Perhaps as a result of a confluence of factors — buoyant markets, social media influence and today’s ease of investing — we have been receiving more questions about young investors who want to open up a Tax-Free Savings Account (TFSA) for investing purposes.
While we encourage the use of the TFSA for investing to build wealth on a tax-free basis for the future, we caution about its use for frequent trading purposes. All investors should be aware that there may be tax consequences associated with frequent trading within a TFSA, as prescribed by the Canada Revenue Agency (CRA).
According to the CRA, the TFSA is intended for an individual “to set money aside tax-free throughout their lifetime.” If investments are bought and sold frequently inside the TFSA, the CRA may consider you to be “carrying on a business.” While there are no defined limits on trading within a TFSA that constitute carrying on a business by the CRA, one way that the CRA has previously assessed this practice is when a TFSA owner holds securities for only a short period of time.
Prior to the pandemic, the CRA had ramped up its audits of the TFSA, looking specifically at accounts that held large balances. Between 2009 and 2017, it assessed more than $110 million in taxes owing. While the bulk of this amount was related to taxes payable on tax advantages, over $6 million was due for day trading within a TFSA.
The views expressed are those of Wes Ashton, Director of Growth Strategy and Portfolio Manager, and not necessarily those of Harbourfront Wealth Management Inc., a member of the Canadian Investor Protection Fund.