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Discussion Starter #1
Is this legal?

I've read that it's legal to contribute to your spouse's TFSA...but what about other family members, like parents, siblings, in-laws or even non-relatives?
 

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You have to trust that person. You can't draw up a contract guaranteeing that the return on the investment be in turn gifted back to you.
 

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Discussion Starter #4
I trust them with my life.

What happens if they die?

I assume that TFSA becomes a part of their estate?

Could they write in their will that I'm the beneficiary of the TFSA? Tax implications to that?
 

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I don't know about the tax implications, but sure they could put it in a will that you get the TFSA proceeds. You should probably pay the tax implications, as that would only be fair to pay out of the money that you sheltered/made profits with.
 

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You could give a gift to someone, and they could deposit it in a TFSA. But it doesn't sound like you're asking about a gift, it sounds like you still want to maintain a right or access to the tax sheltered money. That sounds like fraud.
 

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There are no tax implications to collapsing a TFSA upon death, just as withdrawals are not taxable while alive. This is different than RRSPs, because contributions are made with after-tax dollars. The issue about it having to be freely given is that you don't want CRA attributing the contributions back to you, as you would be subject to penalties for overcontributions.

There are "estate tax" issues (probate fees) if the money is paid to the estate. Appointing a beneficiary allows the proceeds to pass outside of the estate.
 

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Is this legal?

I've read that it's legal to contribute to your spouse's TFSA...but what about other family members, like parents, siblings, in-laws or even non-relatives?
Of course it is legal. I paid into the TFSA of my wife- and could to non-relatives. This means that you are gifting the money to them.

To make a contract that if they pass away, the money get paid back to you smells a bit fishy to me. More likely like tax evasion. Just my $0.02.
 

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Discussion Starter #9
Hmm okay.

What about "loaning" a parent cash that they put in their line of credit or whatever, and having them pay me the interest they would have paid the bank?

Same issues as with the TFSA or different?
 

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Hmm okay.

What about "loaning" a parent cash that they put in their line of credit or whatever, and having them pay me the interest they would have paid the bank?

Same issues as with the TFSA or different?
You can loan money to anyone- with or without interest. The interest you receive is a capital gain and you will have to file it as an income in your tax return.
 

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To be clear, interest is not a capital gain (which is taxed differently). It is taxed as income. However, the arrangement would be legit.
 

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You could get caught by s. 56(4.1) of the Income Tax Act if CRA decides you are making a loan to someone not at arms length, rather than a gift. This is a general tax avoidance rule, that doesn't address TFSAs specifically.

(Edited down to remove references to trusts)

56(4.1) Where
(a) a particular individual (other than a trust) ... has, directly or indirectly
by means of a trust or by any means whatever, received a loan from or become indebted to
(i) another individual (in this subsection referred to as the “creditor”) who
(A) does not deal at arm’s length with the particular individual, ...

and

(b) it can reasonably be considered that one of the main reasons for making the loan or incurring the indebtedness was to reduce or avoid tax by causing income from
(i) the loaned property,
(ii) property that the loan or indebtedness enabled or assisted the particular individual, ... to acquire, or
(iii) property substituted for property referred to in subparagraph 56(4.1)(b)(i) or 56(4.1)(b)(ii) to be included in the income of the particular
individual,

the following rules apply:
(c) any income of the particular individual for a taxation year from the property referred to in paragraph 56(4.1)(b) that relates to the
period or periods in the year throughout which the creditor ..., was resident in Canada and the particular individual was not dealing at arm’s length with the creditor ..., shall be deemed,
(i) where subparagraph 56(4.1)(a)(i) applies, to be income of the creditor for that year and not of the particular individual except to the extent that ...
 

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If it is a loan, it should be struck at the prescribed rate. Putting kids to bed, must read a story now and cut this short...
 

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if you buy stocks with the TFSA and say they go up fairly high say to 50k, the you sell and buys some other investment and it crashes. So back to nothing. Can you now contribute up to the amount you had when the investment was all the way up?
 

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but they say you can withdraw from the account, use it for another purpose then return years later. I guess this is only up to $5000 per year not for any gains?

Also, since the gains are tax free doesn't it make sense if you, say have 100k to invest and decide to invest 90k conservatively and 10k with some risky stocks, and so to use the TFSA for the stocks? In the hope of high gains, thus avoiding high capital gains tax, particularly in the future when people TFSA become high?
 

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but they say you can withdraw from the account, use it for another purpose then return years later. I guess this is only up to $5000 per year not for any gains?

Also, since the gains are tax free doesn't it make sense if you, say have 100k to invest and decide to invest 90k conservatively and 10k with some risky stocks, and so to use the TFSA for the stocks? In the hope of high gains, thus avoiding high capital gains tax, particularly in the future when people TFSA become high?
Read up on the formula for how TFSA contribution room is calculated. If you sell the stocks, and take the money out of the TFSA, you can put it all back into the TFSA the following calendar year. But in your original statement you talked about selling the stock and reinvesting it, not taking any of it out of the TFSA.

As regards your second question, since capital gains have more favourable tax treatment than interest, you would be better keeping your interest income in the TFSA.
 

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Discussion Starter #19
You could get caught by s. 56(4.1) of the Income Tax Act if CRA decides you are making a loan to someone not at arms length, rather than a gift. This is a general tax avoidance rule, that doesn't address TFSAs specifically.
Thanks OGG, but what is the definition of arms length. I looked up the tax code and I could not find a definition of the term.

If we are living in the same house and sharing expenses, are we at arms length? If so, is it then a legal tax-free arrangement?
 

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LoggedOut and OGG:

I just don't see how the attribution rules or GAAR can be brought into play in the case of TFSAs.

If you are loaning money, it must be on an after-tax basis (i.e., loaner has already paid tax on the loaned funds); and the TFSA attracts no tax - thus there is no tax to avoid.

GAAR comes into play for non-arm's-length loans IF the loan is not properly structured. And then, only the interest is re-attributed to the loaner. Because a TFSA attracts no interest, there's no attribution possible (now I'm just repeating myself).

LoggedOut: Here's the circular from CRA that defines the meaning of the term "arm's length."

However, that circular may not provide you with much comfort, to wit (quoting directly from the document):

Sometimes unrelated persons may deal with each other at arm's length, sometimes they may not, depending on all the circumstances. By providing general criteria to determine whether there is an arm's length relationship between unrelated persons for a given transaction, it must be recognized that all-encompassing guidelines to cover every situation cannot be supplied. Each particular transaction or series of transactions must be examined on its own merits.
 
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