25 November 2009 External T.I. 2009-0345161E5 - TFSAs - Asset Transfer Transactions (Swaps)

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: Are asset transfer transactions (swaps) involving TFSAs permitted under the Income Tax Act?

Position: No.

Reasons: Department of Finance news release dated October 16, 2009.
LEGISLATIVE REFERENCE: 207.01(1)
HAA: No paper record.

XXXXXXXXXX 							2009-034516
								G. Allen
November 25, 2009

Dear XXXXXXXXXX :

Re: Tax-Free Savings Account (TFSA) - Swaps

This letter is in reply to your emails sent October 16 and 21, 2009, wherein you enquire whether an individual can swap securities between the individual's TFSA and the individual's non-registered account.

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website.

On October 16, 2009 in a Finance Canada News Release, available at: http://www.fin.gc.ca/n08/09-099-eng.asp, proposed amendments to the Income Tax Act were announced to address concerns that have arisen regarding the use of TFSAs in tax-planning schemes. One of the proposed amendments is to prohibit asset transfer transactions (swaps) between TFSAs and other registered, e.g. RRSPs, and non-registered accounts. This prohibition would apply to transfers effected between accounts of the same taxpayer or that of the taxpayer and an individual with whom the taxpayer does not deal at arm's length. It is proposed that this measure apply to transactions occurring after the date of the news release. Concerning withdrawals and the creation of new TFSA room, the Finance News Release proposed amendments that will include rules to ensure that the withdrawal of amounts in respect of deliberate overcontributions, prohibited investments, non-qualified investments, asset transfer transactions and income related to those amounts do not constitute distributions for TFSA purposes and thus do not create additional TFSA contribution room.

With respect to transactions involving TFSAs that may have occurred prior to October 17, 2009, the CRA will be examining any unusual TFSA transactions and applying the existing TFSA rules to challenge aggressive tax planning where appropriate. In this regard, subparagraph (b)(i) of the definition of "advantage" in subsection 207.01(1) of the Income Tax Act provides that a benefit that results in an increase in the fair market value of a TFSA and that is attributable to a transaction that would not have occurred in an open market between two parties dealing with each other at arm's length and had as one of its main purposes to enable a person to benefit from the Part I tax exempt status of a TFSA, will be an advantage and subject to Part XI.01 tax.

We trust that our comments will be of assistance to you.

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