Earnings in a TFSA are typically not taxable. However, earnings in a TFSA become taxable when they are earned from carrying on a securities trading business.
In a February 6, 2023 Tax Court of Canada case, CRA had assessed the TFSA on the basis that it was carrying on a business and was therefore taxable on its income for the 2009 through 2012 taxation years. The TFSA holder was a professional investment advisor who had engaged in aggressive trading in non-dividend-paying speculative penny stocks, all of which were qualified investments. The total income assessed was $569,481, earned from annual contributions of $5,000 in each of 2009, 2010 and 2011.
The taxpayer argued that the TFSA should be treated in the same manner as an RRSP and not taxed on income from a business of trading in qualified investments. The taxpayer further argued that the traditional tests used to determine whether a business of trading in securities was being carried on were inappropriate for application to TFSAs. The taxpayer referred to an earlier Court case that had suggested registered accounts trading in qualified investments are not carrying on a business.
Please see the second part of the article in our next post
*The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this text accepts any contractual, tortious, or any other form of liability for its contents.
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