Income Tax Act

Marginal note:Definitions

• 146.2 (1) The following definitions apply in this section and in Part XI.01.

  distribution

  distribution under an arrangement of which an individual is the holder means a payment out of or under the arrangement in satisfaction of all or part of the holder’s interest in the arrangement. (distribution)

  holder

  holder of an arrangement means

  • (a) until the death of the individual who entered into the arrangement with the issuer, the individual;

  • (b) at and after the death of the individual, the individual’s survivor, if the survivor acquires

    • (i) all of the individual’s rights as the holder of the arrangement, and

    • (ii) to the extent it is not included in the rights described in subparagraph (i), the unconditional right to revoke any beneficiary designation made, or similar direction imposed, by the individual under the arrangement or relating to property held in connection with the arrangement; and

  • (c) at and after the death of a holder described in paragraph (b) or in this paragraph, the holder’s survivor, if the survivor acquires

    • (i) all of the holder’s rights as the holder of the arrangement, and

    • (ii) to the extent it is not included in the rights described in subparagraph (i), the unconditional right to revoke any beneficiary designation made, or similar direction imposed, by the holder under the arrangement or relating to property held in connection with the arrangement. (titulaire)

  issuer

  issuer of an arrangement means the person described as the issuer in the definition qualifying arrangement. (émetteur)

  qualifying arrangement

  qualifying arrangement, at a particular time, means an arrangement

  • (a) that is entered into after 2008 between a person (in this definition referred to as the “issuer”) and an individual (other than a trust) who is at least 18 years of age;

  • (b) that is

    • (i) an arrangement in trust with an issuer that is a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee,

    • (ii) an annuity contract with an issuer that is a licensed annuities provider, or

    • (iii) a deposit with an issuer that is

      • (A) a person who is, or is eligible to become, a member of the Canadian Payments Association, or

      • (B) a credit union that is a shareholder or member of a body corporate referred to as a “central” for the purposes of the Canadian Payments Act;

  • (c) that provides for contributions to be made under the arrangement to the issuer in consideration of, or to be used, invested or otherwise applied for the purpose of, the issuer making distributions under the arrangement to the holder;

  • (d) under which the issuer and the individual agree, at the time the arrangement is entered into, that the issuer will file with the Minister an election to register the arrangement as a TFSA; and

  • (e) that, at all times throughout the period that begins at the time the arrangement is entered into and that ends at the particular time, complies with the conditions in subsection (2). (arrangement admissible)

  survivor

  survivor of an individual means another individual who is, immediately before the individual’s death, a spouse or common-law partner of the individual. (survivant)

• Marginal note:Qualifying arrangement conditions

  (2) The conditions referred to in paragraph (e) of the definition qualifying arrangement in subsection (1) are as follows:

  • (a) the arrangement requires that it be maintained for the exclusive benefit of the holder (determined without regard to any right of a person to receive a payment out of or under the arrangement only on or after the death of the holder);

  • (b) the arrangement prohibits, while there is a holder of the arrangement, anyone that is neither the holder nor the issuer of the arrangement from having rights under the arrangement relating to the amount and timing of distributions and the investing of funds;

  • (c) the arrangement prohibits anyone other than the holder from making contributions under the arrangement;

  • (d) the arrangement permits distributions to be made to reduce the amount of tax otherwise payable by the holder under section 207.02 or 207.03;

  • (e) the arrangement provides that, at the direction of the holder, the issuer shall transfer all or any part of the property held in connection with the arrangement (or an amount equal to its value) to another TFSA of the holder;

  • (f) if the arrangement is an arrangement in trust, it prohibits the trust from borrowing money or other property for the purposes of the arrangement; and

  • (g) the arrangement complies with prescribed conditions.

• Marginal note:Paragraphs (2)(a), (b) and (e) not applicable

  (3) The conditions in paragraphs (2)(a), (b) and (e) do not apply to the extent that they are inconsistent with subsection (4).

• Marginal note:Using TFSA interest as security for a loan

  (4) A holder of a TFSA may use the holder’s interest or, for civil law, right in the TFSA as security for a loan or other indebtedness if

  • (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 this Part of any amount in respect of the TFSA.

• Marginal note:Right of set-off

  (4.1) A qualifying arrangement that is a deposit may provide that the issuer has the right to set off any indebtedness owed by the holder to the issuer, or a person related to the issuer, against the holder’s interest in the arrangement if

  • (a) the terms and conditions of the indebtedness and the right of set-off are terms and conditions that persons dealing at arm’s length with each other would have entered into; and

  • (b) it is reasonable to conclude that none of the main purposes for the right of set-off is to enable a person (other than the holder) or a partnership to benefit from the exemption from tax under this Part of any amount in respect of the TFSA.

• Marginal note:TFSA

  (5) If the issuer of an arrangement that is, at the time it is entered into, a qualifying arrangement files with the Minister, before March of the calendar year following the calendar year in which the arrangement was entered into (or such later date as is acceptable to the Minister), an election in prescribed form and manner to register the arrangement as a TFSA under the Social Insurance Number of the individual with whom the arrangement was entered into, the arrangement becomes a TFSA at the time the arrangement was entered into and ceases to be a TFSA at the earliest of the following times:

  • (a) the time at which the last holder of the arrangement dies;

  • (b) the time at which the arrangement ceases to be a qualifying arrangement; or

  • (c) the earliest time at which the arrangement is not administered in accordance with the conditions in subsection (2).

