• Q1. Will the annual contribution limit be increasing in 2012 for tax-free savings accounts (TFSAs)?
• Q2. Are there any thoughts of adding transfer-in and transfer-out transactions to the annual information return?
• Q3. Are there any thoughts of adding more information to the proposed TFSA return mail out, for example, a listing of all TFSAs held by an individual; year-end fair market value for each; and the closed date, if applicable?
• Q4. Should a rejected TFSA record be resubmitted if the information we have (social insurance number, surname, and date of birth) has not changed?
• Q5. Can the CRA provide any help to get the correct information for rejected accounts?
• Q6. Does the CRA have any deadlines before we should act on a rejected account? Do we need to cancel the contract (for each year of its existence)?
• Q7. Must information slips be issued if an election to establish a TFSA is cancelled? Would slips issued in these instances be considered late (and subject to penalties)?
• Q8. Does MyBA notify the financial institution when there are new rejects available?
• Q9. How were these sessions communicated?
• Q10. When should Form RC240, Designation of an Exempt Contribution Tax-Free Savings Account (TFSA), be filed by the beneficiary? How long after the withdrawal upon death?
• Q11. Can the CRA please clarify the 30-day period for filing amendments of rejected records?
• Q12. What is the correct way to report a qualified transfer-in and transfer-out due to marriage breakdown?
• Q13. Does the CRA have plans to create a transfer form similar to Form T2033, Direct Transfer Under Subsection 146.3(14.1) or Paragraph 146(16)(a) or 146.3(2)(e) to Show a Direct Transfer Between Financial Institutions?
• Q14. How do amounts withdrawn from a TFSA affect TFSA contribution room?
• Q15. When a TFSA estate account has gone past the exempt period and the account has become a formal trust, how should the TFSA account appear on the XML file?
• Q16. Can we cancel an account opened in 2009 and closed in 2011 if it was not active during these years and it was opened in error?
• Q17. Does the CRA have a deadline for financial institutions to cancel a TFSA if they cannot resolve a rejected account?
• Q18. If a reject is resolved and the related TFSA was established a few years ago, will the CRA recognize the TFSA contributions from its start?
• Q19. How is a record removed from a reject report for the contract of a holder who closed his or her account in the year he or she died?
• Q20. If a successor holder rollover for a TFSA held by a Quebec resident is processed, will the CRA reject the record?
• Q21. When will the new status of Referred to TPU become available to the financial institutions and under what situations does this status get set?
• Q22. When does TFSA contribution room start to accumulate for new residents of Canada?
• Q23. What is the TFSA contribution room for someone who becomes or is no longer a Canadian resident for tax purposes during the year?
• Q24. Can the same person be the successor holder and the beneficiary of a TFSA? If yes, are there any cases when it will be beneficial for the investors to set up the same person for both roles?
• Q25. If the successor holder (not a Quebec resident) does not have any TFSA contribution room available, but takes the ownership of the TFSA after the spouse's death, would the successor holder (who is now the account holder) be subjected to any penalty for over contributing? If not, will this person have diminished TFSA contribution room later on, to bring equality to the amount invested in the TFSA?
• Q26. Why would accounts that are opened and closed in the same year with no activity show up on the reject list?
• Q27. Why would an account be rejected if the "Holder's surname does not match CRA records"? This is the account holder's responsibility.
• Q28. Would there be any consequences for the financial institution if they were to knowingly accept TFSA contributions from a non-resident holder?
• Q29. If non-resident contributions are subject to a tax, why are non-residents allowed to open a TFSA?
• Q30. Why does the CRA require the date of death on accounts that are not completely closed? Would it be possible for the CRA to not reject these accounts, since we are having difficulty in getting the date of death from the executor?

Q1. Will the annual contribution limit be increasing in 2012 for tax-free savings accounts (TFSAs)?

A.1 With the application of the indexation increase of 2.8% for 2012 and rounding the result to the nearest $500, the TFSA dollar limit for 2012 stays at $5,000.

Q2. Are there any thoughts of adding transfer-in and transfer-out transactions to the annual information return?

A.2 There are no plans to add transfer-in and transfer-out transactions to the annual information return. The Canada Revenue Agency (CRA) has transfer-in and transfer-out data for marriage breakdown. Such transfers are under court order. If a financial institution is transferring for another reason (client-directed), then they should record these transactions internally. These transfers are not considered contributions or withdrawals. The transfers do not affect TFSA contribution room and should not be reported.

