Transcript

Front-line employees

Welcome to the Canada Revenue Agency's Tax-Free Savings Account Webinar for Financial Institutions, Front Line Employees. This is a recording of a Webinar that was done in November 2011. If you have any questions about this Webinar, please contact our Business Enquiries number at 1-800-959-5525 and an agent will be able to help you. Thank you and I hope that you enjoy this Webinar.

SLIDE 1

Hi, and welcome to the Canada Revenue Agency's Tax-Free Savings Account Webinar for Financial Institutions, Front Line Employees. My name is Rick and I'm from the Tax-Free Savings Account Section at the CRA. During this Webinar, we will have one question period break and a general question period after the presentation. This question period will happen after slide eight.

Throughout the Webinar you are invited to submit any general questions that you may have and we will try to respond to them during this break. If we should not have time to respond to your question during the Webinar, we will respond directly to you in the following days.

Please note that if your question is of a technical nature, it will be responded to within a few days. We'll start the presentation on slide 2.

SLIDE 2

The topics that we are going to be discussing during this presentation are going to be: opening up a tax-free savings account (TFSA), the required information, types of beneficiaries, proposed return process. On to slide three.

SLIDE 3

Relief requests, common errors, What you can do. Continuing to slide 4.

SLIDE 4

What has the Canada Revenue Agency done? Where can your clients find their tax-free savings account room? And, last but not least, important references. Okay, we'll start the presentation on slide five.

SLIDE 5

Opening up a tax-free savings account. Any individual who is 18 years of age or older and who has a valid Canadian social insurance number is eligible to open up a tax-free savings account. An individual cannot open up a TFSA or contribute to one until they turn 18. However, when they do turn 18, they will be able to contribute up to the full TFSA dollar limit for that year. Please note that in certain Provinces and Territories, the legal age at which an individual can enter into a contract which would include opening a tax-free savings account is the age of 19. In 2009 or later, in such jurisdictions, any 18-year-old individual who would have been otherwise eligible would accumulate their $5,000 contribution room for that year and carry it over to the following year.

A non-resident: If your client is a non-resident or you notice that they have an address that is outside of Canada, you should advise them that they can open up a TFSA, but they will not accumulate any contribution room while they are a non-resident. If they contribute any amount to a tax-free savings account while a non-resident, they will be subject to tax. If they have any questions concerning this, please direct them to call the Canada Revenue Agency at the International Tax Services Office number. Moving on to slide 6.

SLIDE 6

The required information: Date of birth. The date of birth should be verified with each individual who is opening up a tax-free savings account if it's deemed necessary, meaning if they don't look like they could be 18, you should ask for the required proof. This will ensure that your client does, in fact, meet the age requirement.

Canadian social insurance number card: If your client fails to provide this information, or provides incorrect information to you, this may cause the registration of their TFSA to be denied. If their TFSA is not registered, any income that is earned will have to be reported on their individual income tax return. If the information that they provide to you does not agree with the Canada Revenue Agency's records, you can ask to see supporting documentation to validate the information they will provide to you.

This is just a quick reminder that after slide eight, we will be having a question period so if you have any questions, please get them in to us now. Continuing on to slide 7.

SLIDE 7

Types of Beneficiaries: Successor holder versus survivor. A spouse or common law partner of a tax-free savings account holder can be recognized as being either a successor holder or a survivor, designated beneficiary, in all provinces other than Quebec. A successor holder is the best option as the spouse or common law partner simply takes ownership of the account immediately upon the holder's death. All money in the account remains tax-free along with any gains that happen after death. And no special forms are required to be filled out by the spouse or common-law partner.

As the province of Quebec does not recognize a tax-free savings account beneficiary designation, the only option for the surviving spouse who receives money from a TFSA after death of a spouse is to complete form RC-240, Designation of an Exempt Contribution, so that their room is not affected by the deposit of the survivor payment into their own TFSA.

