# "High Flying" TFSAs being audited



## Four Pillars (Apr 5, 2009)

http://business.financialpost.com/2012/03/08/cra-probing-high-flying-tfsas/

I'd be interested in knowing exactly what type of "aggressive tax planning" activities they are looking for.


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## Toronto.gal (Jan 8, 2010)

I read it this morning, but it can't come as a total surprise.

I definitely fall in the category below, so I have nothing to worry about.  

"Anyone who has a highly valued TFSA because of a *smart purchase of a legitimate publicly traded stock that went through the roof* doesn’t need to worry either, Golombek says. “However, if it involved various issuances of private shares or illiquid securities, that’s when they should seek professional tax advice.”


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## jamesbe (May 8, 2010)

Well I don't have $300,000 but I started my TFSA last august put in $20k and am up to $23k in just 7 months hope that's not a flag, I've just been lucky the market went up big time since I bought!


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## dotnet_nerd (Jul 1, 2009)

Instead of wasting millions on audits why doesn't CRA just build a cap into the TFSA rules. Sort of a "circuit breaker" clause.

Eg. your account can grow tax free up say 15 or 20% per annum. Or maybe pegged to the S&P.


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## CanadianCapitalist (Mar 31, 2009)

Four Pillars said:


> http://business.financialpost.com/2012/03/08/cra-probing-high-flying-tfsas/
> 
> I'd be interested in knowing exactly what type of "aggressive tax planning" activities they are looking for.


In the first year of the TFSA apparently a number of people figured out that they can swap assets back and forth between TFSA and taxable accounts and increase the value of the TFSA. If you don't fall into this category there is nothing to worry here.


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## the-royal-mail (Dec 11, 2009)

That would be so difficult to enforce though. It would require some sort of a computer system and staff established to put those monitors into place. And then they would be fielding calls from people who say "My stocks grew 25% this year, but only 5% the next year - do I have to pay tax?"

I think they got it right. They basically identified the extreme examples through running a simple report, the 1% that most of us don't fall into. I don't think jamesbe has to worry.

If nothing else, this should be a reminder to all of us that the gov't is watching. Be careful with the schemes and shell games.


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## Toronto.gal (Jan 8, 2010)

the-royal-mail said:


> 1. This should be a reminder to all of us that the gov't is watching.
> 2. Be careful with the schemes and shell games.


1. No problem, they can watch all they want; it's their job.
2. It's that simple; don't break any laws and you'll be fine.


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## humble_pie (Jun 7, 2009)

the high flyers did their flying in 2009. Their activities consisted mostly of tricky swapping based on the huge spreads between bids & asks for numerous securities in canadian markets. The cra stopped this practice within months; that is, they stopped it in 2009 by disallowing swapping into & out of tfsas.

it appears that the cra is finally getting around to auditing the tfsa accounts in question.

such accounts will present a distinct profile. They will be easy to find. Apparently the cra also wants to know if the trail leads to specific financial advisors. 

for the record, i've never seen any sign or evidence that any party in cmf forum ever posted even a hint of the swapping strategy that was used ...


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## Four Pillars (Apr 5, 2009)

CanadianCapitalist said:


> In the first year of the TFSA apparently a number of people figured out that they can swap assets back and forth between TFSA and taxable accounts and increase the value of the TFSA. If you don't fall into this category there is nothing to worry here.


But that practice was banned. I'm wondering if the audits are focusing on something similar or something that is completely different.


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## MoneyGal (Apr 24, 2009)

No, it's what Humble said. CRA has a three-year window to audit. Three years is now up, so those accounts have all been flagged and they are getting their audit notices.


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## rusty23 (Jan 25, 2012)

so what exactly did these people do? I read the article on the train this morning but it all flew right over my head (still a newbie trying to soak it all in  )


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## Four Pillars (Apr 5, 2009)

Thanks for the clarification. 

I think the article should have been clearer on this point. Or perhaps I should have read it more closely.


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## Charlie (May 20, 2011)

I remember reading about a few schemes to wedge private companies into TFSA's and have corporate income flow out tax free -- while substantially increasing your TFSA room the next yr. There were other plans afoot to exploit the tax free nature of TFSA withdrawals and the continually increasing contribution limits. Not unlike schemes to exploit art donations, software writeoffs or other manifestations of a promoters mind. I suspect these are what are being targeted. And the buy/sell spread wiggles on thinly traded stock.

Any genuine open market investing will be OK.


