# Unused TFSA room



## slacker (Mar 8, 2010)

Hi,

My mom has $10k of unused TFSA room. Is there anything wrong, with me writing her a cheque of $10k from my after tax income. Have her invest in her TFSA account, then when I need it, have her sell off and withdraw the amount back to me?

Thanks.


----------



## MoneyGal (Apr 24, 2009)

Probably not. Gifts between adults are non-taxable, and there's no tax evasion, as the funds don't attract tax in a TFSA. Perhaps others will chime in as well, but I don't see any problem with this.


----------



## FrugalTrader (Oct 13, 2008)

slacker, I'm not an accountant, but as MoneyGal mentioned, there is no gift tax.


----------



## DavidJD (Sep 27, 2009)

Depends. How much do you trust your mom?


----------



## OhGreatGuru (May 24, 2009)

I agree with all the others that it will work. But I think in a few years when CRA and the Finance Ministry review how TFSAs are working out in practice they are going to decide they have to do something about these loopholes. They are just too open to abuse. The example given clearly gets around the normal attribution rules for investment income. 

Another example is the well-to-do person who is going to start "giving" each of his children $5k/yr to put in a TFSA as soon as they turn 18.)

(PS. If your mom dies unexpectedly the money wil be part of her estate - you can't just claim it back. So there is a bit of risk.)


----------



## andrewf (Mar 1, 2010)

It's true. Especially for 18 year olds that plan to go to university, it makes a tonne of sense for parents to 'gift' $5k per year until their child graduates and is able to make their own contributions. If the money is withdrawn and gifted back to the parent, the parents got some extra tax-free income, and the child benefits from the increased contribution room (the difference between the $5k per year limit and the investment return--this can be a significant head-start). In fact, the parents could 'borrow' the surplus contribution room until the child can max it out him/herself. 

I have to say, this sounds appealing enough that CRA will have to make some rule against it. Not sure how they could, without prohibiting a much broader array of gifts.


----------



## humble_pie (Jun 7, 2009)

coming soon from an investigative reporter near you ... an exposé of a squalid new industry ... surrogate tax freedom using tfsa uteruses both voluntary & paid ... the poor, the naiive elderly, youths of the age of majority but no money ...

some with mini-insurance policies guaranteeing that the infant will revert to the donating parent when gestation ends (a sub-industry in itself) ...

while others, racier perhaps, carry the distinct risk that the surrogate might drop dead before birth or else decide to keep the neonate after all ...


----------



## ghostryder (Apr 5, 2009)

OhGreatGuru said:


> They are just too open to abuse. The example given clearly gets around the normal attribution rules for investment income.



What attribution rules? There are none between adult children and their parents. The attribution rules apply between spouses and related minors.


----------



## slacker (Mar 8, 2010)

When you strip out the backstory of family, this is not that different from the banks coming to you and offering a loan to fill out your tax shelter of choice (TFSA or RRSP). The banks will eventually want their money back, plus interest.

If the banks are doing it, why shouldn't I?


----------



## bean438 (Jul 18, 2009)

I cant see the govt closing this "loop hole".

The RSP contribution rate is very low even with the incentive of a tax refund.
I would suspect the TFSA contribution rate is even lower.

I can see maybe keeping the TFSA status quo except withdrawls may have to be included in income for OAS/GIS benifit calulations.

After all if there were TFSA millionaires collecting OAS and GIS, there would be a huge public out cry from all the "poor" seniors who chose to go to Mexico every year for 35 years instead of invest in a TFSA.


----------



## OhGreatGuru (May 24, 2009)

It isn't a gift if there is an expectation that it will be returned with interest. I don't want greedy people causing CRA to rethink their "no gift tax in Canada" policy.


----------



## cardhu (May 26, 2009)

There have been no “loopholes” mentioned in this thread ... neither scenario described upthread gets around the attribution rules because the attribution rules clearly don’t apply, regardless of the existence of TFSA. 

Slacker, what you are proposing is nothing at all like an RRSP (or TFSA) loan ... not even close ... it is, however, perfectly legal ... not a “loophole”, and not an “abuse” of the system ... the only potential downside, as others have said, is that monies within your mom’s TFSA would legally belong to her ... not to you ... if you should have a falling out for any reason, she is not obliged to give it back. 



> _Another example is the well-to-do person who is going to start "giving" each of his children $5k/yr to put in a TFSA as soon as they turn 18._


This practice was perfectly legal, without attribution, before the existence of TFSA, and it remains perfectly legal, without attribution, now that TFSA has been introduced ... there is no reason that CRA should turn their attention toward it.


----------



## bean438 (Jul 18, 2009)

I put loop hole in quotations because it isnt a loop hole, but if I can explain what I mean properly, if current laws mean that more and more people are giving money to kids, and there is a significant impact on taxes, or if more and more TFSA millionaires 30 years down the road are collecting retirement benefits, then laws can and will be changed.

It really doesnt matter what the law says any way. CRA can apply GAAR, and use the "what did parliament intend when the law was passed" test.


----------



## OhGreatGuru (May 24, 2009)

And I would continue to argue that you haven't made a gift, you have made a loan/investment, on which you expect to receive repayment with interest, and the interest would theoretically be taxable. It will be difficult for CRA to trace, but since the whole process makes a mockery of the $5k/yr/person limit on TFSAs, CRA may feel compelled to do something about it if it is used too much.


----------



## DavidJD (Sep 27, 2009)

Hello I would like to rent some TFSA room. I will pay 4% per year regardless of what I do or earn in the account. You will get paid your 4% if I lose or make money on December 31st.

Any takers?

My lawyer will send you a contract.


----------



## andrewf (Mar 1, 2010)

I think the contract will invalidate the gift. A gift is not a gift if there is consideration involved. Renting out the TFSA room would then be a loan, and the proceeds taxable.


----------



## billiam (Aug 24, 2009)

A little late with a reply but have you considered the application of Subsection 56(4.1) of the ITA for this transaction.

From my read this is a loan, its non-arms length, and one of the main reasons for making the loan appears to be to reduce or avoid tax. This Subsection seems to fit.

Thoughts?


----------



## OhGreatGuru (May 24, 2009)

billiam said:


> ... have you considered the application of Subsection 56(4.1) of the ITA for this transaction.
> 
> From my read this is a loan, its non-arms length, and one of the main reasons for making the loan appears to be to reduce or avoid tax. This Subsection seems to fit.
> 
> Thoughts?


Once you strip out the gobbledy-**** it would appear to fit. The trick is, if there is no paper trail, how does CRA find out it was a loan and not reciprocal gifts that just happened to be coincidental? But others have stated on this site the burden of proof seems to be on the taxpayer, not on CRA in case of dispute.

PS. And before anyone decides it's worth the gamble, because all they will do is charge you income taxes on your "honest mistake" if they catch you; consider that CRA will no doubt treat the $5k as an overcontribution on your TFSA limit, and bill you interest charges of 1% per month on it.


----------



## OhGreatGuru (May 24, 2009)

DavidJD said:


> Hello I would like to rent some TFSA room. I will pay 4% per year regardless of what I do or earn in the account. You will get paid your 4% if I lose or make money on December 31st.
> 
> Any takers?
> 
> My lawyer will send you a contract.


Having a written contract leaves a paper trail making CRA's work easy.


----------



## DavidJD (Sep 27, 2009)

bean438 said:


> ... there would be a huge public out cry from all the "poor" seniors who chose to go to Mexico every year for 35 years instead of invest in a TFSA.


Hah!


----------

