It’s early 2015 and the CRA continues to aggressively audit Tax-Free Savings Accounts (TFSAs), going as far back as 2009 when TFSAs were first introduced. And why not? There is typically no time limit on issuing these types of assessments.
Two main kinds of assessments have come to the fore within the TFSA context. The first is an advantage assessment issued to the holder (the person who contributes the money). The second is for carrying on business within the TFSA (for example, actively trading stocks), issued to the trustee of the TFSA itself.
Advantage assessments are issued under Part XI.01 of the Income Tax Act. In contrast, ordinary income taxes are assessed under Part I. Part XI.01 has its own regime for filing returns, reporting any advantages, and paying tax on those advantages. A person who had no inkling that there was an advantage associated with a TFSA would not even think to file a Part XI.01 return. Without such a return, there is no initial assessment (even a nil assessment). Without an initial assessment, the normal three-year limitation clock does not begin to tick. The CRA can therefore come along at any time thereafter and assess an advantage.
Assessments taxing business income are issued to the trustee of the TFSA itself, as most TFSAs are trusts. Most trusts (including TFSAs) are technically required to file a tax return under Part I of the Income Tax Act each year, but nobody thinks to file a tax return for a TFSA – a tax-free savings account. Furthermore, the trustee – not the contributor – would be responsible for filing the return, not the beneficiary/contributor. Again, without an initial filing to generate at least a “nil” assessment, the limitation period never starts.
In sum, the CRA continues to adopt a leisurely pace in auditing TFSAs. They are, unfortunately, entitled to do since the types of assessments being issued are rarely, if ever, precluded by the limitation periods in the Income Tax Act.