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 a withdrawal fee charged to a TFSA arrangement per withdrawal transaction will be considered a distribution as defined in subsection 146.2(1)?
Position: No.
Reasons: It is a cost to the TFSA arrangement, such that it would not be a distribution.
XXXXXXXXXX 2009-034838 P. Tsang
January 7, 2011
Dear XXXXXXXXXX :
Re: TFSA Withdrawal Fee
This is in response to your correspondence of November 17, 2009, wherein you requested our comments on a Tax-free Savings Account ("TFSA") service charge and the definition of "distribution" as defined in subsection 146.2(1) of the Income Tax Act (the "Act").
In particular, you gave an example where an individual has $5,000 in his TFSA. This individual would like to withdraw the entire $5,000, but there was a service charge of $0.75. You asked if only $4,999.25 would be considered a "distribution".
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling as set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. We are, however, prepared to offer the following general comments which may be of assistance.
Subsection 146.2(1) of the Act defines a "distribution" under a TFSA to mean a payment out of or under the TFSA in satisfaction of all or part of the TFSA holder's interest in the arrangement. Where there is a service charge for withdrawing funds from a TFSA, this service charge is considered a cost to the TFSA and should be paid with funds held within the TFSA. In our view, the service charge would not be considered a "distribution" and the amount of the service charge would not be added to the TFSA holder's "unused TFSA contribution room" as defined in subsection 207.01(1) of the Act. The foregoing would apply to an arrangement that is a trust, an annuity contract or a deposit. Accordingly, in your example, we would concur with you that the "distribution" would be $4,999.25.
We trust the above comments will be of assistance.
Yours truly,
Mary Pat Baldwin, CA
for Director
Deferred Compensation Arrangements and Retirement Plans Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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