2017-0685071E5 Purchase of investment by a TFSA

Principal Issues: Whether a self-directed TFSA is able to acquire an investment (other than a prohibited investment or non-qualified investment) using its existing property constitutes a contribution by the non-resident holder of the TFSA.

Position: No.

Reasons: The acquisition of an investment by a TFSA using its existing property does not constitute a contribution by the holder of the TFSA.

Author: Schnitzer, Irina
Section: -

XXXXXXXXXX                                                                                            2017-068507
                                                                                                                    I. Schnitzer
                                                                                                                    (613) 670-9009
May 26, 2017

Dear XXXXXXXXXX,

Re:  Purchase of investments by a tax free savings account (“TFSA”) in which the holder is a non-resident of                Canada

We are responding to your letter dated January 26, 2017, wherein you request our views on whether you, as a non-resident of Canada, can continue to be the holder of your self-directed TFSA that is an arrangement in trust, and whether an acquisition by your TFSA of an investment (that is not a prohibited investment or a non-qualified investment) using its existing property that was contributed by you at a time when you were resident in Canada, constitutes a contribution made by you to your TFSA.

This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced).  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 IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Our Comments

As noted in CRA publication RC4466 Tax-Free Savings Account (TFSA), Guide for Individuals, a non-resident of Canada is allowed to keep a TFSA and will not be taxed in Canada on any earnings in the account or on withdrawals from the account. However, any contributions made to the TFSA while the individual is a non-resident of Canada, except for a qualifying transfer or an exempt contribution, will be subject to a 1% tax for each month the contribution stays in the account and the individual may be liable for other taxes.

The acquisition of an investment by a TFSA using its existing property does not constitute a contribution by the holder to the TFSA. The Act does not prohibit a non-resident of Canada who is the holder of a self-directed TFSA from instructing or directing the TFSA from investing funds that were previously contributed to the TFSA at a time when the holder was resident in Canada. As such, whether your TFSA is able to acquire an investment (provided such an investment is not a prohibited investment or a non-qualified investment) appears to be an issue between your financial institution (the TFSA issuer) and you (the TFSA holder) and not an issue that is regulated by the Act or by the CRA.

We trust these comments will be of assistance to you.

Yours truly,

Mary Pat Baldwin CPA, CA
Manager
Deferred Income Plans Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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