financial institutions are defined as a bank, trust company, a licensed annuities provider, a person who is, or is eligible to become, a member of the Canadian Payments Association or a credit union with which an individual has a qualifying arrangement.

Return to footnote 2 referrer

Footnote 3

For TFSA, Canadians are defined as individuals who are 18 years or older with a valid social insurance number and includes both Canadian citizens and permanent residents of Canada.

Return to footnote 3 referrer

Footnote 4

Tax Free Savings Account publication tables for statistics ( 2013 tax year)

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Footnote 5

RC236 Application for a TFSA (Tax-Free Savings Account) Identification Number

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Footnote 6

RC4466 Tax-Free Savings Account (TFSA), Guide for Individuals and RC4477 Tax-Free Savings Account (TFSA) Guide for Issuers

Return to footnote 6 referrer

Footnote 7

Financial institutions are defined as a bank, trust company, a licensed annuities provider, a person who is, or is eligible to become, a member of the Canadian Payments Association or a credit union with which an individual has a qualifying arrangement.

Return to footnote 7 referrer

Footnote 8

The proposed TFSA return is not a formal assessment of tax

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Footnote 9

Treasury Board of Canada Secretariat – The Enhanced Management Framework (EMF) and CRA - A Governance Framework for Solutions Projects, November, 2007

Return to footnote 9 referrer

Footnote 10

IT Security Evaluation: Threat and Risk Assessment and Statement of Sensitivity for TFSA, December 2009

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Footnote 11

RC4466 Tax-Free Savings Account (TFSA), Guide for Individuals and RC4477 Tax-Free Savings Account (TFSA) Guide for Issuers

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Footnote 12

Other includes: Eligibility, Financial Institution Referral, TFSA NOA/NOR Request for transaction summary, Withdrawals, What is the TFSA, Spousal enquiries and other

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Footnote 13

T4013 T3 – Trust Guide 2014 - A trust governed by a TFSA is generally non-taxable however when the funds in the TFSA trust are used in the carrying on of a business or used to acquire non-qualified investments, the trust will be taxable to the extent of the income earned from that business or those investments.

Return to footnote 13 referrer

Footnote 14

All data (components and totals) are rounded as per the CRA’s guidelines on Aggregate Data Confidentiality Standards.

Return to footnote 14 referrer

Footnote 15

RC236 Application for a TFSA (Tax-Free Savings Account Identification) Identification Number

Return to footnote 15 referrer

Footnote 16

A TFSA specimen includes the following: For a trust: The holder application form, and the declaration of trust that sets out the terms and conditions of the qualifying arrangement. For an insurer: The holder application form, the policy (including all riders and schedules), and the TFSA endorsement that sets out the terms and conditions of the qualifying arrangement. For a depositary: The holder application form, and the terms and conditions of the qualifying arrangement.

Return to footnote 16 referrer

Footnote 17

Canadians residing outside Canada

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Footnote 18

All data (components and totals) are rounded as per the CRA’s guidelines on Aggregate Data Confidentiality Standards.

Return to footnote 18 referrer

Footnote 19

2012 and 2013 rejected records are still pending correction thus the amendment records are subject to change

Return to footnote 19 referrer

Footnote 20

The proposed TFSA return is not a formal assessment of tax

Return to footnote 20 referrer

Footnote 21

Form RC243-P

Return to footnote 21 referrer

Footnote 22

All micro data (components and totals) are rounded as per the CRA’s guidelines on Aggregate Data Confidentiality Standards.

Return to footnote 22 referrer

An administrative relief is relief granted pursuant to section 207.06 of the ITA.

Return to footnote 23 referrer

Footnote 24

Knowing the Rules – Confusion about the rules governing the Tax-Free Savings Account - Taxpayers Ombudsman Special Report, June 2011

Return to footnote 24 referrer

Footnote 25

Section 207.06 of the ITA.

Return to footnote 25 referrer

Footnote 26

Phone call to the CRA call centre, response letter mailed to the CRA. TFSA returns filed and/or payment received for tax liabilities on excess.

Return to footnote 26 referrer

Footnote 27

PROTECTED

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Footnote 28

Tax-Free Savings Account Nudge Project: Phase 1, August 2015

Return to footnote 28 referrer

Footnote 29

GST/HST Program

Return to footnote 29 referrer

Footnote 30

Errors and rejections

Return to footnote 30 referrer

Footnote 31

732 specimen plans were in place as of November 19, 2014

Return to footnote 31 referrer

Footnote 32

Late filing the TFSA annual information return - $100 to $7,500 and failure to provide information on a return - $100 for each offense

Return to footnote 32 referrer

Footnote 33

Invalid cases are notices of objections received by the CRA that do not meet legislative requirements. For example: filed late, incomplete or intended for another CRA program, i.e. taxpayer relief.

Return to footnote 33 referrer

Date modified:

2016-07-07