2013-0514261E5 Using the Assets of a TFSA as Security for a Loan

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 subsection 146.2(4) permits a TFSA holder to use the underlying assets of a trust governed by a TFSA as security for a loan or other indebtedness.

Position: No.

Reasons: See below.

Author: Kravetz, Faye
Section: 146.2(4)

XXXXXXXXXX
                                                                2013-051426
                                                                Faye Kravetz, JD/MBA

August 28, 2015 

Dear XXXXXXXXXX:

Re:  Using an Interest in a Tax Free Savings Account (“TFSA”) as Security for a Loan

We are responding to your email of November 25, 2013, concerning whether the underlying assets of a TFSA that is an arrangement in trust may be used by the TFSA holder as security for a loan or other indebtedness, pursuant to subsection 146.2(4) of the Income Tax Act (the "Act").  We apologize for the delay.

This technical interpretation provides general comments about the provisions of the Act.  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R6 Advance Income Tax Rulings and Technical Interpretations. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (“CRA”). 

Our comments

Subsection 146.2(4) provides that a TFSA holder may use his or her interest, or for civil law purposes, right in the TFSA as security for a loan or other indebtedness provided the following conditions are met:

(a)    the terms and conditions of the indebtedness are terms and conditions that persons dealing at arm's length with each other would have entered into; and

(b)    it can reasonably be concluded that none of the main purposes for that use is to enable a person (other than the holder) or a partnership to benefit from the exemption from tax under Part I of the Act of any amount in respect of the TFSA.

When the TFSA is an arrangement in trust subsection 146.2(4) would not permit the underlying assets of the TFSA to be used by the TFSA holder as security for a loan or other indebtedness.

We trust that our comments will be of assistance.

Yours truly,


Mary Pat Baldwin, CPA, CA
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015


Video Tax News is a proud commercial publisher of Canada Revenue Agency's Technical Interpretations. To support you, our valued clients and your network of entrepreneurial, small businesses, we choose to offer this valuable resource to Canadian tax professionals free of charge.

For additional commentary on Technical Interpretations, court cases, government releases, and conference materials in a single practical document specifically geared toward owner-managed businesses see the Video Tax News Monthly Tax Update newsletter. This effective summary and flagging tool is the most efficient way to ensure that you, your firm, and your clients are fully supported and armed for whatever challenges are thrown your way. Packages start at $400/year.