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## killuminati (Mar 14, 2011)

So was this just a "scam" that increased their contribution room or did they actually turn 5-15k into 300k+?


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## marina628 (Dec 14, 2010)

I remember one CMF guy who claimed to make 100k off his $15,000 room .rest of us seem to have turned $20,000 in $30,000 or less lol


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## Eclectic12 (Oct 20, 2010)

rusty23 said:


> so what exactly did these people do? I read the article on the train this morning but it all flew right over my head (still a newbie trying to soak it all in  )


The article is vague ... and for some strange reason , the law firm seems to think none of their clients could possibly have done anything wrong.

I'm not sure about what they are referring to but one "scam" that was documented was as follows.

Find a stock that one knows will be a large gainer - say a penny mining stock. The individual would contribute $100K to their TFSA, where $95K is an over-contribution and subject to the 1% per month penalty. They'd buy the stock then when the stock went up to say $400K, they would withdraw $395K and pay the accrued penalty.

If this took twelve months, the penalty would be around $12K but the following year, they could legally re-contribute the $395K withdrawal.

I put the scam in quotes as technically - it's all good but definitely goes against the intent.


Cheers


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## Eclectic12 (Oct 20, 2010)

marina628 said:


> I remember one CMF guy who claimed to make 100k off his $15,000 room .rest of us seem to have turned $20,000 in $30,000 or less lol


That's why I find so funny the part of the article that seems to be outrage:


> How is it possible that the Canada Revenue Agency might launch tax audits on a vehicle that is supposedly free of tax encumberments?


With so many people thinking they have to stick to 1.5% to 2.0% savings and so many of the rest of us in the $3OK range, there can't be many with a TFSA large enough to bother reviewing!

I suspect Golombek's idea that of those with TFSAs, less than 1% are affected is too high a number. IMO, it's likely closer to 0.25% but without specifics, there's no good way to tell.


Cheers


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> That would be so difficult to enforce though.
> 
> It would require some sort of a computer system and staff established to put those monitors into place. And then they would be fielding calls from people who say "My stocks grew 25% this year, but only 5% the next year - do I have to pay tax?"
> 
> I think they got it right. They basically identified the extreme examples through running a simple report, the 1% that most of us don't fall into. I don't think jamesbe has to worry. [ ... ]


+1 ... if there are to be limits on the TFSA - then scrap of the overhead and make it a line item on the tax return, like the "basic personal exemption".

Since I have cashed in nice gains to pre-pay the mortgage (35% CG + $1.50 distributions on a $10 purchase), I'm much happier with the existing rules. There's lots of room to make good money without ever coming close to what would trigger an audit.


Cheers


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## Toronto.gal (Jan 8, 2010)

Eclectic12 said:


> for some strange reason , the law firm seems to think none of their clients could possibly have done anything wrong.


Of course not, after all, they became lawyers just to defend the innocent. 

I believe the guy Marina was referring to, was into penny mining stocks. Silly me, what was I thinking buying the largest miners.


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## Eclectic12 (Oct 20, 2010)

Toronto.gal said:


> Of course not, after all, they became lawyers just to defend the innocent.
> 
> I believe the guy Marina was referring to, was into penny mining stocks. Silly me, what was I thinking buying the largest miners.


That's one of my TFSA regrets. 

I did see a couple of reports about TCK-B and was looking to diversify from all of the bargain financials I'd picked up. I was busy/sick, not familiar with the company and didn't followup.

The $3.90 to $45 in April 2010 would've been nice! The $62 in Dec 2011 would've been nicer!! 


On the positive side, I managed to transfer in-kind TRH-UN on the dip, essentially for what I paid for it (i.e. a paltry CG of $0.60 a unit), PGF for about $7 share and a split corporation whose 30% CG helped pay down the mortgage.

... much nicer than the 1.5% savings account TFSA.


As for penny mining stocks, I have yet to figure out which ones are good so I've stayed away from them. My uncle know them well, made good money but also lost a fair chunk in the process.


Cheers


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## Cal (Jun 17, 2009)

I can see how it might come about for some.

Perhaps they held some de-listed stocks, moved them into the TFSA as there was no capital gains. And then the stock got rellisted, then they had value.

I know that if you have de-listed stocks the brokers will buy them off of you for 1c....perhaps and individual can do the same. 

I am not sure if that is possible, just hypothesizing.


