Canadian CANNAINVESTOR Magazine October 2017 - Page 206


As we all know, income and gains realized on “qualified investments” held in a Tax Free Savings Account (“TFSA”) are typically exempt from tax. However, what you might not know is that if you’ve been actively trading securities in your TFSA, such trading activity could constitute a business and, depending on the facts, could attract tax. This is because under the tax rules, if a TFSA “carries on one or more businesses”, it must pay tax on that business income, even if the income is derived from the sale of qualified investments (e,g, publicly traded securities). 1

1 It should be noted that this restriction is harsher than that applicable to Registered Retirement Savings Plans (“RRPSs”). Due to a specific exclusion in the tax rules governing RRSPs, income and gains realized from qualified investments in an RRSP are tax exempt even if the RRSP was carrying on a business (e.g. day trading securities). See paragraph 1.89 of Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

When is trading in

your TFSA no

longer “tax free”?

By: Ryan Chua, JD/MBA