Canadians with too many wins in their TFSA are being targeted by CRA
Tax-free savings accounts, created just five years ago by the Harper government as a tool that would allow Canadians to grow retirement investments while sheltered from capital gains taxes, are increasingly being challenged by Canada Revenue Agency.
The CRA is also hitting investors with audits if they are trading too frequently. The CRA has argued that investors who use their TFSAs for frequently trading, resulting in large gains, are effectively running a trading business and should be taxed on those gains.
Sources from the tax and legal sectors have confirmed that the CRA has begun to roll out a TFSA audit project that has become increasingly active in the past couple of years. The exact amount or frequent activity that will trigger an audit still remains unclear.
In the past, the CRA had targeted investors who were undervaluing closely held shares in their TSFA, exploiting the lack of liquidity to understate the equity's likely value. Most people in the industry had agreed and did not argue against that crackdown.
The Investment Industry Association of Canada have begun to argue that there needs to be some clear-cut rules on what tax rules may be broken with the usage of a TFSA. It is also concerned about liability its members may now have if a taxpayer were to withdraw all their money out of a TFSA before the tax bill arrives.