Excluding TFSA and FHSA from the reporting requirements for trusts
Unnecessary trust reporting requirements could create administrative burdens for financial institutions and account holders without improving tax compliance.
Submission to Finance – FHSA and TFSA Full Carve out of the Additional Reporting Requirements for Trusts
Recipients
- Mr. Trevor McGowan, Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada
- cc: Robert Demeter, Director General, Tax Legislative Division
- cc: Andrew Donelle, Senior Director, Deferred Income Plans, Tax Legislation Division
- cc: Zachary Fentiman, Senior Tax Policy Officer, Tax Legislation Division
Industry segments this resource supports
- Wealth management
Summary
Our submission requests that tax free savings account (TFSA) and first-home savings account (FHSA) trusts that cease to qualify as such—typically due to the death of the account holder and delays in settling the account—be excluded from additional trust reporting requirements under subsection 204.2(1) of the Income Tax Regulations. We argue that these accounts were not intended to be captured by the new reporting rules as TFSAs and FHSAs are already exempt. The submission proposes adding clarifying language to subsection 150(1.2)(n) of the Income Tax Act to ensure these trusts remain excluded even after they cease to be TFSAs or FHSAs.
Why this matters: This submission matters because unnecessary trust reporting requirements could create administrative burdens for financial institutions and account holders without improving tax compliance.
Key takeaways
- TFSA and FHSA trusts are exempt from trust reporting requirements, but under certain circumstances—such as the death of the holder—they may lose their status and unintentionally become subject to additional reporting.
- IFIC argues that these accounts were not the intended targets of the new reporting regime and that applying the requirements would impose an unnecessary administrative burden.
- Situations where an account cannot be settled within the exempt period often arise because the issuer cannot obtain beneficiary information, not because of tax avoidance concerns.
- IFIC proposes adding language to subsection 150(1.2)(n) to explicitly exclude trusts that cease to be TFSAs or FHSAs due to subsections 146.2(9) and 146.6(16)(a)(ii).
- IFIC expresses willingness to meet with the Department of Finance to discuss the proposal further.
