Tax-free savings accounts not always tax-free

Published by David Davies & Alexander Demner & Kyle Spampinato

In Ahamed v. The King (“Ahamed”), the Tax Court of Canada held that a tax-free savings account (“TFSA”), despite its moniker, is capable of carrying on a business of trading securities and any income earned from that business is fully taxable as ordinary business income. The Tax Court highlighted significant differences with the regime applicable to registered retirement savings plans (“RRSPs”) and the primacy of unambiguous legislation over policy arguments.


Mr. Ahamed is a self-confessed professional investor and investment advisor who opened a self-directed TFSA in 2009. All securities traded within the TFSA were qualified investments and most were non-dividend-paying stocks listed on the TSX Venture Exchange (junior resource sector). The securities were held for a short duration, traded frequently, and described by the Court as “speculative in nature”.

The Minister assessed the Appellant’s 2009 to 2012 taxation years on the basis that it carried on a business of trading in securities within the TFSA during those years. The gains realized were thus taxed as business income. The sole issue before the Court was whether a TFSA trust remains exempt from tax if it carries on a business of trading in only “qualified investments” (being, essentially, investments permitted to be held within registered plans).

The Appellant’s central argument focussed on how RRSPs which carry on business remain non-taxable on their income, and judicial musings in a previous case (Prochuk, 2014 TCC 17) about RRSPs that trade only qualified investments and “carrying on a business”.


The Tax Court held that income of a TFSA from carrying on a business of trading in securities, even if arising solely from qualified investments, is not exempt from tax. Instead, that income is subject to ordinary federal and provincial tax at top marginal rates.

The Tax Court concluded that the Appellant, as directed by Mr. Ahamed, was carrying on a business of trading in securities. The TFSA traded frequently, securities were held for a short duration, there was extensive history of buying and selling speculative securities, and Mr. Ahamed (as the directing mind of the TFSA) had extensive knowledge and experience regarding securities markets and spent considerable time spent researching it.

The Tax Court further concluded that the text, context, and purpose of the TFSA regime did not support the Appellant’s contention that TFSAs ought to be treated in the same manner as RRSPs. A specific rule exempts RRSPs from tax on business income from trading qualified investments, but no equivalent provision is found in the TFSA regime.

According to the Tax Court, Parliament’s primary purpose in enacting the TFSA legislation was to encourage savings. Parliament’s secondary purpose was to achieve that objective within certain limits, including regarding the type of income that could be accumulated tax-free. As stated by the Tax Court: “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” – as it did with RRSPs.

The Tax Court also concluded that the Prochuk decision did not support the Appellant’s argument. That case dealt with an entirely different issue – namely, whether Mr. Prochuk could reference his trading activities as the directing mind of his RRSP in claiming a personal business loss – and did not deal with the specific rules applicable to TFSAs. Most importantly, any such comments were carefully distinguished by the Tax Court in Ahamed:

But if this Court meant to say in Prochuk that trading within an RRSP cannot amount to the carrying on of business by the RRSP trust, the statement, respectfully, is per incuriam. There is no indication that the Court considered paragraph 146(4)(b) — which expressly contemplates an RRSP trust carrying on business trading in qualified investments — and the Crown did not bring that provision to the Court’s attention.

Accordingly, Prochuk did not lend any support to the proposition advanced by the Appellant that trading qualified investments within a TFSA could not amount to carrying on a business of trading.


First and foremost, Ahamed confirms that TFSAs are taxable on any business income, whether derived from qualified investments or otherwise. The statutory regime applicable to RRSPs is fundamentally different than the TFSA scheme because a clear rule exempts RRSPs from tax on business income derived from trading qualified investments. No such exemption applies to TFSAs. Sweeping assertions, on policy grounds and without reference to the text of the legislation, that any distinction in treatment between TFSAs and RRSPs is illogical or irrational are not sufficient to overcome clear textual choices in legislation enacted by Parliament.

Ahamed also confirms that longstanding, judge-made factors to distinguish capital gains from ordinary business income apply equally to determining whether a TFSA is carrying on a trading business. That notwithstanding any beliefs that: (a) TFSA investments likely fall at the riskiest end of an investor’s overall investment spectrum, given that the relatively small stake of contributed amounts ($5,000 in the TFSA’s earliest years), non-deductibility of losses against other income, and non-taxability of gains all encourage “home run” type of investments (indicative of business income); and (b) the non-deductibility of losses within a TFSA and the tax-free nature of gains encourage investors to cut losses early and lock in gains (thus trading more frequently, also indicative of business income). Despite the obiter in Prochuk, there is no special status accorded to TFSAs, or other registered plans, in analyzing the nature of a receipt as business income or a capital gain.

No appeal has yet been initiated to the Federal Court of Appeal (though the time for doing so has not yet expired).