14 October 2009 Internal T.I. 2008-0301491I7 - TFSA Attribution Rule Exemption on Excess Amounts

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: Will paragraph 74.5(12)(c) apply to a transfer of property to (i) a recipient spouse and the spouse contributes the property (or any substituted property) to their TFSA that already has an excess TFSA amount and (ii) a recipient spouse and the spouse contributes the property (or any substituted property) to their TFSA that creates an excess amount?

Position: The exemption under subsection 74.5(12)(c) will not apply.

Reasons: (i) Paragraph 74.5(12)(c) does not apply to transfers into TFSAs that has an excess TFSA amount. (ii) Definition of "excess TFSA amount" pursuant to subsection 207.01(1) includes transfers that will cause an excess TFSA amount, such that paragraph 74.5(12)(c) will operate to exclude the excess TFSA amounts.

* The correct document number should be 2008-030149

AGENCE DU REVENU
DU CANADA

MEMORANDUM
NOTE DE SERVICE
							     DATE
							     October 14, 2009
TO
Jack Szeszycki
							     FROM
							     HEADQUARTERS
À
Individual Returns and Payments Processing
Directorate
						     		DE
 								Peky Tsang

25 McArthur Street, Vanier Tower
		     						(613) 957-9769

Vanier, ON, K1A 0L5
								FILE
								DOSSIER
								2008-030144
SUBJECT:
OBJET:

TFSA Attribution Rule Exemption with respect to excess TFSA amount

This is in response to your email of November 20, 2008, concerning the application of paragraph 74.5(12)(c) of the Income Tax Act (the "Act") to excess Tax Free Savings Account ("TFSA") amounts. Specifically, you have requested our opinion on whether the exemption to attribution rules under paragraph 74.5(12)(c) of the Act will apply to a transfer of property to (i) a recipient spouse or common-law partner ("spouse") and the spouse contributes the property (or any substituted property) to their TFSA that already has an excess TFSA amount as defined in subsection 207.01(1) of the Act ("excess amount") and (ii) a recipient spouse and the spouse contributes the property (or any substituted property) to their TFSA that creates an excess amount.

As noted in the Department of Finance Explanatory Notes, paragraph 74.5(12)(c) of the Act was enacted to add an exception for a transfer of property by an individual to the individual's spouse where the transferred property is contributed to a TFSA of which the spouse is the holder. This exception to the attribution rules in sections 74.1, 74.2 and 74.3 of the Act applies only while the transferred property (or any substituted property) remains in a TFSA and only to the extent the contribution is made using the spouse's available TFSA contribution room.

In our view, where a transfer of property is made by an individual under situation (i) above, the exception in paragraph 74.5(12)(c) of the Act will not apply. It is also our view that where a transfer of property is made under situation (ii) above then the excess amount will be subject to the attribution rules in Sections 74.1, 74.2 and 74.3 of the Act and the exception in paragraph 74.5(12)(c) of the Act will not apply to the excess amount.

We trust our comments are of assistance.

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch