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TFSA Transfer Charges
November 4, 2020
12:00 am
Loonie
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Not necessarily. Transfer charges may not have even been in their minds as they are not mentioned and they provide no advantage. I think they'd be laughed out of their offices if they attempted to dock people 100% of transfer fees, thus doubling them, thus no advantage.
The only "advantage" would be the legitimate one of preserving the customer's TFSA allotment, which is perfectly legal - as it should be. To insist on stealing someone's contribution room by way of a non-replaceable withdrawal, with the only alternative being doubling the fee (with half going to the government) makes no sense whatsoever and would only be self-serving.

November 4, 2020
1:31 am
Rick
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Loonie said
Not necessarily. Transfer charges may not have even been in their minds as they are not mentioned and they provide no advantage. I think they'd be laughed out of their offices if they attempted to dock people 100% of transfer fees, thus doubling them, thus no advantage.
The only "advantage" would be the legitimate one of preserving the customer's TFSA allotment, which is perfectly legal - as it should be. To insist on stealing someone's contribution room by way of a non-replaceable withdrawal, with the only alternative being doubling the fee (with half going to the government) makes no sense whatsoever and would only be self-serving.  

What he said.

November 4, 2020
1:54 am
Loonie
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Rick said

What he said.  

Huh? Who said what?sf-confused

November 4, 2020
3:32 am
Londonguy
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Loonie said
Rick said

What he said.  

Huh? Who said what?sf-confused  

He's agreeing with you. Full stop.

November 4, 2020
8:49 am
Bill
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Norman1, we agree, the Torys link policy has nothing to do with these TFSA account transfer fees. But to then make the assumption "That leaves the paying of..........transfer fees, outside the registered account to be still an "advantage"", that's where we still disagree.

And in any event I don't think Rick or anyone else "will have 100% advantage tax to pay" - as Loonie indicates above it's very unlikely CRA will go after these transfer fees and assess folks, on top of possibly not being able to recontribute the $50 back into the TFSA, an equivalent income tax bill. I think CRA's focus re "advantages" lies in other situations.

November 4, 2020
12:07 pm
Norman1
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When it says "fees" it means fees, including transfer fees, NSF fees, and any other fees that may be charged against a registered account. Just like when I say "dogs" that includes terriers, collies, German shepards, and so on.

CRA's response to the investment counsel fee question was not limited to just investment counsel fees. Their change in position was that fees for a registered account, when covered by other than the account itself, was an "advantage" under the Income Tax Act. It doesn't matter what the fee was for.

The reason the article is focused around investment counsel fees is that it has been common for advisors to allow clients to pay those fees outside the registered accounts. Paying a $5,000 fee, regardless of what the fee is for, for an RRSP outside is like getting an extra $5,000 into the RRSP somehow without using any RRSP contribution room. That's what CRA is targeting.

Furthermore, Torys LLP states that the Department of Finance comfort letter only provides comfort for the investment counsel fees paid outside by the registered account holder. So, one should stop paying the investment counsel fees for the spouse's RRSP or for the children's RESP outside of those accounts until there is more clarity.

November 4, 2020
2:20 pm
Loonie
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Perhaps I missed it, but I have not seen chapter and verse which indicates that CRA, or Torys for that matter, intends to include transfer fees in its definition of advantage.

It is obvious that investment counsel fees do provide an "advantage". If the customer didn't believe they provided an advantage, they wouldn't hold the kind of account which requires them, especially not to the tune of several thousand dollars. In that sense, CRA's position seems reasonable although the penalty is very stiff.

Transfer fees, as I said above, provide no such advantage and thus, in the absence of specific information to the contrary, I can't see any justification for treating them the same way. Canadians who utilize legal registered plans have no control over transfer fees, no ability to opt out by going elsewhere, because there is nothing to prevent an FI from introducing new or higher transfer fees during the course of a GIC. Even Oaken and Hubert could introduce fees before your GIC matures.

Short of arguing that black is white (not impossible), I can't imagine how CRA would justify treating transfer fees like investment counsel fees.

November 4, 2020
5:58 pm
Bill
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Tory's link indicates "Both CRA and the Department of Finance (Finance) have now accepted that a payment of investment management fees outside a registered account will not be an “advantage”." That's pretty clear to me, assuming one follows the comfort letter's and other required parameters (e.g. payment by controlling individual) one can safely pay the investment management fees from outside the registered account.

Based on that "exemption" from the advantage tax for investment management fees, and as Norman1 notes what it is that CRA is targeting, I'm pretty comfortable CRA's not going to go after the much less egregious or material $50 transfer fee paid by many Canadians to move their TFSA accounts, even though paying it from outside the plan means the $50 gets to stay in the sheltered plan.

I did some more digging and really found no indication as of today they're going after imposing the advantage tax on a TFSA transfer fee. The RC243 TFSA Return form defines Advantage: "– an advantage is any benefit or debt that is conditional on the existence of the TFSA, subject to certain exceptions for normal investment activities and conventional incentive programs. An advantage also includes any benefit that is an increase in the total fair market value (FMV) of the property of the TFSA that is reasonably attributable to any one of the following:
• a transaction or event (or series) that would not have occurred in a normal commercial or investment context between arm’s length parties acting prudently, knowledgeably, and willingly, and one of the main purposes of which is to benefit from the tax-exempt status of the TFSA
• a payment received in substitution for a payment for services rendered by the controlling individual (or non arm’s-length person) or for a return on investment on non-registered property
• a swap transaction
• specified non-qualified investment income that has not been paid from the TFSA within 90 days of the controlling individual receiving a notice from CRA requiring removal
An advantage also includes a registered plan strip, or any benefit that is income or a capital gain that is reasonably attributable to one of the following:
• a prohibited investment
• a deliberate over-contribution to a TFSA"

So not really similar types of "advantages" to a $50 transfer fee.

And Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs says nothing about fees except keep your eyes peeled, there may be direction coming: "3.35 Comments on the tax treatment of fees and expenses incurred in connection with a registered plan and its investments will be included in a future update to this Chapter."

However the rest of the lengthy Folio gave me no indication they're going to say a $50 transfer fee is considered an advantage. Though not about transfer fees, here's an example that indicates they're not going after small stuff, as this is an example of what is not considered to be an advantage (and this actually involves a gift instead of a mandatory payment):
"Example 6
A financial institution offers $100 cash back to new customers who open an RRSP, RRIF or TFSA and maintain a minimum balance of $50,000 for at least one year. The cash payment is made directly into the qualifying plan."

November 4, 2020
9:32 pm
Loonie
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that last bit is interesting. Some FIs have offered an incentive to invest and have called it bonus interest and thus not an issue for the depositor. Who's to say it isn't, if they manage their wording carefully?

November 5, 2020
6:50 am
Bill
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Here's link to the Folio if anybody's interested in the other examples, etc. Note this Folio's topic is just what is and isn't an "advantage" with respect to the extra 100% income tax, although with regard to the example I cited it goes further to say "This ensures that such payments will not affect contribution limits or the registered status of the plans."
https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-10-registered-plans-individuals/income-tax-folio-s3-f10-c3-advantages-rrsps-rrifs-tfsas.html

Plus it all depends. For example, with regard to a cash prize won in a contest run by an FI, the Folio says "it is the CRA’s view that if a cash prize were paid directly into the winner’s registered plan, the payment would constitute a gift or contribution." It's important to remember the document is a general guideline of CRA's current view of how to interpret the legislation, it's not designed to categorize every situation as "yes" or "no", so you have to be careful.

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