Income Tax Act

Marginal note:Tax payable on prohibited or non-qualified investment

• 207.04 (1) The holder of a TFSA that governs a trust shall pay a tax under this Part for a calendar year if, at any time in the year,

  • (a) the trust acquires property that is a prohibited investment, or a non-qualified investment, for the trust; or

  • (b) property held by the trust becomes a prohibited investment, or a non-qualified investment, for the trust.

• Marginal note:Amount of tax payable

  (2) The amount of tax payable in respect of each property described in subsection (1) is 50% of the fair market value of the property at the time referred to in that subsection.

• Marginal note:Where both prohibited and non-qualified investment

  (3) For the purposes of subsection 146.2(4) and this section, if a trust governed by a TFSA holds property at any time that is, for the trust, both a prohibited investment and a non-qualified investment, the property is deemed at that time not to be a non-qualified investment, but remains a prohibited investment, for the trust.

• Marginal note:Refund of tax on disposition of investment

  (4) If in a calendar year a trust governed by a TFSA disposes of a property in respect of which a tax is imposed under subsection (1) on the holder of the TFSA, the holder is entitled to a refund for the year of an amount equal to

  • (a) except where paragraph (b) applies, the amount of the tax so imposed; or

  • (b) nil,

    • (i) if it is reasonable to consider that the holder knew, or ought to have known, at the time the property was acquired by the trust, that it was, or would become, a property described in subsection (1), or

    • (ii) if the property is not disposed of by the trust before the end of the calendar year following the calendar year in which the tax arose, or any later time that the Minister considers reasonable in the circumstances.

• Marginal note:Deemed disposition and reacquisition

  (5) For the purposes of this Act, if property held by a trust in respect of which a tax was imposed under subsection (1) ceases, at any particular time after the tax is imposed, to be a prohibited investment, or a non-qualified investment, for the trust, the trust is deemed to have disposed of the property immediately before the particular time for proceeds of disposition equal to its fair market value at the particular time and to have reacquired it immediately after the particular time at a cost equal to that fair market value.

• Marginal note:Additional tax payable on prohibited investment

  (6) The holder of a TFSA that governs a trust shall pay a tax under this Part for a calendar year, in addition to any tax imposed under subsection (1) for the year, if at any time in the year the trust holds one or more properties that are prohibited investments for the trust.

• Marginal note:Amount of additional tax payable

  (7) The amount of tax payable under subsection (6) for a calendar year is the amount of tax that would be payable under Part I by the trust for the taxation year that ends in the calendar year if

  • (a) the Act were read without reference to paragraph 82(1)(b), section 121 and subsection 146.2(4); and

  • (b) the trust had no incomes or losses from sources other than the properties referred to in subsection (6), and no capital gains or capital losses other than from dispositions of those properties, and for that purpose,

    • (i) “income” includes dividends described in section 83, and

    • (ii) the trust’s taxable capital gain or allowable capital loss from the disposition of a property is equal to its capital gain or capital loss, as the case may be, from the disposition.