From: AlanBaggett@volcanomail.com   
      
   CRA begins issuing Tax-Free Savings Account reassessments : CRA SOTW   
      
   CRA begins issuing Tax-Free Savings Account (TFSA) reassessments   
   Thorsteinssons LLP David Davies    
   November 1 2012    
       
   The Canada Revenue Agency (CRA) has begun issuing assessments to holders of   
   Tax-Free Savings Accounts (TFSAs). So far, we have seen primarily assessments   
   issued under the authority of section 207.05 of Part XI.01 of the Income Tax   
   Act (Canada) in respect    
   of advantages received by a TFSA. This is an obscure provision, even for tax   
   practitioners. The assessments typically assess as tax the full amount of the   
   TFSA’s value as of the end of 2010, plus penalties, plus interest. We have   
   previously noted the    
   punitive nature of these assessments.    
      
   Ordinarily, the CRA has three years from the date when a tax return was first   
   assessed to disagree with any of the reporting positions taken by a taxpayer,   
   and to issue a reassessment. However, the CRA faces no such three-year   
   limitation in reassessing    
   the holder of a TFSA, because typically no Part XI.01 return (Form RC243) was   
   filed in the first place. It should be noted that a return was required to be   
   filed only if there was tax to pay under Part XI.01 – and, of course, for all   
   who are now being    
   assessed, they were unaware that the CRA was taking issue with their TFSAs   
   such that tax could become payable. Thus, as a result of no returns yet having   
   been filed, the CRA is now issuing “assessments” and not “reassessments” of   
   the TFSA holder.   
      
   One incidental effect of not filing a Part XI.01 return is that the CRA is in   
   many cases also assessing a late-filing penalty (of up to 17% of the unpaid   
   tax) for failing to file the TFSA return. In most cases, after factoring in   
   the interest and late-   
   filing penalty, the assessment winds up being 125% or more of the closing   
   statement value at the end of 2010.   
      
   The tax is payable by the TFSA owner, not by the TFSA itself. Therefore, the   
   owner is not insulated from any decline in the market value of the TFSA. As it   
   presently stands, the CRA takes everything on the way up, and stands back to   
   let the TFSA owner    
   take the losses – with no tax relief on the way down. This can result in the   
   owner owing far more in assessed tax, interest and penalties than the current   
   value of the TFSA.   
      
   We are vigorously disputing these assessments because, in our view, the CRA   
   has far overstepped the language of the Income Tax Act.   
      
      
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