In late 2011 the Canada Revenue Agency (“CRA”) began auditing Tax-Free Savings Account (“TFSA”) holders for the 2009 and 2010 years following the revelation that some TFSA investments had been wildly successful. The result is often a reassessment and a large tax bill for Canadians who thought the TFSA was supposed to be “tax free”. It’s now 2015 and CRA shows no signs of stopping this practice.
The TFSA came into effect on January 1, 2009 and instantly provided a new way for Canadians to save money. Canadians can use a TFSA to invest in all kinds of qualified investments (similar to an RRSP). From 2009 to 2012 the maximum annual contribution was $5,000; beginning in 2013 the maximum annual contribution was increased to $5,500. Any gains accrued within the account would be tax-free, but the other side of the coin was that any losses would not be deductible. From commodities to penny stocks, some investors took major risks upon the introduction of the TFSA and were rewarded with staggeringly high returns on investment. The CRA proceeded to audit and reassess TFSA accounts with balances that were “too high”, alleging that TFSA holders were carrying on a business (which should be taxed on income).
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