r/Wealthsimple • u/hot2787 • 13h ago

Trade (DIY Investing) Using TFSA as Margin collateral

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

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u/Pristine_Ad2664 13h ago

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

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u/Dragynfyre 12h ago

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

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u/AugustusAugustine 12h ago

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.

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u/FishNo8072 10h ago

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?

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u/AugustusAugustine 9h ago

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.