Tax-free savings accounts, created just five years ago by the Harper government as a tool that would allow Canadians to grow retirement investments while sheltered from capital gains taxes, are increasingly being challenged by Canada Revenue Agency auditors targeting investors that show large gains in their account.
The CRA is also hitting investors with audits if they trade too frequently for the agency’s comfort. The CRA has argued that investors who use their TFSAs for frequent trading and earn large gains are effectively running a trading business, and should be taxed on income.
The sudden growth in CRA scrutiny has triggered concern from the Investment Industry Association of Canada, which recently complained of “insufficient guidelines” for TFSA investors to determine whether they’ve run afoul of tax rules, in a letter to the Finance Department and the director general of the Canada Revenue Agency (CRA).
In addition, a Calgary law firm says it is readying to fight Ottawa over the growing use of the “business” interpretation.
Sources from the tax and legal sectors confirmed to the Financial Post that the CRA has rolled out a TFSA audit project that has become increasingly active in the past couple of years. However, the amount of activity or balance that will trigger an audit remains unclear and the CRA was unable to offer comment to the Financial Post on Monday.
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