The Advantage Tax on a TFSA or RRSP Is 100% of the Benefit
Ask a Canadian broker to move shares you already hold in a taxable account into your TFSA at the closing price, and you will almost certainly be turned down. The reason is the advantage tax, the penalty in Part XI.01 of the Income Tax Act that reaches a TFSA or RRSP and that, unlike every other tax sitting beside it, names no rate at all. It takes the benefit itself. On the figures used below, a swap that looks costless on the day it happens produces a $4,000.00 tax bill by December 31, which is 100% of the growth the swap moved into the plan, and it does not stop there: the tax is charged for each calendar year, so a position that keeps working keeps generating it.
The swap costs nothing on the day it happens and $4,000.00 by December 31
The figures here are ours, chosen for the illustration. A holder has 400 shares of a TSX-listed company in a non-registered account, adjusted cost base $12,000.00, worth $20,000.00 on the day in question. Her TFSA holds $20,000.00 in cash and nothing else. By December 31 the shares are worth $24,000.00.
Route 1 is the swap: the broker moves the shares in and the cash out at the closing price. ITA 207.01(1) defines a swap transaction as “a transfer of property between the registered plan and its controlling individual or a person with whom the controlling individual does not deal at arm’s length”, then excludes seven kinds of transfer at paragraphs (a) to (g). Four of them are the ones a holder might hope to land in, and none fit. It is not a payment out of the plan in satisfaction of all or part of her interest in it, under (a). It is not a payment into the plan that is “a contribution, a premium or an amount transferred in accordance with paragraph 146.3(2)(f)”, under (b)(i). It is not a transfer out of a prohibited or non-qualified investment in circumstances where she is entitled to a 207.04(4) refund, under (c). And it is not a transfer between two registered plans of hers of the same kind, under (d). The remaining three exclusions, (e), (f) and (g), concern a transfer of a prohibited investment where subsection 207.01(13) applies to the consideration, a transfer out in consideration for the issuance of a debt obligation that is excluded property for the trust, and payments of principal or interest on such an obligation. None of that is in play when a broker moves listed shares in and cash out.
On day one nothing is caught. The plan is worth $20,000.00 immediately before the swap and $20,000.00 immediately after it, an increase of $0.00. That is the trap. CRA Income Tax Folio S3-F10-C3 says at paragraph 3.24 that “The fact that the initial swap transaction may have occurred at FMV is not relevant”, because the tax reaches any future increase in the plan’s total fair market value that is reasonably attributable to the swap.
By December 31 the plan’s total value has risen $4,000.00, and on these facts all of it traces to the swap, since the swapped shares are everything the plan holds. Under 207.05(2)(a) the tax is 100% of that increase: $4,000.00.
Route 2 is to sell the shares on the market and buy the same shares inside the TFSA with the cash already sitting there. Neither leg is a transfer of property between the plan and her, so on the statutory definition neither leg is a swap transaction.
| Line | Route 1, the swap | Route 2, sell then rebuy |
|---|---|---|
| capital gain on the disposition | $8,000.00 | $8,000.00 |
| taxable capital gain, ITA 38(a) | $4,000.00 | $4,000.00 |
| growth inside the plan to December 31 | $4,000.00 | $4,000.00 |
| tax on that growth | $4,000.00, under ITA 207.05(2)(a) | $0.00 |
Both routes crystallise the same gain, because the swap is itself a disposition at fair market value outside the plan. ITA 38(a) includes half of the $8,000.00 either way, a taxable capital gain of $4,000.00 on both sides and a difference of $0.00. What that gain costs her depends on her own bracket, which our capital gains tax calculator works out.
The growth is what separates the two routes. Route 1 draws $4,000.00 of advantage tax on it and Route 2 draws $0.00, so the swap saves two commissions and costs $4,000.00. Set that against the ordinary treatment and the shape of the tax is plain: a gain realised in a taxable account is included at one half, while the advantage tax takes the whole increase.
Clearing the swap definition is not on its own enough, because the advantage rules carry a second, wider limb. Paragraph (b)(i) of the definition reaches an increase in a plan’s value attributable to a transaction that “would not have occurred in a normal commercial or investment context in which parties deal with each other at arm’s length and act prudently, knowledgeably and willingly” and that had as a main purpose benefiting from the plan’s tax exemption. Both conditions have to hold, and the first one fails here: a sale to an unknown buyer on an exchange and a purchase from an unknown seller are the ordinary commercial context, not a departure from it. That is the difference between the two routes at the level that matters. The swap is a transaction only a plan holder and their own plan could enter into. Route 2 is two transactions any two strangers could.
Route 2 is not a loophole and it is not free. She is out of the position between the sell and the buy, and the gain is crystallised now rather than when she would otherwise have chosen.
Three ways to get the shares into the plan, and what each one costs
The swap is one of three routes out of a taxable account, and the choice between them is the whole practical question. All three run on the same figures: adjusted cost base $12,000.00, market value $20,000.00 on the day, and $24,000.00 on December 31.
| Move | A swap transaction | Taxable capital gain on the move | Tax on later growth inside the plan | Contribution room used |
|---|---|---|---|---|
| Transfer the shares in and the cash out at market price | Yes, on the 207.01(1) definition, and no exclusion fits | $4,000.00 | $4,000.00 of advantage tax | None |
| Contribute the shares in kind | No, excluded at (b)(i) as a contribution | $4,000.00 | None | $20,000.00 |
| Sell on the market, rebuy inside the plan with cash already there | No, neither leg is a transfer between the plan and her | $4,000.00 | None | None |
A loss changes the ranking, and it adds a route that does not exist on the way up. On an adjusted cost base of $20,000.00 against $12,000.00 of market value the capital loss is $8,000.00, and ITA 38(b) makes the allowable capital loss half of it, so $4,000.00 is the most any route can deliver:
| Move, on a losing position | Allowable capital loss | Why |
|---|---|---|
| Transfer the shares in and the cash out at market price | $0.00 | The disposition is to the plan trust, and 40(2)(g)(iv) makes the loss nil. The swap also leaves the advantage tax running on every dollar the position later recovers |
| Contribute the shares in kind | $0.00 | Same provision, same reason, and $12,000.00 of contribution room is consumed as well |
| Sell on the market, rebuy inside the plan within 30 days | $0.00 | A superficial loss under section 54, made nil by 40(2)(g)(i) |
| Sell on the market, wait more than 30 days, then have the plan buy | $4,000.00 | The repurchase falls outside the superficial loss window |
The last row is not in the first table, because on a gain there is no reason to wait. It is the only route that keeps the loss, and it costs 31 days out of the position. The first row is the only one that loses the loss and keeps the advantage tax running on any recovery. Everything below unpacks the two provisions doing that work, because they are different provisions and only one of them has a fix.
Three points come out of those tables. The first is that the capital gain is unavoidable on any route that starts outside a registered plan. A contribution in kind is still a disposition of the shares, and the proceeds are their fair market value on the day they go in. The gain crystallises on the way in, exactly as it would on a market sale.
The second is that the in-kind route pays for its clean treatment with TFSA contribution room. Moving $20,000.00 of shares in consumes $20,000.00 of room, where the swap consumes none and the sell-and-rebuy consumes none because the cash was already inside the plan. Room is the quiet price of the route that looks free.
The third is the provision behind the first two rows of the loss table. ITA 40(2)(g)(iv) makes a loss nil where the disposition is to a trust governed by any of six arrangements, the registered ones among them being a FHSA, an RDSP, a RRIF and a TFSA, under which the taxpayer is a beneficiary or becomes one immediately after the disposition, and clause (B) does the same for an RRSP under which the taxpayer or their spouse or common-law partner is the annuitant, or becomes one within 60 days after the end of the taxation year. The loss is not deferred to a future year and it does not attach to anything inside the plan. It is gone, and $12,000.00 of contribution room went with it to get there. A holder who contributes a loser in kind to tidy up a portfolio has paid twice for the privilege.
The sell-and-rebuy row is nil for an entirely different reason, and that is the reason it has a fix when the first two rows do not. It runs through the superficial loss rule: a TFSA holder is the only beneficiary of her own TFSA trust and so a majority-interest beneficiary of it, the test in section 251.1 being a beneficial interest worth more than half of all of them, and 251.1(1)(g)(i) makes a person and a trust affiliated where the person is a majority-interest beneficiary of it. Section 54 then defines a superficial loss as a loss where, in the window running from 30 days before the disposition to 30 days after it, the taxpayer or a person affiliated with the taxpayer acquires identical property and still owns it at the end of that window, which is exactly what the plan’s purchase is, and 40(2)(g)(i) makes such a loss nil. Note what 40(2)(g)(i) does and does not do: it makes the loss nil, and it does not defer it to a later year. The 31-day wait is what preserves it.
One move that looks like a swap is not one at all. A transfer of shares from one of a holder’s own TFSAs to another is excluded from the swap definition at (d)(ii), costs nothing, consumes no room, and nothing in this Part touches it.
The charging provision names no rate
ITA 207.05 taxes an advantage extended to, or received or receivable by, the controlling individual of a registered plan, the trust governed by it, or anyone not dealing at arm’s length with that individual. Subsection (2) is the whole of the arithmetic:
(2) The amount of tax payable in respect of an advantage described in subsection (1) is (a) in the case of a benefit, the fair market value of the benefit; (b) in the case of a loan or an indebtedness, the amount of the loan or indebtedness; and (c) in the case of a registered plan strip, the amount of the registered plan strip.
No percentage appears in it. The tax equals the benefit, the debt or the strip. Folio S3-F10-C3 restates that at paragraph 3.43 as a tax “equal to 100% of” each of those amounts, which is the honest way to say it to a reader, though the statute sets no rate.
The folio’s first example shows the consequence in its simplest form. An RRSP holds units of a mutual fund trust that owns rental properties at various ski resorts in Canada, and as a unit holder the annuitant may rent one at 25% off the normal commercial rate. He takes two weeks at $750 a week instead of the normal $1,000, a discount of $500.00, and the CRA’s conclusion is that “The $500 discount constitutes a benefit that is conditional on the existence of Daniel’s RRSP. Daniel is therefore liable to pay advantage tax of $500.” Not the RRSP, not the units, not the rent. The benefit is the discount, so the tax is the discount.
The definition reaches five kinds of thing
ITA 207.01(1) defines an advantage in five paragraphs:
- (a) any benefit, loan or indebtedness “conditional in any way on the existence of the registered plan”, subject to six enumerated exceptions at (i), (ii), (iii), (iv), (iv.1) and (v), which are set out further down. Folio 3.6 says the phrase “should be given wide meaning in this context”.
- (b) an increase in the plan’s total fair market value attributable to one of four things: a transaction or series that would not have occurred between arm’s-length parties acting prudently, knowledgeably and willingly and had as one of its main purposes benefiting from the plan’s tax exemption; a payment in substitution for services or for a return on property held outside the plan; a swap transaction; or specified non-qualified investment income left in the plan more than 90 days after a notice from the Minister.
- (c) income or a capital gain reasonably attributable to a prohibited investment, to certain substitution payments in a plan that is not a TFSA, or to a deliberate over-contribution.
- (d) a registered plan strip.
- (e) a prescribed benefit.
Paragraph (b) carries a carve-out worth knowing for anyone on a fee-based account. Subparagraph (b)(i) excludes a payment, not exceeding a reasonable amount, by the controlling individual of the plan for amounts described in paragraph 20(1)(bb), which folio 3.16.1 confirms specifically excludes such investment management fees from the determination of an advantage. Paying the advisory fee on a registered account out of non-registered money is contemplated by the provision rather than caught by it, so long as the fee is one of the amounts paragraph 20(1)(bb) describes and the payment does not exceed a reasonable amount. Both limits are part of the carve-out, not gloss on it.
The limb of (c) that reaches ordinary savers rather than business owners is the last one. A deliberate over-contribution is a TFSA contribution that results in or increases an excess TFSA amount, “unless it is reasonable to conclude that the individual neither knew nor ought to have known that the contribution could result in liability for a penalty, tax or similar consequence under this Act”. An honest mistake stays with the over-contribution tax in ITA 207.02, which charges an individual with an excess TFSA amount at any time in a calendar month a tax “equal to 1% of the highest such amount in that month”. Knowingly parking money over the limit adds the earnings on it, at 100%, on top of that 1% a month.