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## lister (Apr 3, 2009)

marina628 said:


> I remember one CMF guy who claimed to make 100k off his $15,000 room .rest of us seem to have turned $20,000 in $30,000 or less lol





Toronto.gal said:


> I believe the guy Marina was referring to, was into penny mining stocks. Silly me, what was I thinking buying the largest miners.


That would be me. Still here. Had a brief high of $175K in mine and a combined $202K with the spouse. Mine has largely fluctuated between $100K-$120K. Currently waiting on a couple of stocks heading into small-scale production.

No TFSA contributions this year. Have to focus on the LoC and mortgage.

Here's a question for you: you're in a job you hate and a career you're no longer interested in but you're paid pretty well, the company didn't perform so well this year, changing careers means a 40-50% drop in pay easily which you can't afford to have happen for at least two years, however your TFSA can wipe out your mortgage but doing so eliminates any chance of early retirement if the stocks in the TFSA perform how you think they perform in the next couple of years. What do you do?


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## ddkay (Nov 20, 2010)

Wow, what did you buy?


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## humble_pie (Jun 7, 2009)

i remember lister. At the time he posted here in the forum about his big tfsa gain, he said it was a small VSE miner that he did not wish to identify.

for the record, a minor forum member who is a part-time troll attacked him at that time. However i for one believed lister. I believed he had legitimately made a fantastic buy in tfsa & i say congratulations, chapeaux.

(aside to lister) not sure i understand your question. Tentatively, it might be about choosing between early retirement or paying off the mortgage. Q: had you thought about selling the house, paying off the mortgage, downsizing to a smaller property, taking early retirement & keeping the tfsa intact, all more or less at the same time (?)


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## Sampson (Apr 3, 2009)

When you can't suck it up any longer, cash the TFSA in.


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## ddkay (Nov 20, 2010)

Thanks humble. It had to be a penny, went back and searched for it.. many of these metal mining stocks exploded into life last year with QE2 and have had a hangover since last spring -- CFM.V has been on my watch list for a long while now, don't know if that kind of event will repeat..


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## MrMatt (Dec 21, 2011)

dotnet_nerd said:


> Instead of wasting millions on audits why doesn't CRA just build a cap into the TFSA rules. Sort of a "circuit breaker" clause.
> 
> Eg. your account can grow tax free up say 15 or 20% per annum. Or maybe pegged to the S&P.


So if you exceed that limit you pay tax, should you then be able to claim losses? 

How about a clear firm limit on contributions, contribution valuation and that the investments must be arms length? 
A big value of TFSAs and RRSPs is the invest and ignore taxes aspect.


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## Mall Guy (Sep 14, 2011)

jamesbe said:


> Well I don't have $300,000 but I started my TFSA last august put in $20k and am up to $23k in just 7 months hope that's not a flag, I've just been lucky the market went up big time since I bought!


Jamesbe - how did you get $20 K in last August ? Do you mean you started with $15 K and added $5 K in 2012. Just trying to figure out if I missed an opportunity as I am only getting to the 20K contribution level now.

Thanks.


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## Eclectic12 (Oct 20, 2010)

dotnet_nerd said:


> Instead of wasting millions on audits why doesn't CRA just build a cap into the TFSA rules. Sort of a "circuit breaker" clause.
> 
> Eg. your account can grow tax free up say 15 or 20% per annum. Or maybe pegged to the S&P.


Hmmm ... how do we know the audits are useless or cost millions? 

I doubt that many have large enough TFSAs to hit whatever CRA's threshold is. Golombek from the article think's is less than 1%, which I think is an over-estimate. This is because I can recall maybe four posts on CMF about a huge TFSA, with most posting moderate growth. 

If financially sophisticated CMF-ers aren't raking it in and there are lots of posts of people who are just now waking up to the fact a TFSA can hold stock etc, how many can there be to audit?


I also don't think the "circuit breaker" cap works either. CRA will have to track whatever the cap % is, make sure nothing's being hidden/under-reported etc. so there's still lots of costly overhead to pay for. If there were to be a change, just make it a line item on the tax return, like the "personal exemption". Then it's simpler and cheaper.

IAC, I'd rather keep it the way it is as I've cashed out capital gains of 30%.


Cheers


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## lister (Apr 3, 2009)

ddkay said:


> Wow, what did you buy?


I mentioned the various stocks I've purchased in other threads other than what I'm currently holding. I believe I mentioned the stock that took off and I cashed out on. Do a search.


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## ddkay (Nov 20, 2010)

I looked at your post history earlier and found it, thanks


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## Cal (Jun 17, 2009)

Lister have you received any notification regarding an assessment? I am more so curious on the wording that might be used to notify someone of such an assessment.


