# TFSA - In other people's names



## loggedout (Dec 30, 2009)

Is this legal?

I've read that it's legal to contribute to your spouse's TFSA...but what about other family members, like parents, siblings, in-laws or even non-relatives?


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## MoneyGal (Apr 24, 2009)

Yes...gifts between adults do not attract tax in Canada.


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## andrewf (Mar 1, 2010)

You have to trust that person. You can't draw up a contract guaranteeing that the return on the investment be in turn gifted back to you.


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## loggedout (Dec 30, 2009)

I trust them with my life.

What happens if they die?

I assume that TFSA becomes a part of their estate?

Could they write in their will that I'm the beneficiary of the TFSA? Tax implications to that?


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## Cal (Jun 17, 2009)

I don't know about the tax implications, but sure they could put it in a will that you get the TFSA proceeds. You should probably pay the tax implications, as that would only be fair to pay out of the money that you sheltered/made profits with.


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## allgood (May 17, 2010)

You could give a gift to someone, and they could deposit it in a TFSA. But it doesn't sound like you're asking about a gift, it sounds like you still want to maintain a right or access to the tax sheltered money. That sounds like fraud.


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## OhGreatGuru (May 24, 2009)

There are no tax implications to collapsing a TFSA upon death, just as withdrawals are not taxable while alive. This is different than RRSPs, because contributions are made with after-tax dollars. The issue about it having to be freely given is that you don't want CRA attributing the contributions back to you, as you would be subject to penalties for overcontributions. 

There are "estate tax" issues (probate fees) if the money is paid to the estate. Appointing a beneficiary allows the proceeds to pass outside of the estate.


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## NorthernAlex (Jul 26, 2009)

loggedout said:


> Is this legal?
> 
> I've read that it's legal to contribute to your spouse's TFSA...but what about other family members, like parents, siblings, in-laws or even non-relatives?


Of course it is legal. I paid into the TFSA of my wife- and could to non-relatives. This means that you are gifting the money to them.

To make a contract that if they pass away, the money get paid back to you smells a bit fishy to me. More likely like tax evasion. Just my $0.02.


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## loggedout (Dec 30, 2009)

Hmm okay.

What about "loaning" a parent cash that they put in their line of credit or whatever, and having them pay me the interest they would have paid the bank?

Same issues as with the TFSA or different?


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## NorthernAlex (Jul 26, 2009)

loggedout said:


> Hmm okay.
> 
> What about "loaning" a parent cash that they put in their line of credit or whatever, and having them pay me the interest they would have paid the bank?
> 
> Same issues as with the TFSA or different?


You can loan money to anyone- with or without interest. The interest you receive is a capital gain and you will have to file it as an income in your tax return.


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## andrewf (Mar 1, 2010)

To be clear, interest is not a capital gain (which is taxed differently). It is taxed as income. However, the arrangement would be legit.


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## MoneyGal (Apr 24, 2009)

Oops! AndrewF said what I was going to say (don't know how I missed that).


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## OhGreatGuru (May 24, 2009)

You could get caught by s. 56(4.1) of the Income Tax Act if CRA decides you are making a loan to someone not at arms length, rather than a gift. This is a general tax avoidance rule, that doesn't address TFSAs specifically.

_(Edited down to remove references to trusts)

56(4.1) Where
(a) a particular individual (other than a trust) ... has, directly or indirectly
by means of a trust or by any means whatever, received a loan from or become indebted to
(i) another individual (in this subsection referred to as the “creditor”) who
(A) does not deal at arm’s length with the particular individual, ... 

and

(b) it can reasonably be considered that one of the main reasons for making the loan or incurring the indebtedness was to reduce or avoid tax by causing income from
(i) the loaned property,
(ii) property that the loan or indebtedness enabled or assisted the particular individual, ... to acquire, or
(iii) property substituted for property referred to in subparagraph 56(4.1)(b)(i) or 56(4.1)(b)(ii) to be included in the income of the particular
individual,

the following rules apply:
(c) any income of the particular individual for a taxation year from the property referred to in paragraph 56(4.1)(b) that relates to the
period or periods in the year throughout which the creditor ..., was resident in Canada and the particular individual was not dealing at arm’s length with the creditor ..., shall be deemed,
(i) where subparagraph 56(4.1)(a)(i) applies, to be income of the creditor for that year and not of the particular individual except to the extent that ..._


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## MoneyGal (Apr 24, 2009)

If it is a loan, it should be struck at the prescribed rate. Putting kids to bed, must read a story now and cut this short...


