Tax-Free Savings Account (TFSA)

Application Package - Approval Process

Before filing an election to register an arrangement as a Tax-Free Savings Account (TFSA), the issuer of the arrangement has to get a TFSA identification number. To get a number, the issuer has to complete Form RC236 Application for a Tax-Free Savings Account Identification Number and send the form as part of the issuer's application package to the Registered Plans Directorate at the Canada Revenue Agency (CRA). The Directorate will review the package to make sure that it is complete and that it complies with CRA and Income Tax Act requirements.

If Form RC236 is not complete, the CRA will reject the package and will not assign a TFSA identification number.

The issuer can only file an election to register an arrangement as a TFSA after:

• receiving our approval of their application package; and
• receiving a TFSA identification number.

A commercial copy of the document being marketed to holders only needs to be sent to us if we ask for it.

Frequently asked questions

1. What makes up the application package
2. What information should the issuer have on the holder application form?
3. Will the CRA accept a TFSA holder application form that is combined with an application form for a retirement savings plan (RSP) or a retirement income fund(RIF)?
4. Can I set up an electronic TFSA holder application form that a holder can complete and send through the Internet?
5. What terms and conditions must be written into a qualifying arrangement?
6. Are there other terms and conditions that must be written into arrangements that are insured or depositary, broker/agent, or for a group?
7. As an issuer, where should I send my application package?
8. What is the process for revising an application package?
9. What is the process for terminating a specimen?
10. Does a TFSA that is a segregated fund annuity contract which provides for the payment of a guaranteed minimum withdrawal benefit (GMWB) satisfy the conditions found in paragraph 146.2(2)(e) of the Income Tax Act?

1) What makes up the application package?

An application package includes Form RC236, Application for a Tax-Free Savings Account Identification Number, and a specimen.

A specimen includes the following:

• For a trust - The holder application form, and the declaration of trust that sets out the terms and conditions of the qualifying arrangement.
• For an insurer - The holder application form, the policy (including all riders and schedules), and the TFSA endorsement that sets out the terms and conditions of the qualifying arrangement.
• For a depositary - The holder application form, and the terms and conditions of the qualifying arrangement.

2) What information should the issuer have on the holder application form?

When developing the holder application form, the issuer should include space for:

• issuer's name and address;
• account or contract number assigned to the qualifying arrangement by the issuer;
• name of the specimen;
• name, address, date of birth, and social insurance number of the holder;
• date on which the holder enters into the arrangement with the issuer;
• signature of the holder, confirming that the holder is asking the issuer to file an election with the Minister of National Revenue to register the qualifying arrangement as a TFSA under section 146.2 of the Income Tax Act; and
• the signature of the issuer.

The issuer may also want to include:

• a statement that the holder should notify the issuer when they are not resident in Canada;
• a warning to the holder that they may be liable for certain tax consequences arising in connection with a non-compliant qualifying arrangement; and
• a space where the holder can indicate whether, in the event of the holder's death, the holder's survivor (with space for the spouse's or common-law partner's name and social insurance number) acquires all of the holder's rights as the holder of the arrangement, and the unconditional right to revoke any beneficiary designation made, or similar direction imposed, by the individual under the arrangement or relating to property held in connection with the arrangement.

Note
The word registered should not be used to refer to the name of the specimen on the application form or other specimen documents, since the specimen is not registered.

3) Will the CRA accept a TFSA holder application form that is combined with an application form for a retirement savings plan (RSP) or a retirement income fund (RIF)?

No. We will not accept a multi-purpose holder application form that accommodates other plans such as RSPs or RIFs.

4) Can I set up an electronic TFSA holder application form that a holder can complete and send through the Internet?

Please refer to the TFSA online, electronic or telephone applications.

5) What terms and conditions must be written into a qualifying arrangement?

The arrangement has to meet the definition of qualifying arrangement in subsection 146.2(1) of the Income Tax Act. Also, the arrangement has to comply with the conditions in subsection 146.2(2) of the Act, as identified:

• 146.2(2)(a) - The arrangement requires that it be maintained for the exclusive benefit of the holder.
• 146.2(2)(b) - The arrangement prohibits, while there is a holder of the arrangement, anyone that is neither the holder nor the issuer of the arrangement from having rights under the arrangement relating to the amount and timing of distributions and the investing of funds.
• 146.2(2)(c) - The arrangement prohibits anyone other than the holder from making contributions under the arrangement.
• 146.2(2)(d) - The arrangement permits distributions to be made to reduce the amount of tax otherwise payable by the holder under section 207.02 or 207.03 of the Income Tax Act.
• 146.2(2)(e) - The arrangement provides that, at the direction of the holder, the issuer shall transfer all or any part of the property held in connection with the arrangement (or an amount equal to its value) to another TFSA of the holder.
• 146.2(2)(f) - If the arrangement is an arrangement in trust, it prohibits the trust  from borrowing money or other property for the purposes of the arrangement.
• 146.2(2)(g) - The arrangement complies with prescribed conditions.

The terms and conditions should stipulate that an arrangement is not considered a qualifying arrangement unless the holder is at least 18 years of age when the arrangement is entered into.

Every effort should be made by the issuer to use in their application package the definitions found in the Income Tax Act, as applicable. If it is necessary to substitute other terms for those definitions, the substituted terms must be defined in accordance with the definitions in the Income Tax Act. All terms must be used uniformly throughout the documents.

