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April 2, 2017 | The Audit

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


One consequence of the masses kicking Devil Harper to the curb and elevating the Hot-One-With-Tats to power is a ravenous CRA. Given that the Libs will be spending at least $100 billion more than they’re taking in – despite fatter taxes on the wealthy – the hunt’s on for revenue. Everywhere. The revenue agency has now been mandated to act like a knee-capping heavy.

Days ago we debated what this might mean now that residential real estate sales must be registered with the feds, making it way easier to nab flippers, speckers and (soon) amateur landlords. How long do you have to live in a place for it to be a tax-exempt personal residence? The answer: whatever the CRA says it is. So there.

Now the guns are being reloaded for TFSA “abuse.” That has David worried.

“I’m curious,” he writes, “the CRA has been targeting people who have been successful in investment in their TFSA.  Obviously this is a strange set of rules, as they are determining from what I can see that if you are successful with high returns you must be carrying on a business and working backwards from that (tax grab).  I read that there’s a case before the courts to determine what constitutes speculative investment, and “too many trades” etc….this would affect anybody who is successful in their TFSA and lives in fear of the tax man! (I have some venture stocks that are about to explode and don’t want to suffer an audit) It is quite terrifying to me that my TFSA could be invalidated because I was successful at taking a riskier investment that didn’t go bust. Do you have any info on this one?”

It’s true. This crackdown started a few years ago, and has recently been flipped into overdrive. Anyone with substantially more than the $52,000 in accumulated contribution room in their TFSA can expect their account to be flagged. And people doing lots of trades, owning speculative equities or with financial training or designations are even more likely to be scrutinized. Maybe audited – a painful process in which you not only have to prove your innocence, but pay for it.

So what gives? What does this prime minister have against trying to get ahead using your tax-free account? First he almost halved the allowable limit (at $5,500 it’s become pathetic compared to the $25,000 UK taxpayers can invest in a similar account annually). Now he’s unleashing the bad dogs. Is this called for?

Ottawa modified the Income Tax Act to bring the hammer down on anyone the government decides has been “carrying on a business” within their TFSA. If that’s the verdict, profits made inside the account are suddenly fully taxable, added to your income and Hoovered at your marginal rate.

Over the last year a blizzard of reassessments have been mailed to people who may or may not be trying to make a living by trading heavily (and successfully) within their tax-free accounts. The primary targets have been taxpayers with too-fat TFSA balances, and expert knowledge or skills in the securities industry, like (shudder) investment advisors. The CRA can go right back to 2009 and audit every single trade, always retaining the right to disallow the tax-free status.

But if you’re not an investment advisor (whom women naturally cannot keep their hands off) don’t relax yet. The CRA hunt for TFSA criminals has been widened. So, should David be worried?

Ironically, there’s case law to support frequent trading and the holding of speculative stocks with an RRSP or a RRIF. It seems you can do just about anything you want within those registered accounts without being accused of running a securities business, but not the new one.

Here’s what Ottawa has identified as indications of TFSA abuse:

  • Frequent trading within your account (if you day trade, you’re probably 100% certain to face an audit at some point)
  • Knowledge of securities markets, as a banker, financial advisor, accountant or someone who’s completed related professional courses
  • Time spent trading (as opposed to working and sending your money to Ottawa)
  • Owning and trading speculative securities, like penny stocks
  • People who make regular income through a job in the banking or financial sector.
  • Anyone with too much money in their TFSA. How much is too much? Guess.

It you receive a Notice of Reassessment, what should you do?

After you call you Mom and eat 4-6 Tums, then immediately file a Notice of Objection. Here it is. Get that into the mail within 90 days of receiving the NOA. Then call your accountant, if you paid the guy to file your income tax return, since he’ll have some experience in dealing with the auditor who may be assigned your case. And get a lawyer, if the dollars involved merit that expense. You could end up in tax court, and just might win. But don’t get too excited at the prospect.

The main message here is that everybody should expect a far more aggressive, mean, unforgiving and hungry CRA in the years ahead, as the government’s appetite for spending exceeds its ability to pay for it.

Sometimes you actually get what you vote for.

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April 2nd, 2017

Posted In: The Greater Fool

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