The survivor payment exemption is allowable up to the fair market value (FMV) at date of death of the holder. While a family member can be named as a beneficiary, they cannot be named as a successor holder or as a survivor. Continuing on to slide 8.

SLIDE 8

Proposed return process: The proposed return process for the tax-free savings account is prepared using the current information that the Agency has on file. CRA sends out annually a letter and a proposed TFSA Return to individuals who may have over-contributed to their TFSA during the previous year.

If your client receives a letter, it does not automatically mean that they are, or will be, subject to a tax. It may just mean that more information is required by the Agency. Based on information the Agency receives from you, the financial institution, your client may have excess TFSA amounts (for 2010 as an example). For each month that they have an excess TFSA amount, they may have to pay a 1% tax on the highest excess TFSA amount in that month. If there is currently an excess amount in their TFSA, they should withdraw it immediately to avoid any future tax.

Your client can hold more than one TFSA, however, their total contribution for the year to all of their TFSAs combined cannot exceed their TFSA contribution room limit for that year. Our proposed returns for 2010 were mailed out on August 18, 2011, to individuals who I earlier explained had contributed more than they were allowed to.

We are now going to break for a question period and we're going to hand it over to my colleague, René.

Thank you Rick. Our first question is: "If on a successor account the successor holder makes a withdrawal from the account after she assumes ownership of the account, does the successor holder assume all of the previous owner's unused contribution room?"

The answer to that would be no. The successor doesn't assume the previous owner's unused contribution room. However, the withdrawal made after the successor takes ownership of the account does get added back to the successor's allowable contribution room limit for the following year.

Our second question is, "Can you name both a beneficiary and a successor holder when opening a TFSA account?"

The answer to that is yes, you can designate both a successor holder and a beneficiary on a TFSA account. The most common reason for doing this is to cover off the remote possibility that both the holder and the person designated as successor die at the same time where both the successor and a beneficiary are designated, the successor designation will take precedence. This is implied within the definition of holder where a TFSA is considered to continue without interruption and the designated successor becomes a holder. Once a successor acquires all the rights to the TFSA, he or she can amend the designation of beneficiaries. For example, in the event that the original holder and one of the named beneficiaries dies in something like a car accident, it would be expected that the successor will eventually have the deceased beneficiary's name deleted from the designation.

This concludes our question period at this moment. We'll send it back to Rick.

Thanks René. Moving on to slide 9.

SLIDE 9

Relief requests, also referred to as requests for relief of tax. When your client receives their proposed tax-free savings account return, they have basically three options available to them. They can either agree with the information on the proposed return, contact their financial institution, yourself, if the information on their TFSA transaction summary appears to be incorrect, or, if they do not agree with the proposed return, they can send CRA a letter with an explanation and we will review their situation.

If, for 2010, your client has an excess amount in their TFSA and/or 2011, it should be withdrawn as soon as possible as I stated in the previous slide number 8. If your client's TFSA is in a locked-in investment, it is important for you to know that any excess amount in that investment can be removed before the maturity date.

This is as per the Income Tax Act.

Clients have indicated to us in recent months that they are in an excess position, they've gone into their bank, they've tried to withdraw their excess funds and have been told, "Sorry, you can't. It's in a locked in three-year term. There's nothing we can do." You, under the Income Tax Act, being the financial institution that is holding this excess amount can, in fact, remove the excess funds.

As I stated before, your client has three options on how to respond to the proposed package. If they agree with the information in the attached proposed return, they then sign, date, and include their social insurance number on the return; send it to us along with their payment in the enclosed addressed envelope. We will issue an assessment based on this return.

They can also, if the information on their TFSA transaction summary appears to be incorrect or they have some questions about it, they are advised to contact you, their financial institution, to discuss the excess contributions.

You are responsible to send any amended TFSA records to the CRA, if this is required. And remember, submissions to us for any amended records can only be done electronically, not through a letter.