6) Are there other terms and conditions that must be written into arrangements that are insured or depositary, broker/agent, or for a group?

Yes. See the items listed below:

Group
(employer, association, or other organization)

• On the holder application form, the holder must authorize the employer/association to act as agent and state for what purposes, for example, to make contributions.
• The terms and conditions must include a clause stating that only the issuer has the authority to amend the arrangement.
• The arrangement must include a statement that the ultimate responsibility for administering the arrangement lies with the issuer.

Broker/agent

• The arrangement must include a statement that the ultimate responsibility for administering the arrangement lies with the issuer.
• If applicable, the arrangement must include a clause stating that the agent can file an election with the Minister of National Revenue to register the arrangement as a TFSA under section 146.2 of the Income Tax Act.

Insured

• If there is a policy and an endorsement, the issuer must include a clause stating that provisions of the TFSA endorsement override the policy.

Depositary

• The arrangement must provide that contributions will be kept on deposit (cannot be self-directed).

7) As an issuer, where should I send my application package?

Send the application package by mail and courier at:

Due to a building refit spanning multiple years, the Registered Plans Directorate’s mailing address has been temporarily changed. Please use the following address for all correspondence until further notice:

Registered Plans Directorate
Canada Revenue Agency
2215 Gladwin Cres
Ottawa ON  K1B 4K9

8) What is the process for revising an application package?

If you are amending an approved application package, please include a covering letter clearly marked with the TFSA identification number and identifying the changes. Do not complete Form RC236, Application for a Tax-Free Savings Account Identification Number, when you send us an amendment to an approved application package.

When a specimen is amended, all TFSAs conforming to that specimen must also be amended and a copy of the amended specimen or a letter with the changes must be sent to all holders.

If information that was originally provided on Form RC236 is changed, you must notify us of those changes, for example, if the types of investments permitted are changed, you must send us a letter describing the changes.

If you make changes to the holder application form, you must submit a copy of the amended form for our approval before it is printed and marketed. However, the following is a list of changes to a holder application form that do not require our approval:

a) changing the logo of the fund management company or investment dealer;

b) changing the address, telephone number or fax number of the fund management company or investment dealer, or adding an electronic mail address to the application;

c) adding or deleting the name of a fund or investment;

d) adding or deleting the commission or fee options available to the applicant;

e) adding, amending or deleting the particulars of an automatic re-alignment program;

f) adding, amending or deleting the particulars of a pre-authorized chequing plan;

g) changing the information required in respect of distributor or sales representative;

h) adding, amending or deleting the banking information particulars on the application;

i) adding, amending or deleting the particulars of a provision in respect of automatic switches between mutual funds.

All amendments or revisions to an approved application package, including amendments required by legislative changes, should be sent for approval to the address provided in Answer 7, before the amendments are put into effect. The submission must indicate the date the amendment goes into effect and that existing arrangements will be amended. We will tell the issuer whether or not the amendment is acceptable. A commercial copy of the documents being marketed to holders only needs to be submitted to us if we request it.

9) What is the process for terminating a specimen?

The issuer must let us know when there are no longer any outstanding arrangements that conform to the specimen and that the specimen is no longer being marketed. We will then terminate the specimen and close our files.

10) Does a TFSA that is a segregated fund annuity contract which provides for the payment of a guaranteed minimum withdrawal benefit (GMWB) satisfy the conditions found in paragraph 146.2(2)(e) of the Income Tax Act?

Paragraph (e) of the definition of “qualifying arrangement” in subsection 146.2(1) of the Act requires that, at all times, the arrangement complies with the conditions found in subsection 146.2(2). Paragraph 146.2(2)(e) requires that, at the direction of the TFSA holder, the TFSA issuer will transfer property held in connection with the arrangement (or an amount equal to its value) to another TFSA of the holder. Where the TFSA is a segregated fund annuity contract and it is not possible to transfer the annuity contract to another TFSA, an amount equal to the value of the annuity contract must be capable of being transferred in order for the conditions of paragraph 146.2(2)(e) to be satisfied.

Under subsection 248(1) of the Act, the word “property” is defined to include a right of any kind while the word “amount” is defined to mean money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing. Accordingly, in our view, a right to receive GMWB payments would constitute property under the arrangement.

It is our understanding that a policyholder (that is, TFSA holder) has a right to be paid a GMWB under a segregated fund annuity contract when the fair market value (FMV) of the assets in the segregated fund is equal to zero. In addition, the policyholder only has this right provided the annuity contract continues to exist (i.e. it is not surrendered or commuted).

Where a segregated fund annuity contract that provides for GMWB payments is either surrendered or commuted, the value of the GMWB will be nil because the policyholder is forfeiting the right to receive GMWB payments. As a result, where a GMWB is being paid under an insured TFSA and the holder requests that the TFSA be surrendered or commuted, the value of the right to GMWBs is equal to nil when determining the FMV of property for transfer purposes and paragraph 146.2(2)(e) of the Act.

Accordingly, based on the above and our understanding of GMWB payments, a TFSA that is a segregated fund annuity contract which provides for a GMWB would appear to satisfy the conditions found in paragraph 146.2(2)(e) of the Act.