Q3. Are there any thoughts of adding more information to the proposed TFSA return mail out, for example, a listing of all TFSAs held by an individual; year-end fair market value for each; and the closed date, if applicable?

A.3 There are no plans to add more details on the Transaction Summary that forms part of the proposed TFSA return mail out. If your clients need clarification, they should be encouraged to call the CRA General Enquiries service for an explanation. The proposed TFSA return does not represent a formal assessment of tax. An objection cannot be filed for a proposed TFSA return. Your clients can ask the CRA to review the situation if they do not agree with it.

Q4. Should a rejected TFSA record be resubmitted if the information we have (social insurance number, surname, and date of birth) has not changed?

A.4 If the information originally submitted is correct, there is no need to refile a rejected record after CRA data has been corrected. The refiled record would be treated as a duplicate and would be ignored by the system.

If your client has contacted the CRA and has had their data corrected, the CRA will process an internal amendment that will result in the rejected record being removed from your MyBA reject list. It is important that your client tell the CRA, at the time of contact, that the data is being corrected for TFSA purposes.

Q5. Can the CRA provide any help to get the correct information for rejected accounts?

A.5 The CRA can provide limited information that does not compromise the confidentiality rules for taxpayer information. An example of permissible disclosure would be the date of death.

Q6. Does the CRA have any deadlines before we should act on a rejected account? Do we need to cancel the contract (for each year of its existence)?

A.6 The CRA does not have a deadline for an issuer to act on a rejected account and cancel a contract. This is determined at the discretion of the financial institution based on what they consider to be reasonable effort to get the information from their client(s).

When cancelling a contract, if a return has been filed for more than one year, the contract can be cancelled only by cancelling each year filed, starting with the most current year and working backwards to the year of the election.

Q7. Must information slips be issued if an election to establish a TFSA is cancelled? Would slips issued in these instances be considered late (and subject to penalties)?

A.7 If a contract is cancelled, information slips (T3s, T5s, etc.) should be filed as normally required. Any information slips (original or additional) that are received after the filing deadline may be subjected to a late-filing penalty.

Q8. Does MyBA notify the financial institution when there are new rejects available?

A.8 Yes, if you are the designated person, you will receive an email message indicating that there are new rejects to be actioned.

Q9. How were these sessions communicated?

A.9 The CRA asked the financial industry umbrella organizations to invite their members to participate in the webinars.

Q10. When should Form RC240, Designation of an Exempt Contribution Tax-Free Savings Account (TFSA), be filed by the beneficiary? How long after the withdrawal upon death?

A.10 Form RC240 has to be filed no later than 30 days after the date that the contribution is made to the survivor's TFSA.

Q11. Can the CRA please clarify the 30-day period for filing amendments of rejected records?

A.11 The 30-day period starts when the reject appears on your MyBA list.

Q12. What is the correct way to report a qualified transfer-in and transfer-out due to marriage breakdown?

A.12 Here are two examples showing the transfer-in and transfer-out due to marriage breakdown:

Q13. Does the CRA have plans to create a transfer form similar to Form T2033, Direct Transfer Under Subsection 146.3(14.1) or Paragraph 146(16)(a) or 146.3(2)(e) to Show a Direct Transfer Between Financial Institutions?

A.13 There are no plans to develop a form for reporting direct transfers between TFSAs.

Q14. How do amounts withdrawn from a TFSA affect TFSA contribution room?

A.14 Amounts withdrawn from a TFSA in a year are added back to the individual's TFSA contribution room at the beginning of the next year. Regardless of gains made within the account, the amount of the withdrawal would be added to his or her TFSA contribution room on January 1 of the next year.

Q15. When a TFSA estate account has gone past the exempt period and the account has become a formal trust, how should the TFSA account appear on the XML file?

A.15 Suppose a trusteed TFSA holder died in 2009. If there is no designated successor-holder, then there is an exempt period that runs from the date of the holder's death to December 31, 2010. If the proceeds of the TFSA have not been distributed by the end of the exempt period, then the following happens:

There is TFSA reporting for 2010 showing the fair market value of assets at the year-end. On January 1, 2011, the tax-exempt TFSA trust is deemed to have disposed of the remaining assets to a new taxable testamentary trust at fair market value. The tax-exempt trust issues a T4A to the new trust reporting the amount of any undistributed growth in the TFSA since the date of the holder's death. Also, the TFSA is deemed to end right after the exempt period. This means that the issuer will report a closure of the TFSA on January 1, 2011, in the issuer's next reporting cycle for 2011 transactions.

