There have been a couple of questions raised by advisors about the new restrictions placed on the Tax-free savings account (TFSA), which were announced last week.’s French language sister site,, was asked whether the government in Quebec would harmonize its version of the TFSA, called the CELI, with the federal government.

The answer is yes.

“We will proceed with harmonization. An announcement will be made soon about this, perhaps in a newsletter,” said Jacques Delorme, spokesman for the Quebec Ministry of Finance, in an interview with “It’s an automatic [relationship]. Once the federal government announced changes to the TFSA, we [were required] to harmonize.”

Last week, Finance Minister Jim Flaherty’s revision to the TFSA rule that are intended to stem the “tax planning schemes” undermine the intent of the savings vehicle.

For example, one tactic that was growing was the practice of “deliberate” over-contributions above the $5,000 annual contribution limit. Under the old rules, these contributions are subject to a tax of 1% per month on the highest amount of excess contributions for the month.

TFSA holders were attempting to generate a rate of return on deliberate over-contributions over a short period of time sufficient to outweigh the cost of the 1% tax.

Under the proposed amendments, any income “reasonably attributable” to deliberate over-contributions will be 100% taxable.

Asset transfers

There has also been some confusion about what the new restrictions on asset transfers mean for investors. Asset transfer transactions are usually transfers of property (other than cash) for cash or other property between accounts. For example, between an RRSP and another registered account.

When performed on a frequent basis with a view of exploiting small changes in asset value, the government says these transfers could potentially be used to shift value from, for example, an RRSP to a TFSA without paying tax, in the absence of any real intention to dispose of the asset.

According to Frank Di Pietro, director of tax and estate planning with Mackenzie Financial, asset transfers are usually are done to diminish the taxable income on certain investment vehicles. For example, a GIC’s interest income is taxed at a much higher rate than an equity mutual fund. In some cases, investors try to swap the assets when they are both valued at the same fair market value in order to shelter income taxed at a higher rate.. Consider that a mutual fund has a higher rate of growth but its distributions—capital gains—are taxed at a lower rate than a GIC.

Theoretically, you could invest less money in a equity mutual fund in a TFSA, grow it and the contribution room of the registered plan, than swap it out for a GIC of the same value to minimize taxable gains.

“A swap transaction is essentially a value-for-value exchange of assets between plans. These are often done between non-registered accounts and RRSPs. For example, an investor with a $20,000 non-registered GIC may consider “swapping” the GIC into the RRSP in exchange for $20,000 of equity mutual funds held in the RRSP. This would be a tax-efficient strategy since the interest income is taxed more heavily than capital gains. Therefore, it can be a wise tax strategy to hold interest bearing investments in an RRSP and more tax-efficient income (capital gains) outside the RRSP,” Di Pietro says. “These swap transactions, if done correctly, will not result in a contribution and/or withdrawal from the RRSP, but rather a purchase and sale and, therefore, would not require RRSP contribution room.

Di Pietro adds, “This proposed provision will essentially discourage investors from using swap transactions with their TFSA’s by applying a special 100% tax rate on amounts swapped into the TFSA.”

  • View the disclosure document of federal restrictions on TFSA here.