A reader emailed me an article regarding proposed TFSA changes made by our Finance Minister, Jim Flaherty.  Before you get too concerned, there aren’t any major changes to benefits, but proposed changes to close any loop holes.

Before I get too far ahead of myself, lets get back to basics.  A tax free savings account (TFSA) is an account where investments can compound tax free.  Tax refunds are not offered on deposits, but amounts can be withdrawn from the TFSA without any taxation or conflict with seniors benefits.  The deposit limit increases by $5,000 per year (over age 18).  For more details, check out my original post about TFSAs.

With the basics out of the way, as mentioned, the Finance Minister has proposed a few changes to the TFSA:

  • Make any income attributable to deliberate overcontributions and prohibited investments subject to existing anti-avoidance rules in the Income Tax Act.
  • Make any income attributable to non-qualified investments taxable at regular income tax rates.
  • Ensure that withdrawals of deliberate overcontributions, prohibited investments, non-qualified investments or amounts attributable to swap transactions, or of related investment income, from a TFSA do not create additional TFSA contribution room.
  • Effectively prohibit asset transfer transactions between TFSAs and other accounts.

Over Contributions

Over contributions in the TFSA are currently charged an interest of 1% per month. Even though this fee is hefty, some are intentionally over contributing in an attempt to surpass the penalty in profits. For example, if someone bet the index in March 2008 by over contributing to a TFSA, the investment gain would easily beat any penalties charged.

What do the proposed changes mean?  Simply that if the investor intentionally over contributes, invests and makes a profit, the gains will be completely taxed away.  Basically the changes will eliminate the incentive to over contribute.

Non Qualified Investments

What is considered a non-qualified investment?

  • Shares of the capital stock of a corporation in which the holder has a significant (10% or greater) interest
  • Investments in entities with which the holder does not deal at arm’s length
  • Land
  • General partnership units

What are the new penalties for non-qualified investments?  According to the Globe Investor

Any gains on prohibited investments, such as shares of a company in which you own a significant interest, will be taxed at 100 per cent while any secondary income related to non-qualified investments, such as land or general partnership units, will be taxed at regular rates.

Asset Transfer

Basically, this new rule prohibits the transfer from registered and non-registered accounts (non-cash) to a TFSA.

The proposed amendments would effectively prohibit asset transfer transactions between registered or non-registered accounts and TFSAs. The prohibition would apply to transfers effected between accounts of the same taxpayer or that of the taxpayer and an individual with whom the taxpayer does not deal at arm’s length.

Generally speaking, the proposed changes will not affect the everyday investor, but perhaps those who like to push the rules to the limit.  What are your thoughts on the new rules?

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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11 years ago

If you want to buy real estate in a TFSA buy REITs

11 years ago

I am interested in purchasing a real-estate investment property with my tfsa. The rules state land investments are not allowed,but what about co-operative condominiums. The building is owned by a trust and the owner only owns a share providing exclusive use of the property. Is that a way of gaming that rule legally?

TFSA – $46,000 ish. I love 2009! My strategy was pretty high risk options investments but being under 30 I had the timeline to recoup losses.

11 years ago

I have two TFSAs. One is with a financial institution and has some GIC’s> Some of the GICs which will mature in Jan/09. I want to take the cash from the maturing GICs and put it into the other TFSA which is with a discount broker. Does anyone see a problem?

Or will I have to wait until 2011 to reinvest the monies into the Discount Broker TFSA?

Ed Rempel
11 years ago

Hi FT, James & fillalph,

You are all on the right track. There is no problem with selling in a TFSA and buying the same investment in an RRSP, or the other way around.

The superficial loss rules kick in if you sell a non-registered investment at a loss and then buy the same investment within 30 days – either you or your spouse, even in an RRSP or TFSA. Then the capital loss on the non-registered investment is not allowed.

If you are only buying and selling in RRSPs or TFSA, and not claiming non-registered losses, then there is no problem.


11 years ago

When an investment is held within a registered account like an RRSP, it changes its character. Anything that happens within an RRSP stays within an RRSP until it is is withdrawn and then is treated like regular income without any preferential tax treatment and is added to all other incomes in the year of withdrawal. You can sell whatever you want within an RRSP without any tax consequences if you leave it there. However if you want to buy the same positions that you sold within the RRSP and then withdraw the cash from your RRSP, you would pay tax on the withdrawn amount. You can always buy them back within your TFSA as well as long as you do not exceed your maximum contribution amount within the TFSA for the current year.

Seems to me if you think that the positions you are selling should appreciate over time and still think that they are a good investment, you should consider buying them within your TFSA and not sell within your RRSP letting them appreciate. Assuming you have the capital.


11 years ago

I am still learning, but don’t you have to wait 30 days or it would be a superficial lost?

11 years ago


can I sell my RRSP stocks at a loss to the market and then buy the same stocks in my TFSA from the market?

11 years ago

can I sell my RRSP stocks at a loss to the market and then buy the same RRSP’s in my TFSA from the market?