# TFSA and Attribution



## Freddie (Sep 11, 2009)

Hi,

Wondering if anyone is familiar with attribution on funds withdrawn from a TFSA. If your wife gave you $10k over the past 4 years and now your TFSA is worth $24,500 and you want to withdraw it all to purchase and investment property, is part of the income from the investment property attributed back to your wife? 

I did contact CRA on this issue and they said it is not attributed back but some people are claiming that attribution does not apply only while the funds are in the TFSA.

If attributed back on withdrawal then how do you determine the % of the withdrawal that belongs to your spouse for future attribution on earnings if invested? Is it the first $10k that you take out? Is it 50% of the first $20k taken out; my wife put in $10k and I put in $10k over the years? Is it 50% of any withdrawal? Don't see anywhere that this is explained. And with deposits and withdrawals happening each year this could get quite messy in terms of book keeping.

Anyone????

Freddie


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## none (Jan 15, 2013)

http://canadianmoneyforum.com/showthread.php/14702-TFSA-Rules


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## Freddie (Sep 11, 2009)

Nothing on that website deals with attribution on TFSA withdrawals that are subsequently re-invested in non-registered account.


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## stardancer (Apr 26, 2009)

There is no attribution on funds withdrawn from a TFSA; if you subsequently reinvest the $$ into a non-registered account, there is no attribution on the growth back to the spouse.


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## Freddie (Sep 11, 2009)

Stardancer,

How do you know this? Can you refer me to any CRA documents that back this up?

thx,


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## stardancer (Apr 26, 2009)

I have been looking, but can't find it; I remember when they first came out that this was one of the 'rules'


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## stardancer (Apr 26, 2009)

http://www.tfsa.gc.ca/
This doesn't deal directly with your question. I am assuming that if the growth is not attributed back to the spouse upon withdrawal, then the growth is not attributable back upon re-investment. You are withdrawing your money from your TFSA. Just as you withdraw your money from your RSP (assuming it's not a spousal)

"And with deposits and withdrawals happening each year this could get quite messy in terms of book keeping."
That's probably why CRA didn't deal with this question in the first place; it means a lot of tracking for them also; RSPs are complicated enough.


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## billiam (Aug 24, 2009)

Refer to 74.5(12)(c)(i) of the Income Tax Act. Attribution appears to apply to the senario listed.


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## Freddie (Sep 11, 2009)

billiam said:


> Refer to 74.5(12)(c)(i) of the Income Tax Act. Attribution appears to apply to the senario listed.


That appears to be it Billiam, Attribution begins again if it is invested outside of the TFSA after withdrawal. Also found this online this evening which seems to agree with that. See page 9.

http://www.dwyertaxlaw.com/publication_income_tax_attribution_rules_2011.pdf

So how to track what has to be attributed back to wife in the example where total contributions = $20k, $10k by wife or 1/2 of the contributions and now value of TFSA = $25k.

If you take out $10k and invest what portion of profits on the $10k invested go on wife's tax return? 50% (10k/20k)? 40% ($10k / $25k)? OR 100% of first $10k taken out and then 0% attribution on the rest?

thanks for your help again Billiam.


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## cldellow (Feb 16, 2012)

It makes sense that the principal given to a spouse for their TFSA can not be taken out of the TFSA without attribution applying. To see why, you just need to walk through what would happen if attribution did not apply. e.g. I'd give my spouse $25,500, she'd "invest" it in her TFSA, then take it out, and presto change-o, by virtue of having been in a TFSA once, the money would now be hers. The next year, we'd do it again with $31,000 (the $25,500 room she got back from withdrawing it, and next year's $5,500). Thus, in two years, we would have magically transferred $56,500 from my hands to hers.

That goes against CRA's usual attribution rules, so that would suggest it's not the intent.

But...like you, I have no idea how CRA would handle the scenario you suggest. The scenario sounds analogous to borrowing to invest and claiming a carrying charge on the interest -- I'd guess that how CRA handles tracing the funds in that situation would apply here, too.


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## billiam (Aug 24, 2009)

To be fair and reasonable I would think a reasonable allocation could be utilized. The article you refer to indicates this with the comment of "_appropriate tracing measures should be in place so as to prove that the loan (*or transfer my words*) was contributed to the TFSA of the spouse_" on the same page 9. Of course I guess CRA could take a hard line as well and attempt to attribute the full amount to the spouse.


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## longinvest (Sep 12, 2012)

Wouldn't it make sense that only the original amount given to the spouse is attributed back upon withdrawal? Attribution rules are supposed to apply to the original amount, not on the growth, if I understand correctly.


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## Freddie (Sep 11, 2009)

Yes Cldellow that is what I was thinking of doing and was surprised that CRA told me it would be ok, thus my question to the board. Basically the higher income earner could funnel non-registered funds to the lower income earner for investment through the TFSA. Not cool by CRA standards.

Investing outside as a couple Vs Investing with funds from the TFSA:

If I and my wife each invested $10k in a non-registered investment all income would be split 50/50 for tax purposes....pretty simple and straight forward.

