March 2020 Newsletter

As is well known, the Tax Free Savings Account rules allow you to invest a substantial amount of money in a TFSA, and all interest, dividends and capital gains earned in the account are tax-free.

For 2020, another $6,000 is added to the amount you can contribute.

Since TFSA eligibility starts at age 18 and TFSAs started in 2009 (originally at $5,000 per year, now $6,000), your cumulative TFSA contribution limit as of 2020 is, based on your birthdate:

before 1992 69 500  $
1992 64 500
1993 59 500
1994 54 500
1995 49 500
1996 44 000
1997 38 500
1998 28 500
1999 23 000
2000 17 500
2001 12 000
2002 6 000
2003 or later 0

You can withdraw funds from a TFSA at any time with no tax cost, and the amount you withdraw becomes available to re-contribute, but only from the following January 1. If you recontribute too soon, a penalty tax applies.

Do not swap securities in or out of your TFSA, i.e., in exchange for money or securities in other investment accounts. Severe penalties apply to a “swap transaction”.

Also, do not do too much active trading in your TFSA. If you buy and sell securities all the time, the TFSA may be considered to be “carrying on business”, and then it loses its tax exemption and will have to pay tax, as a trust, at the highest tax rate that applies to individuals (something in the 50% range, depending on your province of residence). And you will be personally liable for that tax, so the CRA can assess you to collect it if the TFSA doesn’t have sufficient assets to pay.

The line between owning stocks as capital investments and holding them for trading as a business is not always clear. At one extreme, if you just buy or sell a stock once a month there should be no problem. At the other extreme, if you are trading almost every day and holding stocks for only a few days at a time, that will be considered carrying on business and the TFSA will be taxed.

So be careful about this!

Last modified on March 13, 2020 12:00 am
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