The self-directed TFSA of a professional investment advisor, which actively traded qualified investments (mostly, penny stocks listed on the TSX Venture Exchange), was assessed under s. 146.2(6) for its 2009 to 2012 taxation years (during which $15,000 in contributions grew to $564,483) on the basis that its net gains were income from carrying on a business.
The TFSA noted that s. 146(4)(b) effectively exempted from Part I tax any income earned by an RRSP from carrying on a business of trading qualified investments, and submitted that “there would have been no rational legislative purpose for Parliament to tax a TFSA trust carrying on a business of trading qualified investments while exempting an RRSP carrying on the very same business” (para. 22).
In dismissing the TFSA’s appeal, Spiro J stated (at paras. 79-80):
So long as the business is one that may be “carried on” (i.e., not an “adventure in the nature of trade”) all businesses — without statutory exception — fall within the scope of subsection 146.2(6) of the Act, including a business of trading qualified investments.
Had one of Parliament’s purposes been to extend the scope of the tax exemption to TFSA trusts carrying on a business of trading qualified investments, Parliament would have said so. It had already done so in the context of a different statutory scheme when it amended the RRSP legislation in 1993 to make such an exception for RRSPs.
The TFSA had also relied on a 1969 letter of a Revenue Canada official to Finance (which Spiro J found not to be an admissible extrinsic aid) expressing a concern some RRSPs were carrying on business in competition with taxable entities, contended that “preventing unfair competition was Parliament’s only purpose in passing the legislation taxing RRSPs that carried on business” (para. 85) and argued that “as a TFSA trust that carries on business trading qualified investments does not compete with anyone,” the s. 146.2(6) rule should not apply to it.” In this regard, Spiro J stated (at para. 90):
There is no basis within the text of that provision, or elsewhere in the Act, to restrict the scope of the words
“carries on one or more businesses”in subsection 146.2(6) to businesses that compete unfairly with other businesses.