Taking funds out of the TFSA is slightly different and I think I know how it might be calculated:

For my example, TFSA = $25k of which $10k was my investment, $10k was my spouse's and $5k is gain. My assumption would be that the $5k gain belongs to the account holder...me, as no attribution applies in the TFSA.

So, if you take out $10k now and invest it all in a non-registered investment, 40% of the gains are attributable to my wife.

Now, let's say in 2 years time the remaining $15k grows to $20k and all of that is removed and invested. May assumption would be that 30% of that investment gain would be attributable to my wife. $6k remaining from the initial $10k she invested after the first withdrawal as a percentage of the $20k removed.

Make sense?


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## liquidfinance (Jan 28, 2011)

There is no attribution when it comes to the TFSA so when you withdraw the money it is yours to do with as you please. 

I'm sure if people were paying in $25500 withdrawing it in the same year and then pay in $31000 next year followed by a subsequent withdrawal then the CRA would begin to ask questions.


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## billiam (Aug 24, 2009)

Liquidfinance,

You partly right, if you withdraw the money and use the funds on consumables (consumption) there is no attribution. However, withdraw the funds and buy an investment property or put it in a non-registered account for investment purposes as being suggested up thread then attribution does kick in. Refer to the ITA link and the article identifies.


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## The Financial Blogger (Apr 4, 2009)

Freddie said:


> Yes Cldellow that is what I was thinking of doing and was surprised that CRA told me it would be ok, thus my question to the board. Basically the higher income earner could funnel non-registered funds to the lower income earner for investment through the TFSA. Not cool by CRA standards.
> 
> Investing outside as a couple Vs Investing with funds from the TFSA:
> 
> ...


Hey Freddie, 

you can answer your question by answering to the following:
how much tax do you pay on a TFSA withdrawal?

answer: none. So there is no tax attribution to be made regardless where the money came from in the first place. Since you invest in a TFSA, profits are none taxable ever. So you or your wife can't be taxed based on the attribution rule on something that is not taxable in the first place


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## Freddie (Sep 11, 2009)

It's not the withdrawal that is the problem...it's the subsequent investment with the withdrawal funds.

Attribution does not occur only while the funds are in the TFSA..reference ITA section 74.5 subsection (12) part (c).


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## OnlyMyOpinion (Sep 1, 2013)

This subject was raised again in the thread: http://canadianmoneyforum.com/showthread.php/91786-RRSP-mortgage-gambit?p=1140130#post1140130

Also see: http://taxmentor.ca/Articles.aspx?entryid=2280 which in part says: _It is CRA's view that when the individual's spouse immediately withdraws the transferred property from the TFSA, the withdrawn amount is a "substituted property". Consequently, any subsequent income and taxable capital gain earned on this substituted property would be income and taxable capital gain of the individual._

My read of this - if you gift your spouse the money to contribute to their TSFA and they subsequently withdraw it and invest it to earn income/gain, that income/gain is attributable to you. The TI speaks of 'immediately' but I would be concerned about any TSFA withdrawl of gifted funds that could be seen to be reinvested outside the TSFA to earn income/gain. If the spouse has contributed their own funds in addition to gifted funds prior to withdrawing for a subsequent investment, then connecting the dots gets more complicated. If the spouse's (or child's) TSFA has been entirely funded by gifting them over the years (such as a stay at home spouse or >18 yr old child in school) then you need to be very careful how a future withdrawl is used - spend it and you are fine. Use it to put a down payment on a rental property or transfer it to buy GOOG in your trading account and you could be at risk of attribution.

Does anyone read this differently?


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## twa2w (Mar 5, 2016)

My understanding is that this only applies if the money is immediately withdrawn. No clear explanation as to how long 'immediately' is of course :-(
I think the idea is to disuade someone from putting in say 40 k to spouses plan, have them withdraw it later that year and invest it, then repeat the process the next year etc which over a few years could transfer a fair bit to the spouse esp as contribution room increases.
I think that if you made annual contributions for a few years, then your spouse withdrew say 1/3 and invested it, I don't think this would draw much attention.
You would have no such issues with a child over 18 as there are no attribution rules afaik.


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## Nerd Investor (Nov 3, 2015)

OnlyMyOpinion said:


> This subject was raised again in the thread: http://canadianmoneyforum.com/showthread.php/91786-RRSP-mortgage-gambit?p=1140130#post1140130
> 
> Also see: http://taxmentor.ca/Articles.aspx?entryid=2280 which in part says: _It is CRA's view that when the individual's spouse immediately withdraws the transferred property from the TFSA, the withdrawn amount is a "substituted property". Consequently, any subsequent income and taxable capital gain earned on this substituted property would be income and taxable capital gain of the individual._
> 
> ...


Agreed, I believe they are generally trying make sure people are using this to funnel cash from one spouse's taxable account to another and avoid attribution. I could see someone getting caught by your rental income example, but in most cases it wouldn't make much sense to pull money out of a TFSA to invest it in a taxable account anyway.


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## fraser (May 15, 2010)

We are somewhat knowledgeable on attribution rules. On the advice of our accountant we have done a number of documented spousal loans in order to comply with the attribution rules.

That said, I do not think that you should concern yourself with attribution rules on a smaller amounts. I think that CRA has their sights set on larger amounts with significant amounts of potential tax liability.


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