Starting January 1, 2009 Canadians will have a new way to save money with the introduction of the Tax-free Savings Account (TFSA), a new registered savings account introduced by the Federal Government to help Canadians achieve their financial goals. Learn how TFSAs can help you maximize your investment strategies and help you grow your business.

Hosted By:

• Marty Cej, Managing Editor at Business News Network

Featuring:

• Scott Sinclair, President and CEO, MRS
• Connie Renna, Branch Manager, Investment Planning Counsel
• Gwen Boutilier, Director of Product Development, MRS

TFSA eConference Questions and Answers

Following are the questions received from advisors during the MRS eConference held on November 20, 2008.

Q1. Is there an annual fee for a TFSA account?

A1. Yes, the annual account fee is $35, but can be reduced to $0 by investing in Mackenzie or MRS products.

Accounts with 100% invested in Mackenzie or MRS investments are free.
OR
Accounts that hold 60% (or more) of their market value, subject to a minimum of $15,000 in Mackenzie or MRS investments are also free.

» Link to fee schedule.

Q2. What are the consequences upon death? I understand that it rolls over to a spouse. What happens upon the death of the second spouse?

A2. Where no successor holder is designated and where no one is designated as the beneficiary, on the death of the client, the fair market value of the TFSA is received by the estate on a tax free basis. All income earned or capital gains achieved after the death of the account holder are subject to tax.

However, a client can name a surviving spouse or common law partner as a successor holder of the account. In this case, the TFSA will continue to be tax free.

Alternatively, if the spouse is designated as the beneficiary of the TFSA, the assets of the TFSA would be transferred to the surviving spouse.

Caution: The validity of a designation of a beneficiary or a successor holder is subject to the laws of the jurisdiction where the client resides permitting designation made otherwise than by way of a will.

Q3. How do you transfer money from one TFSA to another?

A3. Assuming both TFSA’s are for one client, you can complete a Transfer Authorization for Registered Investments (TARI) to move the assets from one institution to another or use the MRS Transfer form if both accounts are carried by MRS.

Q4. Can mutual funds be transferred “in kind” from a RRIF into a TFSA to prevent triggering DSC fees?

A4. Yes, provided the annuitant of the RRIF and the TFSA account holder are the same person.

Q5. What are some of the estate features of TFSAs (spousal rollover, beneficiary designation, etc.)?

Caution: The validity of a designation of a beneficiary or successor holder is subject to the laws of the jurisdiction where the client resides permitting designation made otherwise than by way of a will.

Q7. Are there going to be any transaction costs in MRS TFSAs such as redemption fees and transfer fees?

R7. Certain transaction costs will exist in MRS TFSAs. All sundry fees that currently apply to MRS accounts, including but not limited to: withdrawal fees, transfer fees, the mutual fund trade fee and other fees applicable to equity and fixed income trading will also apply to the TFSA. Please refer to the MRS fee schedules for a complete list of TFSA account fees.

» Link to fee schedule.

Q8. How are the fees paid – i.e. deducted from the plan or can we request it come from the linked RSP?

R8. The annual account fee cannot be taken from a linked RSP account.

Fees can be paid by Pre-authorized Chequing (PAC) OR paid from within the TFSA account by selling an asset in the amount of the fee. The client can choose to have the annual account fee taken from their TFSA by selecting Option C from the Annual Account Fees section (section 3) of the MRS TFSA account application.

Q9. It is my understanding that TFSA withdrawals are added to your contribution room for the following year, which can be beneficial if your account grows. What happens to your room if you withdraw the money from the TFSA when the account is down?

R9. Any amount withdrawn from the TFSA will be added into next year’s contribution room. This applies regardless of whether or not the market value of the TFSA has increased or decreased from the original amount invested.

Q10. Why can’t you write off the interest if you borrow money to put into a TFSA?

R10. Canada Revenue Agency does not permit this.

Q11. If you withdraw capital plus income and want to recontribute the following years, how much can you contribute (capital and income)?

R11. The exact amount of the TFSA withdrawal is added into the contribution room for next year. There is no distinction within the TFSA between originally invested capital, capital gains or losses, interest or dividends.

Q12. Can interest earned and withdrawn later be deposited back into the TFSA or just the principal amount?

R12. The exact amount of the TFSA withdrawal is added into the contribution room for next year.

Q13. What is the annual fee for a self directed TFSA which holds private company shares?

R13. MRS does not permit private company shares to be held in a TFSA.

Q14. Is there a GIC transaction fee?

R14. There are no transaction fees associated with GICs.

Q15. Does the TFSA have a beneficiary designation similar to RRSPs?

R15. Yes it does. Please refer to the Successor Holder and Beneficiary Designation section (Section 4) of the MRS TFSA account application.

