The Canada Revenue Agency (CRA) has reassessed more than $75 million in additional taxes resulting from audits of TFSAs thus far, said a CRA official who spoke at the Canadian arm of the Society of Trust and Estate Practitioners’ (STEP Canada) national conference in Toronto on Monday.
In recent years, the CRA has been reviewing certain taxpayers’ TFSAs in cases in which the federal tax agency believes there are indications that the plan holder may be “carrying on a business” within the TFSA, most notably the active trading of securities. Income generated in a TFSA that’s determined to be carrying on a business is taxable.
“The CRA is committed to maintaining a compliance presence on high-risk TFSA transactions to ensure that the provisions of the [Income Tax] Act are respected,” said Steve Fron, manager of the trusts section of the income tax rulings directorate of the CRA, who spoke at a CRA roundtable panel discussion.
Tax practitioners have said that it’s not clear which kinds of activity in a TFSA, or what size in terms of the total value of a TFSA, will draw the CRA’s attention for a review, leading to uncertainty for taxpayers.
“There are no guidelines that we can see out there in terms of when do you cross that line of becoming a trader,” said Kim Moody, a roundtable panelist and partner with Moody’s Gartner Tax Law LLP in Calgary.
However, Fron declined to provide any additional direction to taxpayers at the conference, but instead pointed them to a CRA document from 1984 that outlines the factors the CRA uses to determine whether a taxpayer is considered to be carrying on a business of trading securities.
These factors include the volume of trading, the length of ownership of securities, the taxpayer’s knowledge of the stock market, the taxpayer’s profession, the time spent on researching and trading securities, and whether the taxpayer markets his or her ability to trade securities.
“It’s our view that there really isn’t anything unique to TFSAs when determining whether transactions in securities constitute carrying on a business,” Fron said. “As such, we don’t have any plan to provide any further guidance specific to TFSAs on this issue.”
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