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## chaudi (Sep 10, 2009)

if you buy stocks with the TFSA and say they go up fairly high say to 50k, the you sell and buys some other investment and it crashes. So back to nothing. Can you now contribute up to the amount you had when the investment was all the way up?


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## Potato (Apr 3, 2009)

chaudi said:


> if you buy stocks with the TFSA and say they go up fairly high say to 50k, the you sell and buys some other investment and it crashes. So back to nothing. Can you now contribute up to the amount you had when the investment was all the way up?


No.


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## chaudi (Sep 10, 2009)

but they say you can withdraw from the account, use it for another purpose then return years later. I guess this is only up to $5000 per year not for any gains?

Also, since the gains are tax free doesn't it make sense if you, say have 100k to invest and decide to invest 90k conservatively and 10k with some risky stocks, and so to use the TFSA for the stocks? In the hope of high gains, thus avoiding high capital gains tax, particularly in the future when people TFSA become high?


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## OhGreatGuru (May 24, 2009)

chaudi said:


> but they say you can withdraw from the account, use it for another purpose then return years later. I guess this is only up to $5000 per year not for any gains?
> 
> Also, since the gains are tax free doesn't it make sense if you, say have 100k to invest and decide to invest 90k conservatively and 10k with some risky stocks, and so to use the TFSA for the stocks? In the hope of high gains, thus avoiding high capital gains tax, particularly in the future when people TFSA become high?


Read up on the formula for how TFSA contribution room is calculated. If you sell the stocks, and take the money out of the TFSA, you can put it all back into the TFSA the following calendar year. But in your original statement you talked about selling the stock and reinvesting it, not taking any of it out of the TFSA.

As regards your second question, since capital gains have more favourable tax treatment than interest, you would be better keeping your interest income in the TFSA.


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## loggedout (Dec 30, 2009)

OhGreatGuru said:


> You could get caught by s. 56(4.1) of the Income Tax Act if CRA decides you are making a loan to someone not at arms length, rather than a gift. This is a general tax avoidance rule, that doesn't address TFSAs specifically.


Thanks OGG, but what is the definition of arms length. I looked up the tax code and I could not find a definition of the term.

If we are living in the same house and sharing expenses, are we at arms length? If so, is it then a legal tax-free arrangement?


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## MoneyGal (Apr 24, 2009)

LoggedOut and OGG: 

I just don't see how the attribution rules or GAAR can be brought into play in the case of TFSAs. 

If you are loaning money, it must be on an after-tax basis (i.e., loaner has already paid tax on the loaned funds); and the TFSA attracts no tax - thus there is no tax to avoid. 

GAAR comes into play for non-arm's-length loans IF the loan is not properly structured. And then, only the interest is re-attributed to the loaner. Because a TFSA attracts no interest, there's no attribution possible (now I'm just repeating myself). 

LoggedOut: Here's the circular from CRA that defines the meaning of the term "arm's length." 

However, that circular may not provide you with much comfort, to wit (quoting directly from the document):

_Sometimes unrelated persons may deal with each other at arm's length, sometimes they may not, depending on all the circumstances. By providing general criteria to determine whether there is an arm's length relationship between unrelated persons for a given transaction, it must be recognized that all-encompassing guidelines to cover every situation cannot be supplied. Each particular transaction or series of transactions must be examined on its own merits. _


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## OhGreatGuru (May 24, 2009)

loggedout said:


> Is this legal?
> 
> I've read that it's legal to contribute to your spouse's TFSA...but what about other family members, like parents, siblings, in-laws or even non-relatives?


Heck, go for it! The more people start gaming the system the sooner CRA and government will realize that TFSA was an ill-thought-out program and either reform it or cancel it.