The measurement period ends on December 31, and a new one opens on January 1
A swapped holding is not a one-time mistake. Section 207.05(1) makes the tax payable “for a calendar year”, and folio 3.45 says “each increase in the FMV of plan property constitutes a separate advantage”. So the $4,000.00 in the illustration is the first year’s charge, not the whole of it. A position that keeps growing inside the plan keeps producing increases attributable to the swap, and each year’s increase is charged again at 100%. That is what makes a swap different in kind from a one-off penalty, and it is the reason the CRA’s expectation that brokers will not process the request is a kindness rather than an obstruction.
Take the same swap, but let the position give some of it back. The shares peak at $24,000.00 in October and close the year at $21,500.00. The peak increase attributable to the swap is $4,000.00, the calendar-year increase on December 31 is $1,500.00, and the tax is $1,500.00.
Folio 3.45 explains why. Each increase in value is a separate advantage and could in theory be measured over shorter periods, but “because the tax must be remitted annually, the measurement period must end at the end of the calendar year”, and where the whole increase is caught the CRA will accept a calendar-year measurement, which addresses inequity “by netting out any decreases in value in the calendar year”. Folio 3.46 deals with the years after that one: where an advantage transaction spans more than one calendar year and the property value fluctuates over that period, taxpayers may request a waiver of all or part of the tax to take those fluctuations into account, and a waiver “will not be provided in situations where the reduction in value was artificial”.
A TFSA can be pledged as loan security on conditions. Pledging any other plan has a tax cost
The second of the paragraph (a) exceptions covers a loan or other debt, “including the use of a TFSA as security for the debt or a depositary TFSA used to set off certain indebtedness”, that reflects arm’s-length terms and conditions. Read quickly, that looks like a general permission to borrow against a registered plan. It is not, and the asymmetry is the single most useful thing in this part of the folio for an RRSP holder.
The TFSA side comes with its own two conditions, which the exception reaches by pointing at subsection 146.2(4). A holder may use their interest in a TFSA as security for a loan where the terms and conditions of the indebtedness are ones “that persons dealing at arm’s length with each other would have entered into”, and where it can reasonably be concluded that none of the main purposes of that use is to let someone other than the holder benefit from the TFSA’s tax exemption. Subsection 146.2(4.1) sets the parallel pair for a depositary TFSA where the issuer has a right of set-off. So the TFSA permission is real, and it is conditional on the loan being priced like an ordinary loan and on the arrangement not routing the account’s tax shelter to somebody else.
Start with what the exception does accommodate. Folio 3.9 gives the ordinary case: an RRSP contribution loan, money borrowed to make the contribution. It is not uncommon for the annuitant to sign a letter of direction to collapse the plan and remit the proceeds to the lender on default, and not uncommon for the interest rate to be better than the lender’s rate on non-RRSP loans on similar terms. Neither circumstance “would, in and of itself, render the exception inapplicable provided the loan reflects arm’s-length terms”. Borrowing to contribute, on normal commercial terms, is fine.
Pledging the plan itself is a different act. Folio 3.10 says the broader part of the exception, the part permitting TFSAs to be used as security, “does not apply to RRSPs, RESPs, RRIFs, RDSPs or FHSAs”. If one of those plans is used, in the folio’s words, “in any manner” to secure a loan or other debt or to stand behind one, and the result is financing terms more favourable than would otherwise be available without the arrangement, those favourable terms are a benefit conditional on the existence of the plan, and therefore an advantage taxed at 100% of the terms’ value. The position “extends to an arrangement that may not necessarily result in the creation of a legally valid security, but which has the same effect in practice”, so an informal understanding with a lender is inside the rule rather than outside it.
