Definitions for TFSA
An advantage is any benefit, loan, or debt that depends on the existence of a TFSA other than: TFSA distributions, administrative or investment services in connection with a TFSA, loans on arm's length terms, and payments or allocations to a TFSA by the issuer, including bonus interest and other reasonable payments to a TFSA by the issuer.An advantage also includes any benefit that is an increase in the fair market value of a TFSA that can reasonably be considered attributable, directly or indirectly, to one of the following:
- a transaction or event (or a series of transactions or events) that would not have occurred in an open market between arm's length parties acting prudently, knowledgeably, and willingly, one of the main purposes of which is to enable the holder (or another person or partnership) to benefit from the tax-exempt status of the TFSA; or
- a payment received in substitution for either:
- a payment for services rendered by the holder or a person not at arm's length with the holder; or
- a payment of a return on investment or proceeds of disposition for property held outside of the TFSA by the holder or a person not dealing at arm's length with the holder;
- a swap transaction; or
- specified non-qualified investment income that has not been distributed from the TFSA within 90 days of the holder of the TFSA receiving a notice from us requiring them to remove the amount from the TFSA.
An advantage also includes any benefit that is income (including a capital gain) that is reasonably attributable, directly or indirectly, to one of the following:
- deliberate over-contribution to a TFSA; or
- a prohibited investment for any TFSA of the holder.
If the advantage is extended by the issuer of a TFSA, or by a person with whom the issuer is not dealing at arm's length, the issuer, and not the holder of the TFSA, is liable to pay the tax resulting from the advantage.
- Arm's length
At arm's length is a concept describing a relationship in which the parties are acting independently of each other. The opposite, not dealing at arm's length, includes individuals:
- related to each other by blood, marriage, adoption, or common-law relationships; or
- who act in concert without separate interests, such as those with close business ties.
An individual is not at arm's length with their TFSA.
- Common-law partner
This applies to a person who is not the holder's spouse, with whom the holder is living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:
- has been living with the holder in such a relationship for at least 12 continuous months;
- is the parent of the holder's child by birth or adoption; or
- has custody and control of the holder's child (or had custody and control immediately before the child turned 19 years of age) and the child is wholly dependent on that person for support.
In addition, an individual immediately becomes the holder's common-law partner if they previously lived together in a conjugal relationship for at least 12 continuous months and they have resumed living together in such a relationship. Under proposed changes, this condition will no longer exist. The effect of this proposed change is that a person (other than a person described in b) or c) above) will be a common-law partner only after the current relationship with that person has lasted at least 12 continuous months. This proposed change will apply to 2001 and later years.
Reference to "12 continuous months" in this definition includes any period that they were separated for less than 90 days because of a breakdown in the relationship.
- Deliberate over-contribution
A contribution that an individual makes under a TFSA that results in, or increases, an excess TFSA amount, unless it is reasonable to conclude that the individual neither knew nor ought to have known that the contribution could result in liability for a tax or similar consequences. Income that is reasonably attributable, directly or indirectly, to a deliberate over-contribution constitutes an advantage subject to the special tax on advantages.
- Excess TFSA amount
- the holder's unused TFSA contribution room at the end of the preceding calendar year;
- the total of all withdrawals from the holder's TFSA in the preceding calendar year, other than a qualifying transfer or a specified distribution;
- for a resident of Canada at any time in the year, the TFSA dollar limit for the calendar year; for any other case, nil; and
- the total of all withdrawals made in the calendar year from all of the holder's TFSAs, other than a qualifying transfer or a specified distribution, or the portion of the withdrawal that is more than the excess TFSA amount determined at that time.
- Exempt contribution
- Exempt period
Period that begins when the holder dies and that ends at the end of the first calendar year that begins after the holder's death, or when the trust ceases to exist, if earlier.
- Fair market value (FMV)
This is usually the highest dollar value you can get for property in an open and unrestricted market between a willing buyer and a willing seller who are acting independently of each other. For information on the valuation of securities of closely-held corporations, see Information Circular IC89-3, Policy Statement on Business Equity Valuation.
The individual who entered into the TFSA arrangement and, after that person's death, the individual's surviving spouse or common-law partner and, under proposed changes, a subsequent survivor, if designated as the successor holder of the TFSA. A successor holder designation is effective only if it is recognized under applicable provincial and territorial law and the survivor acquired all of the deceased holder's rights under the TFSA including the right to revoke any previous beneficiary designation.
