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 2009-033097 P. Tsang
January 7, 2011
Dear XXXXXXXXXX :
Re: TFSA Withdrawal Fee
This is in response to your letter of February 27, 2009, wherein you requested our comments on whether a Tax-free Savings Account ("TFSA") withdrawal fee would be considered a "distribution" as defined in subsection 146.2(1) of the Income Tax Act (the "Act").
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 a fee is charged for withdrawing funds from a TFSA, this fee is considered a cost to the TFSA and should be paid with funds held within the TFSA. In our view, a withdrawal fee would not be a "distribution", and, therefore, the amount of the fee 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.
You also inquired whether there are any reporting requirements with respect to TFSA withdrawal fees. We confirm that there is no reporting requirement with respect to TFSA withdrawal fees. For general information on the reporting of distributions and other amounts, we refer you to RC4477, Tax-Free Savings Account (TFSA) Guide for Issuers.
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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