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Transfers of Qualifying Arrangements between Tax-Free Savings Account (TFSA) Specimens

The Globe and Mail.

A Tax-Free Savings Account (TFSA) is a registered account with CRA introduced in You can use a TFSA to save for any short- or long-term goal—a new car, a home, a rainy day or retirement. Investment earnings and withdrawals are tax-free, so your money grows faster! Caveat: The answers to the questions below are intended for general guidance and are by no means meant to be the exact course of action for every scenario. Note: For the purposes of TFSA, an individual record is the equivalent to an information slip. 1. Can Tax Free Savings Account (TFSA) issuers.

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In essence, you are sending us a new "snapshot" of what the original individual record should have contained. When a previous individual record is rejected original or amended and the financial institution corrects the data and re-files it with the CRA, is it submitted as an original or as an amendment?

If an original or amended record has already been submitted to the CRA, and information on that record needs to be amended, then an amended version of that individual record must be sent to the CRA.

Even if the CRA has advised you that an individual record has been rejected, we have retained it in our databases and are awaiting a corrected individual record. For TFSA, the original individual record is essentially the first one you submit for that particular reporting year. Anything after that is an amendment to the original. There cannot be two original records in the same reporting year. The only exception to this is if a mistake was made on the contract number; If so, a cancelled individual record must be submitted to cancel the original contract with the incorrect contract number and that would need to be followed by a new original with the correct contract number.

Yes, this would require an electronically amended individual record to be filed for the previous year. The only situation where you should use a cancel to change a previous individual record is if you need to modify the contract number or cancel the contract. There may be a couple different reasons for this, such as an incorrect contract number originally submitted, or where the CRA does not accept the arrangement as a valid TFSA.

The contract number is a critical element being used to target and identify the individual record. If you were to send an amended individual record with an amended contract number, the CRA would not know which individual record needs to be amended.

When cancelling an individual record, you must resend the identical record and only change the slip type code to "C". For all other situations where you need to amend information provided on a previous individual record except contract number , you must submit an amended individual record, whether amending an original or a previous amendment. When submitting an amended individual record, you need to provide the CRA with a new "snapshot" of that previous individual record containing the original data and the modified data.

If you are amending a record, you must change the slip type code to "A" and then change the data you are modifying. Simplified example of an amendment Note: These are examples with general guidelines and should not be used as the exact course of action for every amendment scenario. Let's now assume that in , after the individual record was filed with the CRA, an error on the January 1 contribution was noticed. An amended individual record with just that amended data showing must not be submitted.

The amended individual record must contain all the data from the original individual record, including the change to the contribution and the FMV. A successor holder may be designated by the original holder of the TFSA at the time of registration of the contract. Therefore, when the individual record is filed by the last day of February in the year following the year of death of the holder, the successor holder details to be reported include the name and social insurance number SIN.

Therefore, when the individual record is filed by the last day of February in the year following the year of death, under the name and social insurance number SIN of the successor holder, the name and the date of death of the original holder must also be included. What do we report on the amended record when no successor exists on the account?

What do we report when a successor exists on the account? At this point, the individual record for this individual was already filed in February If there is no successor holder, an amended individual record must be filed to indicate the date of death and FMV at death. If any contributions were made after the date of death, those contributions should be withdrawn from the account. Those contributions and withdrawals would not be reported on the amended individual record.

However, all withdrawals except the ones to remove the contributions after death made from the date of death to the end of the exempt period, should be reported. If it is a successor holder account, an amended individual record must be filed, for the year of death, to report all transactions for the entire year under the successor holder's name and SIN.

The deceased's information would be reported and the field "Successor Holder Account: When a trusteed TFSA holder passes away, and no designated successor exists on the account, how are post-death gains to be treated? For a trusteed TFSA, please refer to the following publication: Can the successor holder also name a successor of their own when they assume the TFSA contract?

Yes, if it is permitted by the terms of the contract. Issuers can amend their TFSA specimens in order to enable them to administer contracts under that specimen in accordance with the comfort letter.

Issuers can also continue to administer arrangements in accordance with the existing legislation. Under existing legislation, if certain conditions are met, the spouse or common-law partner of the holder can become the successor holder at the date of the holder's death.

Only one successor holder can be named per contract. If the successor holder wants to name a new spouse as successor holder, they must first transfer the funds to a TFSA under which they are the original holder, and then designate their new spouse as the successor holder.

This field is only required to be completed upon death of the last holder. If a successor assumes the account, no FMV at date of death is required to be reported. When the successor, as the last holder, dies, then that field will need to be completed. Can the successor who has no other TFSA account then start making contributions to this deceased account contract?

