# Funding parents' TFSAs



## cannon_fodder (Apr 3, 2009)

I'd like to help out my parents financially but they are not comfortable accepting money directly. So, I thought about another method that they may be able to live with.

If they were to open up their own TFSAs, and I provide them with the money (let's assume $20k each sometime next year) would that cause any issues with the CRA?

I'd have them open up TFSAs in a discount brokerage and have them give me trading access. Using the same strategy I employ in my own TFSA, I would hope to see a time in the near future where they could return my initial capital while leaving them with all of the profits. I take the risk and they get the reward.

Are there any drawbacks or caveats to this approach from a tax point of view?


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## jamesbe (May 8, 2010)

If they never pay you back,it's a gift. But if they pay you back, you are avoiding tax... Big no no from what I understand


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## Farly (Aug 18, 2009)

I don't believe there are any tax implications to giving your parents a gift of $20,000. If you were giving $20,000 to your spouse or children under 18, attribution rules would apply.


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## jamesbe (May 8, 2010)

Attribution doesn't apply for TFSA, but as I said a gift is fine, but if you get the money back it's a loan...


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## cannon_fodder (Apr 3, 2009)

So if I actually write it up as a loan (while taking advantage of historically low CRA prescribed rates) then this would solve all taxation issues and attribution issues?


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## OptsyEagle (Nov 29, 2009)

There is no tax problem with your plan, whether your parents pay you back or not. As long as they don't have the legal obligation to pay your back (don't make this a loan agreement) then it is a gift, both ways, with no attribution of tax.

Your parents would need to declare the tax on any investment gains, unless it is inside a TFSA, as you have indicated.


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## OhGreatGuru (May 24, 2009)

cannon_fodder said:


> ...
> ...
> I'd have them open up TFSAs in a discount brokerage and have them give me trading access. ...
> 
> Are there any drawbacks or caveats to this approach from a tax point of view?


I think you're begging for an income tax audit. No matter how sincere you are, it will have all the appearances of you using your parents' TFSA room for your personal investing. Find another way to get your parents to swallow their pride and accept a gift from you.


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## jcgd (Oct 30, 2011)

Couldn't you gift it to them, and they could gift it back down the line if it ever gets to that point? Any profits would belong to them.


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## cannon_fodder (Apr 3, 2009)

I've brought up this idea with my mother and it seems she needs convincing to accept the gift. And I thought she would be the easy sell.

OGG - I don't understand how this would be begging for an audit. If I can gift my parents any amount of $, and they place it in a TFSA, where is the issue?


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## cardhu (May 26, 2009)

To reiterate, there are no attribution issues, nor any tax issues, in what you propose. You could draw up a loan agreement if you like, but it wouldn’t make any difference taxwise. If you did decide to write up a formal loan, you’d be under no obligation to charge interest at all, let alone at the prescribed rate. 

You’re quite right, there is nothing in any of this that should trigger an audit ... nothing for CRA to be suspicious about.


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## OhGreatGuru (May 24, 2009)

> I'd have them open up TFSAs in a discount brokerage and have them give me trading access. Using the same strategy I employ in my own TFSA, I would hope to see a time in the near future where they could return my initial capital while leaving them with all of the profits. I take the risk and they get the reward.





cannon_fodder said:


> ..
> 
> OGG - I don't understand how this would be begging for an audit. If I can gift my parents any amount of $, and they place it in a TFSA, where is the issue?


Please explain to us (and to CRA) 
1) how you are going to have "trading access" without leaving a paper trail indicating that you still have control over this "gift"; and;
2) how this qualifies as a "gift" if it is to be returned to you in time.


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## cannon_fodder (Apr 3, 2009)

Now I see your issues.

The gift does not have to be returned.. Ever. Are you assuming that the money was not actually a gift but there was a formal declaration that a portion of the money had to be returned to me or my estate at some point in the future? Knowing my parents, they probably would make me the beneficiary of the seed capital.

Whether I instruct my parents on what/when to buy/sell or I log on with their I.D. and password, again how would this matter if it is in a TFSA?

I can find nothing online, nor during my conversation with an individual at CRA, that would imply there is a problem yet you are speaking with great confidence so I am hopeful you can point to something I've missed.


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## Plugging Along (Jan 3, 2011)

Honestly, I wouldn't worry about the tax. My siblings have been doing the full trades and investments for years, my sibling has power of attorney, and have given my parebts the money over the years to invest. There has been no issue what so ever, and it has gone through the family accountant.

Mind you it's not a Tfsa, but there was no worry about attribution rules or anything. A gift is exactly that.


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## OhGreatGuru (May 24, 2009)

cannon_fodder said:


> ...
> 
> I can find nothing online, nor during my conversation with an individual at CRA, that would imply there is a problem yet you are speaking with great confidence so I am hopeful you can point to something I've missed.