• Marginal note:Trust not taxable

  (6) No tax is payable under this Part by a trust that is governed by a TFSA on its taxable income for a taxation year, except that, if at any time in the taxation year, it carries on one or more businesses or holds one or more properties that are non-qualified investments (as defined in subsection 207.01(1)) for the trust, tax is payable under this Part by the trust on the amount that would be its taxable income for the taxation year if it had no incomes or losses from sources other than those businesses and properties, and no capital gains or capital losses other than from dispositions of those properties, and for that purpose,

  • (a) “income” includes dividends described in section 83;

  • (b) the trust’s taxable capital gain or allowable capital loss from the disposition of a property is equal to its capital gain or capital loss, as the case may be, from the disposition; and

  • (c) the trust’s income shall be computed without reference to subsection 104(6).

• Marginal note:Carrying on a business

  (6.1) If tax is payable under this Part for a taxation year because of subsection (6) by a trust that is governed by a TFSA that carries on one or more businesses at any time in the taxation year,

  • (a) the holder of the TFSA is jointly and severally, or solidarily, liable with the trust to pay each amount payable under this Act by the trust that is attributable to that business or those businesses; and

  • (b) the issuer’s liability at any time for amounts payable under this Act in respect of that business or those businesses shall not exceed the total of

    • (i) the amount of property of the trust that the issuer is in possession or control of at that time in its capacity as legal representative of the trust, and

    • (ii) the total amount of all distributions of property from the trust on or after the date that the notice of assessment was sent in respect of the taxation year and before that time.

• Marginal note:Amount credited to a deposit

  (7) An amount that is credited or added to a deposit that is a TFSA as interest or other income in respect of the TFSA is deemed not to be received by the holder of the TFSA solely because of that crediting or adding.

• Marginal note:Trust ceasing to be a TFSA

  (8) If an arrangement that governs a trust ceases, at a particular time, to be a TFSA,

  • (a) the trust is deemed

    • (i) to have disposed, immediately before the particular time, of each property held by the trust for proceeds equal to the property’s fair market value immediately before the particular time, and

    • (ii) to have acquired, at the particular time, each such property at a cost equal to that fair market value;

  • (b) the trust’s last taxation year that began before the particular time is deemed to have ended immediately before the particular time; and

  • (c) a taxation year of the trust is deemed to begin at the particular time.

• Marginal note:Trust ceasing to be a TFSA on death of holder

  (9) If an arrangement that governs a trust ceases to be a TFSA because of the death of the holder of the TFSA,

  • (a) the arrangement is deemed, for the purposes of subsections (6) and (8), any regulations made under subsection (13), the definition trust in subsection 108(1), paragraph 149(1)(u.2) and the definitions qualified investment and non-qualified investment in subsection 207.01(1), to continue to be a TFSA until, and to cease to be a TFSA immediately after, the exemption-end time, being in this subsection the earlier of

    • (i) the time at which the trust ceases to exist, and

    • (ii) the end of the first calendar year that begins after the holder dies;

  • (b) there shall be included in computing a taxpayer’s income for a taxation year the total of all amounts each of which is an amount determined by the formula

    A – B

    where

    A

    is the amount of a payment made out of or under the trust, in satisfaction of all or part of the taxpayer’s beneficial interest in the trust, in the taxation year, after the holder’s death and at or before the exemption-end time, and

    B

    is an amount designated by the trust not exceeding the lesser of

    • (i) the amount of the payment, and

    • (ii) the amount by which the fair market value of all of the property held by the trust immediately before the holder’s death exceeds the total of all amounts each of which is the value of B in respect of any other payment made out of or under the trust; and

  • (c) there shall be included in computing the trust’s income for its first taxation year, if any, that begins after the exemption-end time the amount determined by the formula

    A – B

    where

    A

    is the fair market value of all of the property held by the trust at the exemption-end time, and

    B

    is the amount by which the fair market value of all of the property held by the trust immediately before the holder’s death exceeds the total of all amounts each of which is the value of B in paragraph (b) in respect of a payment made out of or under the trust.

• Marginal note:Annuity contract ceasing to be a TFSA

  (10) If an annuity contract ceases, at a particular time, to be a TFSA,

  • (a) the holder of the TFSA is deemed to have disposed of the contract immediately before the particular time for proceeds equal to its fair market value immediately before the particular time;

  • (b) the contract is deemed to be a separate annuity contract issued and effected at the particular time otherwise than pursuant to or as a TFSA; and

  • (c) each person who has an interest or, for civil law, a right in the separate annuity contract at the particular time is deemed to acquire the interest at the particular time at a cost equal to its fair market value at the particular time.

• Marginal note:Deposit ceasing to be a TFSA

  (11) If a deposit ceases, at a particular time, to be a TFSA,

  • (a) the holder of the TFSA is deemed to have disposed of the deposit immediately before the particular time for proceeds equal to its fair market value immediately before the particular time; and

  • (b) each person who has an interest or, for civil law, a right in the deposit at the particular time is deemed to acquire the interest at the particular time at a cost equal to its fair market value at the particular time.

• Marginal note:Arrangement is TFSA only

  (12) An arrangement that is a qualifying arrangement at the time it is entered into is deemed not to be a retirement savings plan, an education savings plan, a retirement income fund or a disability savings plan.

• Marginal note:Regulations

  (13) The Governor in Council may make regulations requiring issuers of TFSAs to file information returns in respect of TFSAs.