Ok folks,
here are questions for you folks. Repeated calls to banks haven't given me a satisfactory reply, so I am throwing it out here.
Maybe some Dada advisors can throw some light on this.

1. A gentleman wishes to open a TFSA in trust for a/c for his daughter who is 8, so that the accumulated capital goes to her at 18, w/o taxation. Can he do this?

2. The same person wishes to open an account in his own name now, when his daughter is 8, and wishes to transfer the accumulated capital to her when she is 18, 20 or whenever. What are the tax implications if any at the time of transfer.

In both cases he wishes to max out the contributions- so the minimum after 10 years will be $50,000 plus accrued interest, capital gains, whatever.

Any notions?

Did u find any answers to these?

Hi,
Well the answer to the first question is no. One cannot cannot open an in trust for TFSA a/c for a minor as it is a registered acc. and registered accounts cannot be ITF only open accs.

2. Reply to the 2nd question. CRA is non-committal. Asked me to send the question in writing as there is nothing specific in the TFSA proosal to that account. Still awaiting a reply.
Banks and other financial institutions are divided. Based on the logic that an RRSP a/c is not transferable to an adult non-dependent child without taxes, they think the same will apply to TFSA a/c.
The other school claims that it can be transferred to an adult non-dependent child without tax as the originally invested money does not qualify for a tax return.
Most financial orgs have said that is a very relevant question and wonder how come it wasn't specifically addressed by the govt in its TFSA offer.


Any tax experts on this forum can tackle this?

here's a use for TFSA.
For those of you putting money in a savings a/c or other instrument on a monthly basis to save for your year end property taxes, you may put it into a TFSA a/c so that there are no tax implications when you withdraw the amount to pay your prop taxes.

enjoy!

TFSA Account

The information given below came to me from a practicing Chartered Accountant Firm through an unsolicited (?) email but as the information is very useful for each and every one of us, I am taking the liberty of posting (cut and paste) here without mentioning the name of the firm as I do not wish to advertise the name of the firm here. I would have surely given the link if it was on web some where.


In a tax-free savings account:

a)all investment income (interest, dividends and capital gains) will accumulate tax-free

b)contributions are not tax-deductible

c)withdrawals are not taxable

d)capital losses are not tax-deductible

e)dividends will not be eligible for the dividend tax credit

TFSA contributions

1.Contributions to a TFSA can be made by Canadian residents aged 18 or over

2.Up to $5,000 per year can be contributed to a TFSA, with unused contribution room being carried forward.

3.The $5,000 annual contribution limit will be indexed to inflation in $500 increments. At the current rate of inflation, the limit will increase to $5,500 in 2012.

4.If a person has contribution room, but no funds to contribute, they may contribute funds given to them by their spouse or common-law partner, with no attribution of income to the spouse.

5.Contributions can consist of \"in kind\" contributions of qualified investments.
a)Any resulting capital gain will be taxable
b)Any resulting capital loss cannot be claimed.


Qualified investments

Qualified investments will generally include all arm's-length RRSP qualified investments

Borrowing

1.Interest on money borrowed to invest in a TFSA is not tax deductible.

2.A TFSA can be used as security for a loan.

3.Cannot be used to provide margin for linked margin accounts.

TFSA Withdrawals

1.Withdrawals will create contribution room for deposits in future years (not in the year of the withdrawal).

2.Income and withdrawals from a TFSA will not affect eligibility for federal income-tested benefits and credits such as
a)guaranteed income supplement (GIS)
b)old age security (OAS)
c)age exemption tax credit

3.Any fees paid related to the TFSA will not be tax-deductible, and will not be included in contributions or distributions (withdrawals).

If the maximum $5,000 has been contributed to a TFSA in a year, and then a withdrawal is made, no further amount can be contributed (without penalty) until the following year. At that time, the withdrawal from the previous year will be used to increase the contribution room.

Unused contribution room

The unused TFSA contribution room at the end of a calendar year is the positive or negative amount determined by the formula

A + B + C - D where

A is the unused contribution room at the end of the previous calendar year

B is the total of distributions (withdrawals) made in the preceding calendar year

C is the TFSA dollar limit for the calendar year ($5,000 for 2009), if at any time in the calendar year the individual is 18 years of age or older and resident in Canada

D is the total of contributions made to a TFSA by the individual in the calendar year

Certain distributions and contributions are excluded from the above formula:

1.transfers made directly between TFSAs held by the same person

2.transfers made as a result of a marital breakdown, under certain conditions

3.withdrawals which are made to reduce or eliminate an excess contribution

4.exempt contributions made by a surviving spouse/common-law partner of a deceased TFSA holder, in relation to a payment made to the survivor from the TFSA of the deceased.

