The federal government has released a package of proposed changes to the Income Tax Act relating to Tax-Free Savings Accounts.

The proposed amendments, when enacted, will implement the measures that the government announced in October, which are intended to block the use of inappropriate transactions to draw excessive benefits. The changes are in response to concerns that have arisen regarding the use of TFSAs in tax-planning schemes, the government said.

The proposed amendments would:

• make any income attributable to deliberate overcontributions and prohibited investments subject to existing anti-avoidance rules in the Income Tax Act;
• make any income attributable to non-qualified investments taxable at regular income tax rates;
• ensure that withdrawals of deliberate overcontributions, prohibited investments, non-qualified investments or amounts attributable to swap transactions, or of related investment income, from a TFSA do not create additional TFSA contribution room; and
• effectively prohibit asset transfer transactions between TFSAs and other accounts.

“Our government is committed to enhancing the fairness of Canada’s tax rules,” said Finance Minister Jim Flaherty. “Tax-Free Savings Accounts are an important vehicle for helping Canadians save. We want to ensure that the rules work appropriately for everyone.”

Interested stakeholders have until May 31, 2010, to submit comments on the proposed amendments.

The government said it will proceed with legislation at an early opportunity to implement the proposed amendments, taking into account any comments received.

IE