From: 1revenuecanada@canada.com   
      
   Canada Revenue Agency targets successful TFSA investors : CRA SOTW   
      
   Don Cayo: How to lose by winning; CRA targets the most successful TFSA   
   investors   
   By Don Cayo, Vancouver Sun columnist June 13, 2015   
      
   The federal government tells Canadians we can invest through Tax-Free Savings   
   Accounts and never have to pay tax on what our money earns.   
      
   But, oops -- the rules change sharply if your money earns too much. Then, as   
   about 1,000 of the 10 million Canadians who have taken advantage of this tax   
   shelter are learning the hard way, you go from no tax liability to getting   
   clobbered.   
      
   These lucky/unlucky individuals, many of them day traders, have managed their   
   TFSAs aggressively and well, and as a result they are being targeted by CRA   
   auditors.   
      
   Their perceived sin is managing TFSAs as a business. When this is the final   
   ruling, they will be hit with big tax bills and penalties.   
      
   So the question is: How much is too much? On Monday, I asked the CRA. Among my   
   questions: Where's the line between what's allowed and what's not allowed? How   
   can a citizen determine if this line has been crossed or is about to be   
   crossed?   
      
   On Friday, after four days and a handful of updates on the status of their   
   media spokesman's quest to pin down elusive in-house experts, I got my answer.   
   Sort of. It was detailed, but not very helpful.   
      
   First, CRA concedes there is no set threshold for either the number of trades   
   or the amount of money earned that would let TFSA holders know where they   
   stand.   
      
   Rather, I was sent two links to very outdated (from 1980 and 1984) documents   
   pertaining to carrying on a trade or a business. CRA says this activity is a   
   no-no for TFSA holders, but it is also dreadfully ill-defined.   
   The first paragraph of the older of the two documents defines a business   
   activity as doing "a thing that is capable of producing a profit." The second   
   paragraph says you might do this thing as little as once and still be deemed   
   to be engaged in a    
   business transaction.   
      
   Since the whole purpose of investing in a TFSA is to make a profit, it seems   
   to me the whole 10 million of us with accounts -- more than one of every three   
   adult Canadians -- could be deemed to be violating the rule.   
      
   This isn't to suggest CRA is likely to pursue account holders with   
   0.75-per-cent savings accounts, although in theory it perhaps could. But the   
   auditors seem content to target only big fish -- those who have spun average   
   contributions of less than $31,   
   000 into accounts worth an average of $1 million (although in one case brought   
   to my attention, an investor with a balance of "only" $400,000 is being   
   investigated).   
      
   The issue to me isn't whether active day traders -- some conduct two dozen or   
   more trades a day -- deserve to get a tax break from a program designed for   
   more conventional retirement savings. If the law says they don't, that's fine.   
      
   The issue is whether they have, in the words of the government's vaunted   
   Taxpayer Bill of Rights, received information that is "complete, accurate,   
   clear and timely."   
      
   This column highlighted a similar issue shortly after TFSAs were introduced   
   when people were penalized for withdrawing money, then replacing it in the   
   same calendar year -- another no-no. The problem wasn't the rule, it's that it   
   wasn't made clear to    
   either investors, especially small ones, or the institutions that handle their   
   money.   
      
   In the current case, the time it took and the consultations needed to answer   
   my straightforward questions suggest even CRA itself is unsure of the answers.   
      
   In the case of the improper withdrawals, former finance minister Jim Flaherty   
   recognized the inadequacy of the information generally available and waived   
   penalties until CRA corrected its oversight and advertised the rule much more   
   clearly.   
      
   The same solution is warranted here. It is fine for the rules to limit the   
   number of trades, the amount of money accumulated, and/or the length of time   
   investments are held -- all things that seem to be triggering audits. But the   
   rules must be clear and    
   well publicized. Until they are, CRA should back off, and no penalties should   
   be imposed.   
      
   dcayo@vancouversun.com   
   (c) Copyright (c) The Vancouver Sun   
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