The TFSA has ended. The new testamentary trust will be filing T3 returns for 2011 and any following year of the trust.

Q16. Can we cancel an account opened in 2009 and closed in 2011 if it was not active during these years and it was opened in error?

A.16 Yes, a cancel record can be submitted in the following situations:

• You need to modify the contract number. For example, a record was filed for which a TFSA contract does not exist, so essentially a non-existent contract number was originally reported.
• A record was filed that the CRA cannot accept as a valid election. A cancelled record should be filed to acknowledge that this contract is not a TFSA.

When cancelling a contract, if a return was filed for more than one year, the contract can be cancelled only by cancelling each year filed, starting with the most current and working backwards to the year of the election.

Q17. Does the CRA have a deadline for financial institutions to cancel a TFSA if they cannot resolve a rejected account?

A.17 The CRA does not have a deadline for an issuer to act on a rejected account and to cancel it. This is determined at the discretion of the financial institution, based on what they consider to be reasonable effort to resolve the outstanding account. When cancelling a contract, if returns have been filed for more than one year, the contract can be cancelled only by cancelling each year filed, starting with the most current and working backwards to the year of the election.

Q18. If a reject is resolved and the related TFSA was established a few years ago, will the CRA recognize the TFSA contributions from its start?

A.18 Yes, if the record is resolved and accepted by the CRA system, any transactions reflected on the record would be recognized and used in calculating contribution room.

Q19. How is a record removed from a reject report for the contract of a holder who closed his or her account in the year he or she died?

A.19 Any outstanding rejects for deceased holder accounts will need to be resolved and the appropriate amendments sent to the CRA. You may exhaust all possible avenues such as contacting the executor or beneficiary and still not resolve the matter. If so, the CRA may be able to help in providing limited information, such as the date of death. However, due to confidentiality, there is information that we will not be able to give you.

Q20. If a successor holder rollover for a TFSA held by a Quebec resident is processed, will the CRA reject the record?

A.20 No, the CRA would not reject the record for this reason:

It is the deceased's residency that determines if a successor can be designated. There may be situations where a spouse lives in Ontario and the surviving spouse in Quebec. If the spouses are not legally separated at the time of death, the surviving spouse meets the requirement of being the spouse at the time of death and could become the successor holder.

If both the deceased and the surviving spouse were residents of Quebec at the time of the death, we may ask the issuer to file a corrected record later.

Q21. When will the new status of Referred to TPU become available to the financial institutions and under what situations does this status get set?

A.21 There are conditions that cause a record to be referred to our TFSA Processing Unit (TPU). These conditions are often more complex than the conditions that cause other reject codes. TPU staff review the conditions that caused referred status to be set and either accept the record or, if necessary, contact the financial institution to help resolve a particular error and reject the record. When a referred record is rejected back to the issuer, the message on MyBA is "Action as discussed with TFSA Processing Unit."

Before, this status was not displayed on the MyBA Reject lists. Effective January 2012, we created a new status message "N/A - THIS RECORD IS IN REFERRED STATUS. NO ACTION IS REQUIRED AT THIS TIME," which will be displayed next to any contract number on the reject list that has been referred. The purpose of this message is to state on an issuer's reject list that there are records that have been "Referred" for more review and not yet accepted by the CRA. We made this improvement to our process based on feedback from the industry.

A common example of a referred record is where a later-year record is submitted but the original record from the previous year is still not resolved. For example, if there is an unresolved data element on the 2009 record, the 2010 record will get referred to the TPU. After the 2009 error is resolved, the 2010 record will either be accepted or rejected. The 2010 record will be rejected and go back to the issuer if it also needs an amendment.

Q22. When does TFSA contribution room start to accumulate for new residents of Canada?

A.22 TFSA contribution room will start to build in whichever year is later:

• the year a person became a resident of Canada for tax purposes; or
• 2009.

Q23. What is the TFSA contribution room for someone who becomes or is no longer a Canadian resident for tax purposes during the year?

A.23 The TFSA contribution room for someone who becomes or is no longer a Canadian resident for tax purposes during the year is made up of any unused room carried forward from previous years while the individual was resident, plus the maximum TFSA dollar limit (for example, $5,000 in 2012) allowed for the year of immigration or emigration. The TFSA dollar limit is not prorated in the year an individual becomes a resident or a non-resident of Canada.

Q24. Can the same person be the successor holder and the beneficiary of a TFSA? If yes, are there any cases when it will be beneficial for the investors to set up the same person for both roles?