If your client does not agree with the proposed TFSA return, or they would like us to review their situation, they can send us a letter explaining the reason for the excess contribution and any additional documentation they may have about the excess contribution. We will review their request on a case-by-case basis and will issue a letter explaining our decision.

If CRA does not receive a response from your client within 60 days of the date of our letter, we will issue an assessment based on the information that we currently have on file. You, as the F.I., can prepare the documentation for your client to submit their relief request. However, it must be signed by your client unless you are their deemed authorized representative. You, as the F.I. cannot request an adjustment to the filing of a slip through a letter, as I previously mentioned. All submissions are done electronically to the Canada Revenue Agency.

Continuing on to slide 10.

SLIDE 10

Common errors: Common errors that we have seen recently are where individuals are using their TFSA like a regular bank account. What I mean by this is, they're putting in money into their tax-free savings account, say they'll put in $5,000 January 5th, they'll withdraw $2,000 February 4th, put in another $2,000 in April and so on and so forth. Because they made their first initial $5,000 contribution to their TFSA, under the presumption that that was the maximum contribution room that they had for that year, they cannot further contribute any other money to their tax-free savings account until the following year. Any withdrawals in that year will be added back to their room the following year.

Individuals were transferring their tax-free savings account between two financial institutions indirectly. What I mean by this is they were going into the bank. They were taking out their money from their tax-free savings account, walking over across the street to Bank B, say, who are possibly offering a better rate and depositing their funds into a tax-free savings account with that institution.

This cannot be done. All transfers between financial institutions must be done directly.

TFSAs in multiple institutions: Clients thought they could open up TFSAs at different financial institutions and contribute their total contribution room with each F.I. No, they can't. An example of this would be your client has a contribution room of $10,000 in 2010. They open up multiple TFSAs at various institutions and thought they could contribute $10,000 to each one. They can't do it and they probably received the proposed return based on that and could be subject to the tax indicated on the return.

Re-contributions in the same year: Your client cannot contribute, as I stated before, more than their TFSA contribution room in a given year, even if they make withdrawals from their account during the year. All withdrawals from the account in the year will be added to their contribution room in the following year. It's very important to continue to emphasize or to explain that withdrawals only re-establish room at the beginning of the following year. Move on to slide 11.

SLIDE 11

What can you do? As a financial institution you can get to know your client. Get to know your client by asking them various questions. Do they have another TFSA invested elsewhere? If so, how much have they contributed to each investment? When was their last contribution? What is their maximum contribution room for the current year? Do they intend to use it like a savings account? Put in money, take out money, put in money within the same year. If they indicate they're going to do this, please explain to them what they could possibly face as an excess TFSA contribution amount if they go that route. If this is, in fact, what they want to do, then obviously the TFSA is not the route for them to go.

Emphasize how important it is that your client's identification information provided on their TFSA contract has to match what the Canada Revenue Agency has on file. As an institution, if their information does not match our records, the contract may be rejected back to you for further investigation. Also, please encourage your client to visit the CRA website for more in-depth information. This will be provided at the end of the presentation.

Moving on to slide 12.

SLIDE 12

What has the Canada Revenue Agency done? Well, we're holding Webinars such as this one. In the years past, we have done outreach sessions. This year we have chosen the Webinar route to go because this will allow the Canada Revenue Agency to reach a broader audience from coast to coast in Canada.

We have revised our web pages. We have expanded the information for you, the financial institutions.

We have revised our guides. We have revised the guides for the financial institutions as well as for the individuals. We've put in more information, in-depth information into these products.

We've also produced a video. The web address is located on this slide. You will see it. However, it will be available at the end of the Webinar presentation for you to choose if you so desire. Moving on to slide 13.

SLIDE 13

Where can your client find their tax-free savings account room? There's a few areas where they can find it. They can go to My Account. In order to access the services under My Account for the first time, your client will be asked to register for a CRA User ID and password. They follow the steps indicated on the website on this slide.