Taxes payable re TFSA

Withholding taxes on foreign dividends

In a non-registered account, withholding taxes are deducted when dividends are received from corporations resident in a foreign country. The withholding tax rate is 15% for dividends from the US. When US dividends are received in an RRSP, there is no withholding tax. This is because of the Canada-United States Tax Convention (Treaty), Article XXI.2.

We have not been able to get an answer on whether withholding taxes will be deducted on US or other foreign dividends received in a TFSA. The Canada-US Tax Treaty provides for US dividends and interest to be received free of tax when earned by a trust which is generally exempt from income taxation in Canada, and which is operated exclusively to administer or provide pension, retirement, or employee benefits. S. 146.2 of the Income Tax Act states that a TFSA is deemed not to be a retirement savings plan. It is quite likely that withholding tax will be deducted from US and other foreign dividends received in a TFSA. When we get a definite answer on this, we will update this information.

Tax on excess amount

The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month.

Non-resident contributions

If a non-resident individual makes a contribution to a TFSA, the tax payable is 1% of the contribution amount per month, until either

1.the amount is withdrawn, or
2.the individual becomes resident in Canada

Tax on prohibited or non-qualified investment

A tax of 50% of the fair market value of the prohibited or non-qualified investment will be payable by the holder of a TFSA if

1.the TFSA acquires a prohibited or non-qualified investment, or
2.an investment held by the TFSA becomes a prohibited or non-qualified investment.

The 50% tax can be recovered if

1.the property is disposed of by the TFSA before the end of the calendar year following the calendar year in which the tax arose, and
2.it is not reasonable to consider that the TFSA holder knew, or ought to have known, at the time the property was acquired, that it was, or would become, a prohibited or non-qualified investment.

Marital breakdown

TFSA transfers can be made directly to a former spouse or common-law partner's TFSA without affecting their contribution room, if

1.the individuals are living separate and apart at the time of the transfer, and

2.the transfer is made under a decree, order or judgment of a competent tribunal, or under a written separation agreement

Death of the TFSA holder

A TFSA holder can name a spouse or common-law partner as the successor holder when the TFSA is created. On the death of the holder, the spouse becomes the new holder, keeping the tax exempt status of the TFSA. This will not affect the TFSA contribution room of the spouse.

Where no successor holder is named for the TFSA, the proceeds of the account will become part of the estate of the deceased. If a surviving spouse/common-law partner receives proceeds from the TFSA, the proceeds can be used to make an exempt contribution to the survivor's TFSA, and not affect the contribution room of the survivor, as long as

1.it is done before the end of the first calendar year following the holder's death (rollover period), and

2.it is designated as an exempt contribution in the survivor's income tax return for the year the contribution is made.

Where there is no spouse or common-law partner named as the successor holder, the TFSA will not lose its tax-exempt status until the earlier of

1.the time it ceases to exist (completely paid out to beneficiaries), or

2.end of first calendar year following the holder's death.

Any payments to beneficiaries, including during this exempt period, will be taxable to the beneficiaries, to the extent that the payment includes income or capital gains earned after the death of the holder.

Example: Holder dies with TFSA valued at $80,000. By the time the assets are distributed to the beneficiaries, the value has grown to $82,000. $2,000 will be taxable income to the beneficiaries.

Assets with named beneficiaries such as life insurance policies or RRSPs are excluded in determining the value of an estate for purposes of probate. It is likely that a TFSA with a named successor holder would also be excluded from probate. This is a very good reason for anyone with a spouse/common-law partner to ensure that they name that person as a successor holder when setting up the TFSA.

What is better - TFSA or RRSP?

The RRSP and TFSA have almost equivalent results when the marginal rate for RRSP contributions is the same as for RRSP withdrawals.

The RRSP is better if

the marginal tax rate for RRSP withdrawals will be lower than the marginal tax rate when contributions are made

The TFSA is better if

the marginal rate for RRSP withdrawals will be higher than the marginal rate for contributions

The TFSA will be useful in some situations such as:

a)when there is no RRSP contribution room available

b)keeping savings available for emergencies

c)for short term savings goals such as a vehicle, appliances, etc.
seniors who are not eligible, because of age, to contribute to an RRSP

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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

Good stuff Pramod- Thks.

Thanks for the info Mr. Pramod.

But as I understand TFSA & RRSP are 2 different things altogether and you can't compare the two as RRSP contribution is tax deductible whereas TFSA contribution is not tax-deductible (I know the article covers this point but I am talking from the comparison perspective)

One can have RRSP contribution under TFSA itself, isn't it?

Suppose person "A" contributes $5000 to RRSP under Market Driven GICs. Then this amount ($5000) would be tax deductible and the interest earned would tax free as well as it's under TFSA, if one decides to withdraw RRSP amount for whatever reasons or it is withdrawn on retirement


Or am I missing something ?