OTTAWA: The Canada Revenue Agency confirmed it continues to audit people with high balances in their tax-free savings accounts.
What constitutes a high balance is still unclear and lawyers representing clients now under investigation say they are not sure of the amount either but note that as TFSA contribution room grows they expect to see more seven figure dollar amounts in the accounts which are billed as being exempt from taxes.
The Financial Post reported that a former institutional trader on Bay St. had amassed an account with close to $1.25 million in it through aggressive purchases of penny stocks and initial public offerings.
“The CRA’s Aggressive Tax Planning program reviewed TFSA accounts with holdings several times greater than the contribution limit, and to date has selected fewer than 1% for audit because activity indicated use beyond the legislative intent,” said Philippe Brideau, assistant director of media relations and media monitoring, in a emailed statement.
There are close to 11 million Canadians with TFSA accounts. The number of people being audited is likely in the hundreds, according to sources.
The federal government in its April budget increased the annual contribution to $10,000 from $5,500. The maximum contribution limits, as of 2015, is now $41,000.
The tax agency contends that some Canadians are operating their TFSAs like a business and has set up eight criteria that can lead to an audit including frequency of trading, period of ownership, knowledge of securities markets, trading experience and time spent on an account. Some of those criteria tend to penalize people in the securities industry, say critics.
CRA wouldn’t say whether more Bay St. people are being audited than the general population. “The CRA is auditing a very small number of taxpayers whose use of their tax-free savings account is not consistent with the intent of the legislation and instead, suggests that aggressive tax planning was taking place,” said Brideau.
“The Canada Revenue Agency’s focus is to ensure that Canadians are aware of, and stay within, their TFSA contribution limit. In these cases, no audits are needed and taxpayers are simply advised of their room or when records indicate they may have made an over-contribution.”