Nor does the absence of a pricing benefit end the matter. Folio 3.11 says adverse consequences could still apply to an RRSP or RRIF annuitant or an FHSA holder even if the arrangement can be argued not to produce more favourable financing terms. Where a trust governed by an RRSP, RRIF or FHSA uses or permits any of its property to be used as security for a loan, subsection 146(10), 146.3(7) or 146.6(11) requires the fair market value of the property so used to be included in the annuitant’s or holder’s income. Where those rules and the advantage rules are both found to apply to the same arrangement, the CRA “would only apply the advantage rules”.
So the line for a reader with more than one plan runs three ways, not two. A TFSA may be pledged, on the 146.2(4) conditions. An RESP or RDSP may not, and a pledge that buys better financing terms is an advantage. An RRSP, RRIF or FHSA may not either, and for those three the folio adds a second exposure on top: the income inclusion follows from the plan’s property being used as security at all, whether or not the terms improved.
Most bank promotions sit on the right side of the line
Folio 3.7 lists six exceptions to the paragraph (a) kind of advantage, and letters them where it refers back to them, at (b) in folio 3.9 and at (a), (d) and (e) in folio 3.12:
- administrative or investment services provided in connection with the plan, which the statute puts as “a benefit derived from the provision of administrative or investment services in respect of the registered plan”
- a loan or other debt, including the use of a TFSA as security, that reflects arm’s-length terms and conditions
- a distribution from the plan in satisfaction of all or part of the controlling individual’s or a beneficiary’s interest in it
- a payment or allocation to the plan by the issuer, carrier or promoter
- “a promotional incentive under a program offered to a broad class of persons in a normal commercial or investment context and not established mainly for tax purposes”
- a government grant or bond payment to an RESP or RDSP
Note the two adjectives on the first one. It is administrative or investment services, not any service a bank happens to attach to a plan.
Three of those six do the work on promotions. Folio 3.12 says most conventional incentives are accommodated by one or more of the exceptions “described in 3.7(a), (d), or (e)”, which are the services exception, the issuer-payment exception and the promotional-incentive exception. The folio’s own illustrations are the promotions Canadians actually hold: tiered commission rates and waived account fees that count registered balances toward the qualifying threshold, and, the most alarming-looking of them, a bank handing a new client a free tablet for opening a TFSA or RRSP and keeping $10,000 in it for six months, with the plan administration fee waived each year the balance holds. Every one of those is conditional on the existence of a registered plan in the plainest sense, and every one is accommodated. The tablet is worth singling out, because a physical gift for opening an account is the case where a reader is most likely to assume the worst. The folio lists it among the examples its exceptions accommodate, without pinning it to any one of the three.
Two of the folio’s examples involve cash rather than a perk. In one, a bank pays 2% bonus interest on deposits to savings accounts during a two-month promotional period, with registered holdings counting only toward the $25,000 eligibility threshold. In the other, a financial institution pays $100 cash back directly into the plan for new customers who open an RRSP, RRIF or TFSA and hold a $50,000 balance for a year. Of those two, folio 3.12 says “the payments described in Examples 4 and 6 do not constitute a premium, gift, or contribution to the plan (as they are considered a return on investment)”. That matters for the cash-back case in particular: money landing inside a plan without being a contribution does not touch contribution limits or the plan’s registered status.
A referral bonus is the one to watch, and it is the mirror image. Folio 3.12 says that where a controlling individual directs a referral bonus to be paid into their plan, the payment “will be considered to be a contribution or premium to the plan”, because the bonus is earned by the individual rather than by the plan. Folio 3.13 says the same of a cash contest prize paid directly in. That is a contribution-room problem rather than an advantage problem, and for anyone near their limit it is a real one. Folio 3.8 is the caveat over all of it: a transaction covered by one of these enumerated exceptions “may nevertheless be characterized as an advantage pursuant to any of the anti-avoidance provisions”.
A prohibited investment draws the 50% tax and the 100% tax in the same year
Now a TFSA that acquires shares of a private corporation where the holder owns 30% of the only class of shares and can cast 30% of the votes. The excluded-property carve-out comes first, because it is the brake: the prohibited investment definition opens with “property (other than excluded property for the trust)”. Excluded property has three paragraphs, and (a) and (b) are not reached here: (a) covers a prescribed insured mortgage and (b) covers a mutual fund or registered investment inside a 24-month window. Paragraph (c) is the one that bears on a private company share, and it sets seven conditions that must all hold. Two of them decide this case. Under (c)(i), arm’s-length holders must own at least 90% of the equity, and here they own 70%. Under (c)(iii), the holder’s side must not have the right to cast at least 10% of the votes, and here it can cast 30%. Both fail, so the shares are not excluded property.