Your client can have current, real-time information on their TFSA by accessing My Account. Under My Account, they will be able to view the contribution room. This will show how their room was calculated for each individual year. It will also show their transaction summary. This will indicate the name of the institution they have contributed to or withdrawn from and the date of the transactions.

There's also Quick Access. Quick Access will give your client immediate access to view their TFSA contribution room, provided they correctly identify themselves. The difference between My Account and Quick Access, you don't have to register for Quick Access to get their own User ID and password. They can simply log on to it and just answer a few questions about themselves and their taxes.

Another one is the tax information phone services as we refer to as TIPS. With TIPS, your client can call the telephone number indicated for general information about their TFSA, as well as find out what their TFSA contribution room limit is. They can call the number indicated on this slide.

Please be aware that should your client access or try to access their information too early in the year, they may have difficulty getting the correct information. Your client should be aware that the information provided on these sites are based upon information that the CRA currently has on file and is updated only when new information is received from a financial institution. If your client accesses one of these sites early in the year, their information may not be up to date.

Financial institutions have until the last day of February of the following year to submit the records for their client to the Canada Revenue Agency The CRA could take a few weeks to have these records updated, due to the large volume of records being submitted. If your client was to access one of these sites prior to the middle to the end of March, chances are the information may not be current.

Moving on to slide 14, Important References.

SLIDE 14

The following are some of the various reference sources which provide extensive information in regards to a tax-free savings account. There is the main TFSA Start Page for individuals and TFSA issuers. This is indicated at the website on this slide.

There is the guide, RC4477, Tax-Free Savings Account Guide for Issuers. This is for you, the financial institutions. Please read it. It does contain very valuable information and could also possibly assist you in avoiding errors when submitting your records to us. There's also a proposed tax-free savings account return and the common reasons and additional information for users at the website indicated on this slide.

Moving on to our last and final slide, number 15.

SLIDE 15

The RC4466: This is the guide on the tax-free savings account for individuals available at the link indicated.

My Account is available at the link indicated, and if they want to call our TIPS number, our Tax Information Phone Services, please have them contact the 1-800 number indicated. I'm now going to pass you over to René for some additional questions. Thank you.

Dara asks: "If an individual is 17 in 2010, for example, do they accumulate contribution room for 2009 or only from 2011 in the year they turn 18?"

Dara, an individual will accumulate TFSA room only when they turn 18 years of age. As a result, your client in question would begin to accumulate room of $5,000, as of 2011, the year they turn 18.

Second question comes from Khama. Khama is wondering, "To confirm for Slide 5, is the CRA indicating that a non-resident can open a TFSA?"

Yes, technically a non-resident can open a TFSA: however, they do not accrue any contribution room. If they contribute while a non-resident, they will be subject to a 1% tax.

Dara's second question is, "Is it the responsibility of the financial institution to issue any income tax slips if the TFSA is not properly registered due to missing or invalid personal required information?'

The answer to that, Dara, is the issuer should make all reasonable efforts to obtain the missing or invalid information and submit the appropriate amended TFSA records. If, however, unable to resolve the issue with their client, appropriate income tax slips such as T3s or T5s should be submitted.

Our next question: Oliver asks, "Can a TFSA be successed multiple times within one year?"

Oliver, it is possible. For example, one spouse dies and the successor remarries in the same year, they can name the new spouse as a successor holder.

Our final question comes from Ahila. Ahila is asking, "If a Canadian resident contributes for two years $5,000 and becomes non-resident in the third year and continues the contribution that year as well, what would be the consequences?"

Well, if they leave in the third year, they would accrue contribution room of the annual $5,000 amount. If they contribute that amount prior to emigrating, there will be no tax consequences. If, however, they make any contributions after leaving Canada, they would be required to pay the 1% tax on non-resident contributions.

We have a question from Stefan. "If a client has made an over-contribution and they subsequently withdraw the over-contributed amount, is the amount added to the contribution room in the following year?"