A.24 Yes, you can designate a survivor as both a successor and a beneficiary on the same contract in all provinces except for Quebec. In the province of Quebec neither a successor nor a beneficiary designation is recognized for the distribution of funds outside of the deceased's estate.

Designating the surviving spouse as the successor and the beneficiary could be beneficial if there was doubt or concern that the successor designation was valid. If there is a valid successor designation, that individual would at once be considered the new holder of the TFSA.

Q25. If the successor holder (not a Quebec resident) does not have any TFSA contribution room available, but takes the ownership of the TFSA after the spouse's death, would the successor holder (who is now the account holder) be subjected to any penalty for over contributing? If not, will this person have diminished TFSA contribution room later on, to bring equality to the amount invested in the TFSA?

A.25 Usually, when a successor holder assumes ownership of their deceased spouse's TFSA, there is no impact on the TFSA contribution room of the successor holder. That holder can make tax-free withdrawals from the TFSA. The successor holder can also make new contributions to the account, subject to his or her unused TFSA contribution room.

There may have been an excess amount in the deceased holder's TFSA at the time of death. If so, a tax of 1% per month applies on the highest excess amount for each month in which there was an excess, up to and including the month of death. The executor of the estate (liquidator) has to file Form RC243, Tax-Free Savings Account (TFSA) Return, and Form RC243-SCH-A, Schedule A – Excess TFSA Amounts, for that period. In certain circumstances, the successor holder may have a deemed contribution. For more information about deemed contributions, please see Guide RC4466, Tax-Free Savings Account (TFSA), Guide for Individuals.

Q26. Why would accounts that are opened and closed in the same year with no activity show up on the reject list?

A.26 All records (including accounts closed and those with no activity) are subject to TFSA validations to make sure that data is accurate. Any data on a submitted record that does not pass TFSA validations will appear as a reject error code on the institution's MyBA list. The code will stay there until the data is corrected and accepted by our system.

Q27. Why would an account be rejected if the "Holder's surname does not match CRA records"? This is the account holder's responsibility.

A.27 To make sure that a TFSA is registered in the name of the correct holder, the data given on the record filed by the issuer has to match the data on CRA records. This includes matching the surname, social insurance number, and date of birth. For a TFSA, an original record may be rejected if the identification of the holder cannot be determined or confirmed by matching with CRA records. Only when the data matches is the record processed as a valid election. The contract/holder relationship has to be established. The contribution and withdrawal transactions are used to calculate room and taxes.

Regulation 223(1) of the Income Tax Regulations requires the issuer to make an information return in "prescribed form and manner." Prescribed is defined in subsection 248(1) of the Income Tax Act as being the form and manner authorized by the minister of national revenue. This means that the issuer has to file the annual information return with the elements required by the minister. One of the elements is the surname of the holder.

The issuer has to make sure that the information on a return is correct. If it is determined that the information is not correct, it is the responsibility of the issuer to get the correct information.

Q28. Would there be any consequences for the financial institution if they were to knowingly accept TFSA contributions from a non-resident holder?

A.28 At this time, there is no requirement in the TFSA legislation that restricts or prevents a financial institution from opening and accepting a TFSA contribution from a non-resident individual. However, the CRA recommends that financial institutions tell their non-resident clients that such contributions may result in serious tax consequences.

The CRA and the financial institutions need to continue to work together to educate clients about the TFSA contribution rules. To make informed choices, it is in the best interest of your non-resident clients to refer to the CRA Web site and TFSA publications. Clients should be encouraged to call CRA Enquiries service if they have any questions about their eligibility to contribute to a TFSA.

Q29. If non-resident contributions are subject to a tax, why are non-residents allowed to open a TFSA?

A.29 Under the legislative definition of a qualifying arrangement,an individual is not prevented from entering into a TFSA arrangement based on his or her residency status. The term resident is not defined in the Income Tax Act. So residency status will generally be determined on a case-by-case basis by examining all of the relevant facts. This includes residential ties in and outside of Canada. It is the responsibility of the individual, if they are not sure of their residency status, to contact the CRA for clarification.

Q30. Why does the CRA require the date of death on accounts that are not completely closed? Would it be possible for the CRA to not reject these accounts, since we are having difficulty in getting the date of death from the executor?

A.30 The date of death and fair market value at death are required elements. All elements are subject to a certain amount of validation. The CRA considers the date of death important to ensure accuracy between the records of the CRA and the financial institution. If the institution has difficulty in getting the date of death from the executor, the CRA can help.