A trust company, a licensed annuities provider, a person who is, or is eligible to become, a member of the Canadian Payments Association or a credit union with which an individual has a qualifying arrangement.
- Non-qualified investment
Any property that is not a qualified investment for the trust.
- Prohibited investment
This is an investment to which the TFSA holder is closely connected. It includes:
- a debt of the holder;
- a debt or equity investment in an entity in which the holder has a significant interest (generally a 10% or greater interest); and
- a debt or equity investment in an entity with which the holder, or an entity described in the previous bullet, does not deal at arm's length.
A prohibited investment does not include a mortgage loan that is insured by the Canada Mortgage and Housing Corporation (CMHC) or by an approved private insurer.
- Qualified donee
The Income Tax Act permits qualified donees to issue official tax receipts for donations they receive from individuals or corporations. Some examples of qualified donees are registered charities, Canadian municipalities, registered Canadian amateur athletic associations, the United Nations or one of their agencies, or a university outside Canada that accepts Canadian students.
- Qualified investment
An investment in properties, including money, guaranteed investment certificates (GICs), government and corporate bonds, mutual funds, and securities listed on a designated stock exchange. The types of investments that qualify for TFSAs are generally similar to those that qualify for registered retirement savings plans (RRSPs).
- Qualifying arrangement
An arrangement that is entered into after 2008 between an issuer and an individual (other than a trust) who is at least 18 years of age, that is:
- an arrangement in trust with an issuer that is authorized in Canada to offer to the public its services as a trustee;
- an annuity contract with an issuer that is a licensed annuities provider; or
- a deposit with an issuer that is a person who is a member, or is eligible to be a member, of the Canadian Payments Association, or a credit union that is a shareholder or member of a "central" for the purposes of the Canadian Payments Act.
- Qualifying transfer
A direct transfer between a holder's TFSAs, or a direct transfer between a holder's TFSA and the TFSA of their current or former spouse or common-law partner if the transfer relates to payments under a decree, order, or judgment of a court, or under a written agreement relating to a division of property in settlement of rights arising from the breakdown of their relationship and they are living separate and apart at the time of the transfer.
- Qualifying portion of a withdrawal
That portion of a withdrawal from a TFSA (excluding a qualifying transfer or a specified distribution), made in the year, which was required to reduce or eliminate a previously determined excess amount.
- Rollover period
The period that begins when the holder dies and ends at the end of the calendar year that follows the year of death.
- Self-directed TFSA
A vehicle that allows you to build and manage your own investment portfolio by buying and selling various types of investments.
- Specified distribution
A distribution from a TFSA to the extent that it is, or is reasonably attributable to, an amount that is:
- an advantage;
- specified non-qualified investment income;
- income that is taxable in a TFSA trust; or
- income earned on excess contributions or non-resident contributions.
A specified distribution does not create or increase unused TFSA contribution room in the following year, nor does it reduce or eliminate an excess TFSA amount.
- Specified non-qualified investment income
Income (including a capital gain) that is reasonably attributable, directly or indirectly, to an amount that is taxable for any TFSA of the holder (for example, subsequent generation income earned on non-qualified investment income or on income from a business carried on by a TFSA).
This applies only to a person to whom the holder is legally married.
A survivor is an individual who is, immediately before the TFSA holder's death, a spouse or common-law partner of the holder.
- Survivor payment
A payment received by a survivor during the rollover period, as a consequence of the holder's death, directly or indirectly out of or under an arrangement that ceased, because of the holder's death, to be a TFSA.
- Swap transaction
A transfer of property (other than a contribution or distribution) that occurs between the trust and the holder of a TFSA or a person not dealing at arm's length with the holder.
- Unused TFSA contribution room
The amount, either positive or negative, at the end of a particular calendar year after 2008, determined by the holder's unused TFSA contribution room at the end of the year preceding the particular year,
- the total amount of all withdrawals made under the holder's TFSA in the preceding calendar year, excluding a qualifying transfer or a specified distribution;
- the TFSA dollar limit for the particular year if, at some point in that year, the individual is at least 18 years old and a resident of Canada. In all other cases, the amount is nil.
- the total of all TFSA contributions made by the holder in the particular year excluding a qualifying transfer or an exempt contribution.
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