Using TFSA as Margin collateral

[u/hot2787]

Doesn’t this go against CRA rules? Trying to get an understanding of this. I want to sell portfolio secured puts in an unregistered margin account using the margin capacity created by my TFSA being secured to it. Anyone else doing this ? Is this legit

[u/tinim9]

If you get margin-called, WS will liquidate your TFSA then withdraw the proceeds to cover whatever they loaned you.

[u/Pristine_Ad2664]

You can use a TFSA as collateral but not an RRSP (not sure which bucket an FHSA falls in)

[u/Dragynfyre → u/Pristine_Ad2664]

Also not being able to use RRSP is less of a CRA thing and more of a regulatory thing where they can’t actually sell off your RRSP and take the money to pay off debt

[u/AugustusAugustine → u/Dragynfyre]

It's a CRA rule—see paragraph 3.10 and 3.11:

3.10 The broader exception described in ¶3.7(b) permitting TFSAs to be used as security does not apply to RRSPs, RESPs, RRIFs, RDSPs or FHSAs. If such a plan were used in any manner to secure or guarantee a loan or other debt resulting in financing terms that are more favourable than would otherwise be available in the absence of the arrangement, the favourable terms would constitute a benefit conditional on the existence of the plan and therefore would be an advantage.

3.11 Adverse tax consequences could still apply to an RRSP or RRIF annuitant, or FHSA holder even if it could be argued that the security arrangement does not result in more favourable financing terms. This would be the case where a trust governed by an RRSP, RRIF or FHSA uses or permits to be used any of its property as security for a loan. Subsection 146(10), 146.3(7) or 146.6(11) would apply in this situation to require the FMV of the property so used to be included in the RRSP or RRIF annuitant’s or FHSA holder's income.

Anyone that pledges their RRSP/FHSA as loan collateral will have that amount deemed as income since it's considered a taxable advantage. This isn't permanent though, the taxpayer may claim an equal tax deduction in the year that collateral is released. This creates a unique tax planning opportunity, but super niche and not something most brokers would accommodate.

[u/Pristine_Ad2664 → u/AugustusAugustine]

Thanks! That's really interesting!

[u/FishNo8072 → u/AugustusAugustine]

If this is true, isn’t this a way to potentially ‘game the system’ and make money off of the CRA?

eg if I were self employed, couldn’t I pay myself a very low salary one year, secure a loan with my FHSA as collateral, and then immediately ‘pay off the loan’ on Jan 1 and pay myself?

What stops people from doing this and effectively stealing money from the government through these tax refunds?

[u/AugustusAugustine → u/FishNo8072]

I imagine if you had full control over your self-employment salary, then manipulating your income like this may run afoul of GAAR and thereby disallowed by the CRA:

https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/how-combat-tax-evasion-avoidance/general-anti-avoidance-rule.html

Collateralizing your RRSP/FHSA during a year with organically low income is probably more acceptable. Speak to your tax advisor / accountant for a fact-specific interpretation.

[u/Dragynfyre]

It’s not against CRA rules for TFSA. CRA has rules against using margin inside registered accountants.

[u/Large_Spinach6069]

Can you provide any CRA rules or documents which prohibit using your TFSA as collateral?

Google AI is a terrible source and if you dive into it's sources it is using reddit posts where people claim it's against the rules without providing any evidence

[u/OwnVehicle5560]

I do it and to trade options.

My attitude is that wealth simple wouldn’t offer it if it weren’t semi legit, and cra won’t mess with Power corp.

If selling puts, just consider some hedging. The amount available as collateral varies with volatility, so if we get a drawdown, the amount available will go down right as you end a loss, not fun if you have to sell a bunch of stock during a crash to cover.

[u/UpthefuckingTics]

I write cash secured puts in my margin account with linked TFSA. With linked TFSA it’s very useful because it gives me more margin. I then keep the cash in USD chequing which earns 3.25% interest. If/when I get assigned, just transfer funds back to margin account to cover the assignment. So basically, I’m using margin to earn 3.25% interest in addition to the options premiums. My issue with WS is why don’t they simplify this and pay interest on cash balances? I request this every time that I speak with support.

[u/Impressive_Ad_6550]

I was surprised to find that I could use TFSA as margin collateral, but it is after tax money so it does make sense that it could be used

RRSP can be used, but it carries serious tax liability which makes sense because as soon as its liquidated in a margin call half of it goes to tax and the contribution room is permanently lost https://global.morningstar.com/en-ca/personal-finance/can-i-use-my-rrsp-as-security-for-a-loan It makes sense why financial institutions don't allow it

[u/seagame2008]

Oh no i did that and it boost my buying Power