The significant-interest test then closes it. ITA 207.01(4)(a) says an individual has a significant interest in a corporation if the individual would be a “specified shareholder” of it, and 248(1) defines that as a taxpayer who owns, directly or indirectly, “not less than 10% of the issued shares of any class of the capital stock of the corporation or of any other corporation that is related to the corporation”. Thirty percent clears ten, so the holding is a prohibited investment. How far that test runs, including cases where a holder who owns no shares personally is caught anyway, is the subject of our piece on the significant-interest test behind a prohibited investment.
The shares are worth $20,000.00 when the TFSA acquires them, so ITA 207.04(2) charges 50% of that, $10,000.00. A holding can be a non-qualified investment as well as a prohibited one, and where it is both, that does not double the charge: 207.04(3) deems a property that is both not to be a non-qualified investment, while it “remains a prohibited investment”. The 50% is charged once.
They pay $900.00 of dividends in the year. Paragraph (c)(i) of the advantage definition reaches income reasonably attributable to a prohibited investment, and unlike (c)(ii) it carries no carve-out for a TFSA, so 207.05(2)(a) takes 100% of that income: $900.00. The year’s bill is $10,900.00 on a holding that earned $900.00.
What happens next is where the two taxes part company, and it is worse than a first reading of 207.04(4) suggests. Paragraph (a) of that subsection refunds the $10,000.00 on a disposition of the property. Paragraph (b) reduces the refund to nil in either of two cases: where it is reasonable to consider that the controlling individual “knew, or ought to have known, at the time the property was acquired by the trust, that it was, or would become,” a property described in subsection (1), or where the plan does not dispose of the property before the end of the calendar year following the year the tax arose, or a later time the Minister considers reasonable. Our piece on the 50% tax on a non-qualified investment follows that refund in detail.
Both conditions matter here, and the first one is the one to reckon with. A holder who genuinely did not know, and who disposes of the property in time, gets $10,000.00 back and is stuck with the $900.00, so 91.7% of the bill is refundable by right and 8.3% depends on the Minister. Read the test carefully, though: it asks whether she knew or ought to have known that the share was, or would become, a prohibited investment, which is knowledge of the characterisation and not merely of her own shareholding. On facts as plain as a 30% stake in the only class of shares of a private company in which she can cast a third of the votes, relief under that paragraph is unlikely, and a holder in that position should plan on the full $10,900.00 rather than on the refund. The temporal limit is the other half of the paragraph: the test looks at what she knew when the property went in, not at what she learned afterwards.
The structural difference survives either way, and it is starker stated honestly. The 50% tax has a refund a taxpayer can qualify for by acting, in the cases where paragraph (b) does not apply. Section 207.05 has no refund provision at all, in any case, for any taxpayer. The only route back from the $900.00 is a discretionary waiver.
| Tax | Charging provision | Amount | Refundable |
|---|---|---|---|
| Non-qualified investment | ITA 207.04(2) | 50% of fair market value when acquired | Yes, under 207.04(4), if the plan disposes of it before the end of the next calendar year and the holder neither knew nor ought to have known |
| Prohibited investment | ITA 207.04(2) | 50% of fair market value when acquired, charged once where a property is both prohibited and non-qualified | Yes, under 207.04(4), on the same two conditions |
| Advantage | ITA 207.05(2) | 100% of the benefit, the loan, or the strip | No refund provision. A discretionary waiver under 207.06(2) is the only relief |
Nobody at the brokerage is checking this for the holder
Subsection 207.05(3) makes each controlling individual of the plan “jointly and severally, or solidarily, liable to pay the tax”, except where the advantage was extended by the issuer, carrier or promoter of the plan or by someone not dealing at arm’s length with them, in which case the tax is theirs. That joint liability is not academic, and folio 3.44 names the cases it reaches: in an RESP with more than one subscriber, or an RDSP with more than one holder, “each such person is jointly and severally, or solidarily, liable with each other to pay the tax”. “Controlling individual” is defined in 207.01(1) as the holder of a TFSA, the holder of an RDSP, the subscriber of an RESP, the annuitant of a RRIF or RRSP, and the holder of an FHSA.
