$110 Million Owing on TFSA Audits

Over the past year, the Canada Revenue Agency has made it a priority to collect on what they’ve deemed to be over $100 Million in unpaid taxes on TFSA investments. But can investors fight back?

The issue has resurfaced prior to the first appeals case appearing in tax court this fall, and it has some investors concerned.

Recall that trading activities done inside of a TFSA have been reclassified as “business activities” rather than capital gains for some Canadians. This change has led to unanticipated tax bills for many, a number that’s soared to $110 Million, according to CRA reports.

Following the initial controversy in 2017, the CRA cited its interpretation bulletin “Transactions in Securities” when helping perplexed Canadians understand what might be classified as “carrying on a business” when trading within a TFSA, stating that there’s nothing unique about TFSAs in the context of securities trading and that general rules apply to all trading vehicles. Assessments are performed on a case-by-case basis, with the CRA looking at things like transaction frequency, the nature and quantity of the securities, and the time the holdings are maintained.

With much left up to interpretation, Canadians who are concerned should seek the counsel of their tax and financial advisors in order to mitigate the audit risks and tax consequences.

But according to Walter Harder, Knowledge Bureau Master Instructor and tax expert, most Canadians should remain in the clear. He says, “Most TFSA holders who trade stocks within their TFSAs will not be affected by this interpretation. Those in danger are generally those who trade frequently and hold the shares for a short period of time, or those whose business is in the trading of securities.”

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