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TFSA's and Residency

Posted by Steve Frye Posted on 18 July 2018

Recently, one of my blog colleagues wrote on the residency rules regarding tax free saving accounts (TFSA’s). Generally, as an owner of TFSA, if you leave Canada, the accumulated funds may remain in the TFSA without Canadian tax consequences. You can’t make any further contributions but you can make withdrawals.

What if in a scenario recently presented in a round table discussion with the Canada Revenue Agency (“CRA”), the CRA subsequently reassessed the TFSA for several taxation years on the basis that the TFSA was allegedly taxable on the income earned from carrying a securities trading business. As reported quite extensively in the press recently, under the application of the tax rules, if a TFSA carries on a business then it must pay income tax on its business income.

As the plan holder, you contend that the central management and control of the trust rested with you and was exercised outside of Canada since you were actively trading securities, and was making all the key investment decisions for the trust. Therefore, the trust was not resident in Canada and was not taxable in Canada on the income earned.

The CRA disagreed with that interpretation, and contended the trust would always be resident in Canada since its real business was carried on in Canada. The CRA acknowledged the TFSA is a self-directed, trusteed arrangement giving the primary responsibility for managing the investments for its non-resident plan holder, not to the corporate trustee. Nevertheless, the TFSA trustee was a corporation licensed under the laws of Canada or a province to carry on in Canada the business of offering trustee services to the public.

The CRA contended that a trust will always reside where its central management and control takes place, which is Canada, given all the duties and obligations imposed on the trustee under the Act. For the same reason, the residence of any trust governed by an RRSP, RRIF, RESP, or RDSP will also be located and remain in Canada.

 

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