Stefan, generally speaking, yes. The amount withdrawn would be added to their contribution room in the following year. However, if the CRA determines that the over-contribution was a deliberate over-contribution, the CRA may decide not to add the withdrawal back into their room.

"For an RRSP or a RRIF, a T2033 is completed for a direct transfer between F.I.s. What form is required for direct transfer for TFSAs?"

The answer to this question: There is no specified form to be completed by a financial institution to show a direct transfer. This is strictly done between institutions.

Moving on to a question from Elaine. "Please confirm that 2012 TFSA contribution limit is indexed based on the cumulative cost of living for 2009, 2010, plus 2011."

Elaine, the TFSA dollar limit is indexed based on the cost of living. At this point in time, the CPI indexing used to determine the TFSA dollar limit for 2012 has not been made available to us.

Moving on to a last question, possibly the final one, and it comes from Anna. Anna asks, "What happens if a TFSA account is opened for someone under 18 and a contribution was made to the account? What are the consequences?"

Well Anna, as it would not be considered a valid TFSA election, the money should be withdrawn and the financial institution should file a cancelled record.

And I've just been handed one more question and it comes from Cameron. Cameron asks, "When will your system shut down this year for accepting amendments and for how long?"

Cameron, our system will be down between from December 6, 2011 to January 8, 2012. The system will be back up on January 9, 2012. Any submissions made during this period, obviously, will not be actioned until after January 9, 2012.

This concludes our Webinar presentation.

Transcript of video - Tax-Free Savings Account (TFSA)

MIKE
So how'd you get this money?

JIM
Investment came through. I'm really excited.

MIKE
Really, investment, eh? GICs? Bond markets?

JIM
Uhh... "Scratch and Win", actually. But it's all money in the bank!

MIKE
Nice. Well if you're really serious about investing, man, you should really look into a Tax-Free savings account.

JIM
Well, that's what I just said. I'm putting it in the bank. A savings account.

MIKE
Jim, a "Tax-Free Savings Account." A TFSA.

JIM
What's the difference?

MIKE
In a TFSA, you've a range of investments you can use, like listed securities, GICs, or mutual funds.

MIKE
Alright, don't worry about that right now Jim, a financial advisor can help you out with that. The point is, any money you make on this account, deposits or interest, are completely tax-free. And you can withdraw your money at any time, and that withdrawal is actually added back to your room the following year.

JIM
Added to my room the next year? Well, what does that mean?

MIKE
TFSAs have fixed contribution limits. That's how they do it. So you have a five thousand dollar annual limit that you can invest. Plus, any withdrawals you made the year before, any amount, you can re-contribute that following year. You still with me? Finally, if you didn't use all your room last year, that's available to you as well.

JIM
Okay, just give me a second to process this. So once I hit my five thousand dollar limit, I'm done?

MIKE
That depends...

JIM
Depends?

MIKE
Hold on Jim.

JIM
What are you doing man?

MIKE
Two years ago I invested five thousand in my TFSA. Last year, I invested thirty five hundred dollars. So, this year I've got my five thousand dollar limit, plus the unused portion of last year. Which is... Fifteen hundred dollars.

MIKE
So I've got my five thousand, plus, my fifteen hundred. Plus, I had to take out two thousand dollars last year for car repairs, which I can add back to my room this year. That's my two thousand dollars, which gives me...

JIM
Eight thousand five hundred dollars.

MIKE
Exactly. And the best thing about this is that, any money you make on a TSFA, through dividends, capital gains, or interest, completely tax-free.

MIKE
Jimbo, you can't go wrong.

JIM
I think I'd better get moving.

MIKE
It's a good idea buddy. And this time, invest early and wisely.

JIM
Yeah. Also, I don't want to see them get back to you, after you messed up their sign like that.

MIKE
Artist.

For more information about the Tax-Free Savings Account, go to www.cra-arc.gc.ca/tfsa