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## HaroldCrump (Jun 10, 2009)

OhGreatGuru said:


> Heck, go for it! The more people start gaming the system the sooner CRA and government will realize that TFSA was an ill-thought-out program and either reform it or cancel it.


Interesting...why are you saying this?


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

The TFSA was part of the Conservative government's plan to lower taxes and help working Canadians to save their money. They accomplished this by introducing the TFSA and reducing the GST by two points within two years, rather than the five years that was originally promised. This has kept more money in the pockets of hard-working Canadians.


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## OhGreatGuru (May 24, 2009)

HaroldCrump said:


> Interesting...why are you saying this?


Because as it is presently constructed, over time the people who are going to benefit the most from TFSAs are the well-to-do with plenty of disposable income, not working families who are trying to scrimp together some savings. It's bad socio-economic policy, even though I am taking advantage of it myself while it lasts. The OP on this thread is a perfect example - he's trying to figure out if he can hide "his" money from the tax man under other people's names.

If you invest $5k/yr from age 18 to 65, and earn say 8% return, the TFSA will be worth about $2.26M at age 65. Cumulative contributions are only $235,000, so the government has forgone tax revenue on over $2M in earnings.

The annual income at age 65 will be $181,160. Do you really think someone earning that kind of investment income should not be paying taxes on it? And that's just one TFSA. Double it for spouses.

(Actually it will be even worse than that, because contribution limits are scheduled to go up in $500 increments with inflation.)


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## OhGreatGuru (May 24, 2009)

the-royal-mail said:


> The TFSA was part of the Conservative government's plan to lower taxes and help working Canadians to save their money. They accomplished this by introducing the TFSA and reducing the GST by two points within two years, rather than the five years that was originally promised. This has kept more money in the pockets of hard-working Canadians.


Harper reduced the GST before the national debt was paid off, against the advice of just about every economist. (Including the Fraser Institute, with whom I do not often agree - see www.fraserinstitute.org/.../HowEffectiveareGSTcuts_CSR_Spr-Sum 09.pdf
) Then when the economy tanked (thanks to the US) he had to rack up a huge multi-year deficit for stimulus spending and other reasons, because he wouldn't admit he was wrong and put the GST back up again.


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## andrewf (Mar 1, 2010)

the-royal-mail said:


> The TFSA was part of the Conservative government's plan to lower taxes and help working Canadians to save their money. They accomplished this by introducing the TFSA and reducing the GST by two points within two years, rather than the five years that was originally promised. This has kept more money in the pockets of hard-working Canadians.


They borrowed money from their kids to put that money there. Witness $160 billion in federal deficits, as far as the eye can see.


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## jamesbe (May 8, 2010)

My accountant advised against doing this because of attribution.

Even contributing to my wife's TFSA she suggested to be safe we move the money to a joint account then to the TFSA rather than directly out of my account.

EDIT: I see moneygal touched on this and didn't think it was applicable. I'm not sure how it is not. if I am only allowed $10k in my TFSA but invest $20k ($10k mine $10k my wifes) I am technically avoiding tax on any gains we make in my wife's TFSA. Obviously my wife isn't going to "keep" this money if I want it back she would give it back. Sounds great to me but sounds like tax evasion as well....


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## humble_pie (Jun 7, 2009)

great !!

in no time at all we'll have a gray market in loaned tfsas. People you've never heard of, the guys who ask for money outside metro stations, old alkies on east end street corners, bobs-your-uncle-and-bettys-your-aunt, they're all gonna be out hustling their shell tfsas in return for a piece of the action.

when you think about it, such an emerging market could work the same way as trading carbon credits.

notice that the real money will be made by the brokers who can put the 2 types together.


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## MoneyGal (Apr 24, 2009)

James - you should pay attention to what your accountant says and disregard advice on internet forums. Seriously. 

I used to work with tax issues a lot more than I do now. I haven't done any significant tax prep since before the TFSA was introduced - your accountant will be much more up to speed on these issues than I am. Also, your accountant's name (and professional reputation) will be on your tax returns, which may be why his or her advice is more conservative.


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