What you are proposing ought to be perfectly legal. But I go back to my original statement: *"No matter how sincere you are, it will have all the appearances of you using your parents' TFSA room for your personal investing."* All it takes is one suspicious clerk at CRA and you and your parents will have a lot of headaches before you convince them this isn't a complicated tax avoidance scheme on your part. Is it worth the risk?


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## Plugging Along (Jan 3, 2011)

How the heck would a clerk get suspicious? CRA audits legal activities all the time, it doesn't one should make the claim.

We get asked for proof every few years for child care or something else with our investment deductions. We also show the right proof, and they move on. Just because they may ask, it doesnt make it illegal.


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## cardhu (May 26, 2009)

toolbox said:


> What you are proposing ought to be perfectly legal.


Correction ... what he is proposing IS perfectly legal. 



> _Please explain to us (and to CRA)_


Why would CRA care about the answers to those questions? Even if they thought it smelled more like a "loan" than a "gift", what could they do about it? The tax implication is the same either way ... NADA.


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## andrewf (Mar 1, 2010)

That's right. Aren't parents and adult children considered to be at arms-length, and free to charge whatever interest seems fair to both parties, including 0%.


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## humble_pie (Jun 7, 2009)

a problem that some have with this thread is that the OP commenced it only couple weeks ago by framing the tfsa deal to his parents as an undocumented loan. Here's what he said on 22 oct/11:

_" I would hope to see a time in the near future where they [eg the parents] could return my initial capital while leaving them with all of the profits."_

so it's difficult to morph a near-future-maturity loan into a permanent gift.

this brings me to a topic that interests me: whether & how the tfsas of those who are unable to fund them can somehow be funded by investors who can spare the change ... with benefits to accrue to both parties.

there's plenty of room for creative social engineering in this concept imho.


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## andrewf (Mar 1, 2010)

I've thought about making an offer to use my sister's TFSA contribution room as she has a fairly low income and will likely have more room than she needs pretty soon. My concern is what might happen in the event of her divorcing her husband. Not saying it is a big risk, but it is one nonetheless.


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## humble_pie (Jun 7, 2009)

i am sure there are many people playing around with a possible tfsa loan as fodder & others we've glimpsed here in this forum have been doing.

what i'm thinking about is a large-scale project with charitable overhang. All classes of beneficiaries - the lenders, the tfsa owners & even the gummint - would have to get dealt in. It would probably be possible to secure the capital for the lender even if it were necessary to utilize derivatives for this purpose.

it might legally mean that capital invested in a tfsa in the name of X - a needy student or single mother, for example - would legally have to remain the property of X for the rest of X's life. But there are opportunities for withdrawal, which should open windows of opportunity for a partial payback to the original donor.

i am just rambling out loud. What intrigues me is that there are millions & millions of canadians with unfunded tfsa room who will not be able to fund such tfsa for the next several years, so the collective "room" goes begging. Frankly it must be billions of dollars. Meanwhile there are taxpayers who would be happy to receive tax credits especially if their loan could mostly come back to them in some form.

there was a bit of discussion about this idea on another thread. Moneygal & causalien got the idea. The discussion went as far as contemplating what kind of benefits X might obtain from his or her 3rd-party-funded tfsa. Maybe to reinforce the charity administrative support, X would have to receive health or dental benefits, or tuition fees, or fees for special kids' needs ...


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## cardhu (May 26, 2009)

andrewf said:


> I've thought about making an offer to use my sister's TFSA contribution room as she has a fairly low income and will likely have more room than she needs pretty soon.


Andrew ... OP’s scenario works because he does not personally benefit from the arrangement. He is referring to having ONLY the initial capital returned to him, with all gains/income that may have accrued to remain with his parents. That’s why it makes no difference whether its treated as loan or gift. No benefit to OP, therefore no tax avoided, therefore nothing for CRA to pursue. 

Toolbox’s concern is unfounded and remains unfounded as long as the amount of money returned to OP does not exceed the amount “gifted” in the first place. But the moment it exceeds that amount, the concern becomes valid. A loan agreement could address that, but then you’re generating fully taxable interest income to yourself. An arrangement, documented or otherwise, whereby you take part in the gains/income of your sister’s TFSA would most likely be offside. 

Whether CRA would even notice such transactions is a separate question altogether. I suspect they wouldn’t, but I don’t believe its wise to judge the legitimacy of an approach on the basis of the probability of getting caught. At the end of the day, I doubt that YOU can get any tax-free benefit from your sister’s TFSA capacity, through legitimate means. 



andrewf said:


> Aren't parents and adult children considered to be at arms-length, and free to charge whatever interest seems fair to both parties, including 0%.


The expression “arm’s-length” has a specific legal connotation in the Act ... parents/children/grandchildren, regardless of age, are never considered to be at arm’s length ... same for siblings (ie. your sister) ... but relationships that are subject to attribution rules are much more narrowly defined, so YES parents and adult children are definitely free to loan money back and forth at their discretion, and to charge whatever interest they agree to, including 0%.


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