» Link to the MRS TFSA application forms.

Q16. Can you have a joint TFSA? If not, is there a taxable disposition on death? Or is there a version in which the owner can name beneficiaries?

R16. You cannot have joint TFSAs. It is a tax sheltered account for individuals. The client can designate a beneficiary who will be entitled to receive the proceeds from the TFSA in the event of death. On the death of the account holder, the fair market value of the TFSA is received by the estate on a tax free basis (unless a successor account holder was designated). Any income or capital gain earned on the assets after the death of the account holder is subject to tax.

Caution: The validity of a designation of a beneficiary or successor holder is subject to the laws of the jurisdiction where the client resides permitting designation made otherwise than by way of a will.

Q17. Is the annual $35 fee for clients who already have an account being charged $135 or can a client without any accounts at MRS open a TFSA for $35?

R17. All TFSA accounts will be charged a $35 annual account fee (regardless of whether they already have an account with MRS or not).

Q18. Can you name a beneficiary?

R18. Yes. Please refer to the Successor Holder and Beneficiary Designation section (Section 4) of the MRS TFSA account application.

» Link to the MRS TFSA application forms.

Q19. Please confirm regarding death and beneficiary. Upon the death of one spouse the survivor can receive these funds into his or her TFSA account even if the survivor has already maxed out his or her TFSA account?

A19. Yes, the transfer into the surviving spouse’s TFSA can occur provided the spouse is entitled to the proceeds of the TFSA as a consequence of the death of the spouse i.e. as successor holder, designated beneficiary or pursuant to the will of the deceased spouse. In addition, there is no impact to the contribution room of the spouse’s TFSA as a result of the transfer (in the situation where the TFSA contribution room is not fully used).

Caution: The validity of a designation of a beneficiary or successor holder is subject to the laws of the jurisdiction where the client resides permitting designation made otherwise than by way of a will.

Q20. Why is there a box on the TFSA application to take the fee from a linked account?

A20. The client can choose to have the TFSA annual account fee taken from their TFSA by selecting Option C from the Annual Account Fees section (section 3) of the MRS TFSA account application. The fee is only taken from a linked account if there are insufficient, liquid assets in the TFSA.

Q21. Will CRA issue an annual statement regarding contribution room and other details like with RSPs?

A21. The taxpayer’s Notice of Assessment will include details of the TFSA contribution room.

Q22. Are the annual fees or transaction fees tax deductible?

R22. No.

Q23. How are the government benefits affected with a RESP if you use the TFSA instead of the RESP?

A23. The Canadian Education Savings Grant (CESG) is only available in the RESP.

Q24. What is the fee charged for a partial withdrawal after the two free withdrawals have been used?

R24. The fee for a partial cash withdrawal after the two free withdrawals have been taken advantage of is $25.

Q25. I believe that one of the presenters mentioned that a person wanting to open a TFSA must file a tax return. I can’t find any references to having to file a tax return in any other marketing materials or articles which I read, only the age requirement and having a SIN. Can you please confirm if having taxable income is a requirement.

R25. Taken from the Canada Revenue Agency Website FAQs

How would I know what my TFSA contribution room is for a given tax year?

The CRA would determine TFSA contribution room (based on information provided by issuers) for each eligible individual who files an annual T1 individual income tax return.

Individuals who have not filed returns for prior years (because for example, there was no tax payable) would be permitted to establish their entitlement to contribution room by filing a return for those years or by other means acceptable to the CRA.

Q26. Could parents give money to their 18 year old son/daughter’s for their TFSA if their children have no taxable income.

R26.Yes, as long as the child meets all other requirements and only if the son/daughter is the one who contributes to their TFSA.

Q27. Could one spouse give money to a spouse for contribution to the spouse’s TFSA if the spouse does not have taxable income.

R27. Yes, as long as the spouse meets all other requirements and only if the spouse is the one who contributes to their TFSA.

Q28. I am assuming that since all earnings in the TFSA can be withdrawn tax free, investment losses, if any, will be disallowed.

R28. Yes, that is correct, capital losses cannot be claimed from a TFSA.

Q29. Does the Successor accountholder designation on the TFSA have to be family, or can you name anyone eligible to hold a TFSA to keep the account in tax fee status upon death?

R29. The successor account holder can ONLY be the spouse or common law partner of the account holder, providing that individual meets the criteria to hold a TFSA.

Alternatively, the client can designate a beneficiary who will be entitled to receive the proceeds from the TFSA in the event of death.

Caution: The validity of a designation of a beneficiary or successor holder is subject to the laws of the jurisdiction where the client resides permitting designation made otherwise than by way of a will.

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