The CRA is cracking down on aggressive manipulation of TFSAs and all other registered plans
Registered accounts, and particularly TFSAs, are being scrutinized by the CRA because of abuses in which taxpayers earned tax-free interest as well as tax-free withdrawals from these accounts. Anyone caught violating the recently published “advantage rules” for registered plans could be responsible for up to 100 percent tax penalty. The CRA provided examples of how the anti-avoidance rules in the Income Tax Act work to prevent manipulation, including when they might apply. A recent court case ruled against a taxpayer who fought a tax penalty of $125,000 dollars involving his TFSA account.
- There are several anti-avoidance rules in the Income Tax Act to prevent abuse and manipulation of all registered plans, including not only TFSAs, but also RRSPs, RRIFs, RESPs and RDSPs.
- The CRA can impose up to 100 percent penalty tax on the fair market value of any ‘advantage’ received.
- An example is a deliberate over-contribution to a TFSA where the rate of return outweighs the cost of the regular 1 percent per month TFSA over-contribution tax.
“Registered plans must avoid investments or transactions that are structured so as to “artificially shift value into or out of the plan or result in certain other supplementary advantages.” “