Some areas of Confusion as regards the TFSA:

The TFSA, introduced in Jan of 2009, seemed so simple to begin with.  But once people really started getting into it and actually started investing, a great deal of confusion was generated. These are some of the grey areas in the TFSA world upon which various financial consultants have shed light and experts in the field.

Can a person have only one TFSA?

The answer is no.  A person can own more than one TFSA but it is the contribution room that limits total contributions across all of these. Contribution room, in turn, depends upon TFSA dollar limit for the current year, any withdrawals made the previous year, and unused contributions of the previous year.

Are contribution room carry forwards limited?

No, there is no limit to the amount of contribution room that can be carried forward or the number of years it can be carried forward. There is no lifetime contribution limit to the TFSA either.

Is there such a thing as replacement of losses as regards contributions in kind?

No there is no such provision.  Say Mrs. X deposited $4,000 in stocks into her TFSA in 2009, and the value then fell to $3,200, the loss of $800 cannot be made good or replaced, neither can it be added to contribution room of the next year. She would have to just grin and “bear” it!

What happens if an investor exceeds their contribution room in a particular year?

This is another little known fact, that, if contribution room for a particular year is exceeded, the excess contribution over $5,000 (as indexed to inflation, rounded to the nearest $500), is subject to a penalty @ 1% per month until the excess amount is withdrawn.

Does one have to open a new TFSA each year?

No.  Only one TFSA is needed and the contribution room can be carried forward in the same account, year after year.

If an investor has not kept track, how may he or she determine contribution room?

This information may be gleaned from the Notice of Assessment, which is provided by the Canada Revenue Agency for individuals who have filed a T1 individual income tax return.

If someone did not avail of the opportunity to invest in the TFSA in 2009, what is the consequence?

Good news here!  If someone, for lack of funds or want of information about the TFSA, or whatever other reason, did not contribute at all in the year 2009, the contribution room for 2010 would be $10,000.

Can US $ investments be held in the TFSA?

Yes, they can, for instance, US $ mutual funds.  But it must be borne in mind that, for Canada Revenue Agency reporting purposes, any amounts from the disposal of such investments and contributions are converted into Canadian dollars. This helps with uniformity in the TFSA arena.

Can the TFSA be transferred to another institution? Does this attract tax?

Yes, the TFSA can be transferred to another institution with no tax being attracted whatever.  But one should keep an eye out for transfer fees which could be to the tune of $50-$100.

Is the transfer of a TFSA between institutions treated as a withdrawal or contribution?

No a transfer of a TSA between institutions is not treated as a withdrawal or a contribution. The condition here is that it has to be processed as a direct transfer.

Is there any remedy when an institution refuses to process a particular TFSA transaction?

If it is straight cash, it is fine, it if it straight transactions in kind, it is fine, but some contributions in kind are more tricky.  If they represent to the bank more hassle than gain, the bank might just refuse.  For instance, say an employee becomes the owner of some shares of his employer company before they are offered to the public, and he wants to keep these within his TFSA and contain the resultant gain there, the institution might refuse for these reasons:

It is considered a private placement

-It would incur vast costs

-The institution is not comfortable handling this transaction because it isn’t so clear-cut as normal contributions in cash or kind

-Valuation could be an issue

Yes, these transactions are legal so long as an investor does not own more than 10% of the company’s shares but when the amount involved is small, the institution may refuse.

Is there any remedy at all in such a case? Yes, try another institution or let go the idea of the TFSA in this instance!

As can be seen from the above, there are many areas of confusion as regards the TFSA but the solutions to these seeming problems are simple.  There is a wealth of knowledge and information available out there and one must educate oneself to make the most of this vehicle of saving. Or accept the next best option.