Principal Issues: A taxpayer disposes of securities and realizes a capital loss and the taxpayer's TFSA immediately repurchases the securities. Will the taxpayer be denied the capital loss as it is a superficial loss pursuant to section 54 of the Act?
Position: Yes, it will be a superficial loss.
Reasons: A taxpayer's TFSA trust is considered an affiliated person with the taxpayer. Therefore, the situation as described will fall within the definition of "superficial loss" in section 54.
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Dear XXXXXXXXXX :
The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence concerning losses and Tax-Free Savings Accounts (TFSAs). Please accept my apology for this delayed response.
Under the Income Tax Act, a taxpayer's TFSA trust is considered a person affiliated with the taxpayer. Generally, under the Act, a superficial loss can occur when a taxpayer disposes of capital property for a loss and:
- the taxpayer, or a person affiliated with the taxpayer, buys, or has a right to buy, the same or identical property (called "substituted property") during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale; and
- the taxpayer, or a person affiliated with the taxpayer, still owns, or has a right to buy, the substituted property 30 calendar days after the sale.
Under the Act, a taxpayer's loss from the disposition of property is nil to the extent that it is a "superficial loss." Accordingly, a capital loss realized from securities sold by a taxpayer and then immediately repurchased by the taxpayer's TFSA trust would be considered a superficial loss, and the amount of the capital loss would be nil.
I trust that the information I have provided is helpful.
Sincerely,
Jean-Pierre Blackburn, P.C., M.P.
Minister of National Revenue
Peky Tsang (613) 957-9769
2009-034305