The CRA is watching how often you trade marketable securities in your TFSA
A recent decision by the Federal Court of Appeal serves as a reminder to all Canadians that if you actively trade marketable securities in your tax-free savings account, the Canada Revenue Agency may consider this activity to constitute a business, and the TFSA, rather than being tax free, could be subject to tax on its business income.
Frequent trading in a TFSA has been a focus area for the CRA’s audit and reassessment activities. This recent case was an appeal by the taxpayer of a 2023 Tax Court decision. The Vancouver-based investment adviser opened up his first TFSA at the beginning of the program’s launch on Jan. 2, 2009, and grew it to more than $617,000 from $15,000 in three years by frequently trading penny stocks.
It was a self-directed TFSA and all securities purchased and sold by the TFSA were “qualified investments,” as specified in the Income Tax Act.
Qualified investments include: money, guaranteed investment certificates and other deposits; most securities listed on a designated stock exchange such as shares of corporations, warrants and options, and units of exchange-traded funds, real estate investment trusts, mutual funds and segregated funds; debt obligations of a corporation listed on a designated stock exchange; and debt obligations that have an investment-grade rating.
A comprehensive list of qualified investments can be found in the CRA’s Folio S3-F10-C1, Qualified Investments — RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
The taxpayer primarily invested in non-dividend-paying and speculative stocks in his TFSA, with the majority being junior mining penny stocks listed on the TSX Venture Exchange. The TFSA held most of the shares for only short periods of time.
In each of his TFSA’s first three years
Read more on financialpost.com