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## lister (Apr 3, 2009)

humble_pie said:


> i remember lister. At the time he posted here in the forum about his big tfsa gain, he said it was a small VSE miner that he did not wish to identify.
> 
> for the record, a minor forum member who is a part-time troll attacked him at that time. However i for one believed lister. I believed he had legitimately made a fantastic buy in tfsa & i say congratulations, chapeaux.


I'm not going to let a troll sucker me into anything. Quite obvious what that twit was doing.



> (aside to lister) not sure i understand your question. Tentatively, it might be about choosing between early retirement or paying off the mortgage. Q: had you thought about selling the house, paying off the mortgage, downsizing to a smaller property, taking early retirement & keeping the tfsa intact, all more or less at the same time (?)


I have a condo and it's already pretty small. I bought in an area that was pretty cheap at the time. Now it's a lot more expensive and I'm not interested in living in a different part of town that would be substantially cheaper.

It looks like I'm going to have to suck it up for yet another year, wait for the spouse to finally be employed and at that point evaluate leaving my job and industry for something else and taking the pay cut. That's assuming none of the problem issues have gone away. I really loathe the thought of cashing out the TFSA when the tantalizing prospect of financial independence looks to be possible.


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## lister (Apr 3, 2009)

Cal said:


> Lister have you received any notification regarding an assessment? I am more so curious on the wording that might be used to notify someone of such an assessment.


No haven't received anything yet. Even if I did I wouldn't be worried. Everything I did was just simple stock purchasing, selling with some dividends and distributions thrown in and all documented with the broker. I don't even know what that stuff was mentioned in the article.


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## humble_pie (Jun 7, 2009)

Cal said:


> Lister have you received any notification regarding an assessment? I am more so curious on the wording that might be used to notify someone of such an assessment.


i doubt any tfsa investor with a legitimate history like lister's would ever receive an assessment.

at the time the tfsa loopholes were closed up by the cra - nearly all in 2009 - the media covered the different kinds of tfsa schemes pretty well. 

parties who invested legitimately & whose shares then soared are to be congratulated. I'm always happy to see a story like this. Gives hope to the rest of us poor sods. Again, i say chapeaux !!


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## Eclectic12 (Oct 20, 2010)

MrMatt said:


> So if you exceed that limit you pay tax, should you then be able to claim losses?
> 
> How about a clear firm limit on contributions, contribution valuation and that the investments must be arms length?
> A big value of TFSAs and RRSPs is the invest and ignore taxes aspect.


For the alternate suggested TFSA structure of a 15% or 20% tax free cap (or tied to some index), I'd think allowing losses to claim would be needed. Which would also make such a system more time consuming/expensive to run.

As for the clear limit on contributions and contribution value, do you mean in the alternative structure or in the current? 

IMO, the current structure has a clear, firm limit on contributions. The contribution valuation is less clear and definitely was a problem when RRSP to TFSA as well as vice versa transfers were allowed. Now it is likely only the exotic or low liquidity investments.


+1 on the big value.


Cheers


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## Guigz (Oct 28, 2010)

humble_pie said:


> Again, i say chapeaux !!


Sorry for the this deviation in programming, but the proper expression is singular, as in "Je te lève mon chapeau!" hence "Chapeau!".

That is, unless you wear many hats at the same time.

But I do agree that congratulations are in order!


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## humble_pie (Jun 7, 2009)

the way i see it in my mind's eye is a whole crowd of people all raising their hats at the same time, ie when writing to a group of people like this forum, i think of chapeaux as something akin to an exhortation. Let's all Congratulate this Winner !

& thank you, very glad we agree on the Real Deal.


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## Guigz (Oct 28, 2010)

Fair enough, you have convincingly presented your argument. Henceforth, I will allow "Chapeaux!" to be used when group congratulations are in order.


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## Mike44 (Mar 12, 2012)

*Are there members or readers here who received audit questionaires from CRA?*

I have a "high flying" TFSA account and have received a questionaire, but that article has brought my wife and I much fear of personal ruin.

I'd like to locate others who are under audit in order to find a potential sharing of legal costs.

I'm not personally a "high flyer" - just an honest man who's never been rich but now find I'm off-side despite TD Waterhouse's constant reassurance I was acting legitimately within CRA rules in my TFSA self directed brokerage account.


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## Teddy (Apr 24, 2012)

*Update*

Has anyone heard anymore about this whether personally or anecdotally?


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