Folio 3.47 is the sentence that should make a self-directed investor sit up. Issuers, carriers and promoters “generally have no obligation under the Act to identify investments or transactions that may result in the plan’s controlling individual being liable for advantage tax”, though they are expected not to knowingly facilitate them, and third-party penalties may be assessed in appropriate circumstances.
The same folio paragraph that closed the swap trap also explains the refusal at the other end of the phone. Folio 3.24: “Since this tax treatment effectively prohibits swap transactions, the CRA expects that issuers, carriers and promoters will not process swap transaction requests in light of the serious tax consequences for their clients.”
The return is the holder’s to file, and the bill is the holder’s to pay. ITA 207.07(1) requires the return and the payment before July of the following calendar year, which folio 3.48 states as June 30. The forms are RC339 for an RRSP, RRIF, RESP or RDSP, RC728 for an FHSA, RC243 for a TFSA, and RC298 where the issuer, carrier or promoter is liable. Worth being plain about where the money comes from: the liability sits on the individual, not on the account. It is not a charge the plan settles out of its own assets, so a holder who funds it from inside a TFSA is taking a withdrawal to do it.
The only relief is discretionary
ITA 207.06(2) lets the Minister waive or cancel all or part of a liability under 207.04(1) or section 207.05 where the Minister “considers it just and equitable to do so having regard to all the circumstances”, including whether the tax arose from a reasonable error, the extent to which the same transaction or series also gave rise to another tax, and the extent to which payments have been made from the plan. Compare the over-contribution waiver in 207.06(1), which turns on a reasonable error and on distributions made without delay. Those are conditions a taxpayer can go and satisfy. Subsection (2) sets none, so a waiver is a request rather than an entitlement. Folio 3.52 asks a written request to set out “a complete history of events including what measures were taken, and when they were taken, to resolve the non-compliance” along with the facts supporting reasonable error or factors beyond the taxpayer’s control, and folio 3.53 says the CRA administers the provisions “in a fair and flexible manner”, each request on its own merits.
The shape of the tax matters more than the rate
Read as a rate, 100% sounds like the end of the story. The shape is what bites. The tax lands on the benefit rather than on the investment, and for a swap the benefit is measured as the increase in the plan’s whole value attributable to it, not as the gain on the holding that moved. It arrives well after the transaction that triggered it, because the measurement period runs to December 31 and the return is due the following June, and it comes back the year after that for as long as the position keeps rising. And section 207.05 carries no refund where 207.04 carries one, so the way back is discretion rather than a right.
For the holder who started this piece wanting her shares inside her TFSA, the choice is between paying $20,000.00 of contribution room, paying two commissions, or paying 100% of everything the position earns inside the plan for as long as she holds it. On a losing position the answer changes again, and waiting out the 30 days is the only route that keeps the loss.
Our illustrations apply the rules as of September 28, 2026. The Justice Laws consolidation of the Income Tax Act used here is current to 2026-09-03 and last amended on 2026-06-18. Folio S3-F10-C3 carries a date modified of 2024-05-28.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Statutory text is from the Income Tax Act on the Justice Laws Website, current to September 3, 2026 and last amended June 18, 2026. Sections 207.01 to 207.07, 38, 248 and Regulation 4900 were fetched September 26 and 27, 2026, and sections 40, 54, 69, 146.2, 207.02 and 251.1 on September 28, 2026. Administrative positions, the folio paragraph numbering and the reporting requirement are from Canada Revenue Agency Income Tax Folio S3-F10-C3, Advantages, page last modified May 28, 2024, fetched September 28, 2026. The taxes in Part XI.01 are federal and have no provincial counterpart, so the 50% and 100% figures are the whole of the tax rather than a share of it. The share, dividend and market values in the worked illustrations are ours, chosen to show the mechanism.