Yes, for the purposes of determining the existence of any excess amounts in the deceased's TFSA and computing the successor holder's unused contribution room, the CRA will update contributions and withdrawals up to the date of death under the deceased's SIN and the contributions and withdrawals after the date of death under the successor's SIN. Where the successor has another TFSA account, the transfer of the deceased's assets does not impact the contribution room of the successor holder.

How should this be reported to the CRA? It would not be reported as a contribution or a withdrawal. However, even if a qualifying transfer is made, an individual record under the successor holder's SIN must be filed.

If the successor holder information is provided, along with the date of the original holder's death and a "Yes" flag indicating a succession, CRA will be able to recognize the change in ownership. If the successor holder information has already been provided on a previous individual record, does the CRA expect the successor holder information to be reported every subsequent year?

Which of the following is acceptable? Successor holder account field is flagged as "N" and no deceased holder information is provided or Successor holder account field is flagged as "Y" and deceased holder information is provided.

In a case where a successor holder opts to close an inherited account by transferring the balance to another existing TFSA, will CRA accept two separate records; one to reflect the death of the original holder of the account and one to reflect the account being under a new holder?

Will the successor's account record contain all of the deceased's information or will CRA only accept the filing of a single record whereby the same contract contains just the successor information? Where a successor to the account has been designated the succession takes place automatically, the moment the original holder dies, and does not depend on the processing of registration documents.

Consequently, when the original holder dies, the individual record for that account will be filed under the successor's name and SIN. If the funds are subsequently transferred to another account under which the successor is the holder, it would be considered a qualifying transfer between two accounts, each of which is under the successor's name and SIN. Once this transfer is complete, then the empty account can be closed. While these transactions can be carried out in a short period of time they are still considered as three clearly separate transactions: Marriage breakdown a For savings and term deposits, are transfers already at FMV since it would be the net amount transferred to the spouse?

No, they would be reported as separate transactions, even if they occurred on different times of the same day. In this example, both partners have their own TFSAs. One of the partners dies: The CRA would expect to see the following in the individual records for the reporting year filed by last day of February After the holder's death, if the trustee transfers the funds out of a TFSA it would be transferred into a regular holding account for distribution purposes to beneficiaries.

Only the TFSA holder can authorize a transaction involving his or her account, even a transfer between accounts. If the holder is deceased and there is no successor to take over the account, no further transactions can be made on that account. After the date of death, any amounts paid out or transferred from the deceased TFSA to another account would be reported as a regular withdrawal under the deceased's SIN.

The financial institution receiving the funds would have to deposit those funds into a regular holding account. Direct transfers between individual's TFSAs do not get reported - either as contributions or withdrawals. Where an individual, who is a Canadian resident, opens an account and subsequently becomes a non-resident before the end of the year how is that change of residency reported? Only one individual record would be filed and it would be reporting the last known address.

CRA would use the date of the transaction as well as the known date of departure to determine if the contribution was made while a resident.

Does this need to be identified on the XML file? If you are aware that the client is a non-resident, you should advise them that they should not contribute to their TFSA while a non-resident as they may be subject to a penalty tax. This ID is associated to each individual record submitted in that return. If an account has no activity over the course of a full calendar year, does an individual record for that account need to be filed to the CRA?

For accounts with no activity, should a zero value be provided instead of a blank transaction? If there are no transactions, there is no need to report any, so zero value does not have to be reported. Since records with no values in "Mandatory" fields will be rejected, would it be acceptable to the CRA if values for "Required" fields e. Any required information should be provided except the ones indicated "if any".

For example, if any contributions were made during the year, the contributions field would be updated; if none were made, then it would not be updated. The five agents are:. Therefore, each would need its own RZ account, unless ABC company expects these agents to report back to them so it could consolidate and report on their behalf. If they are not separate and they all have to report to one central office, all these branches may report their data to a central office, which in turn would have one TFSA ID and only one RZ account and file a single return on behalf of all these offices.

TFSA returns can only be submitted electronically via the Internet using one of the three following options:. Internet file transfer service. For details on this service, please visit Represent a Client. Are there still plans to perform tests with financial institutions for electronic transmission of XML files? If you would like to test the format and layout of your XML file to ensure that it complies with our XML specifications, you may do so by using a parser. Will the CRA accept compressed files via the Internet file transfer service?

However, a compressed file must only contain one XML file. If it contains more, we will reject the submission. Before implementing this strategy, Mary and John should seek professional legal advice regarding the potential application of family law and whether this planning strategy would have any effect on their current estate plan. In addition, Mary and John should consult with their qualified tax adviser to determine tax consequences for a potential transfer, including whether there are any U.

This strategy allows the appropriate decision on whether or not to declare the capital gain as a disposition after knowing the facts from the budget. As always, what is decreed in the budget announcement always has to be passed into law by parliament and as tax payers, we can only guess at what will be declared. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way.

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