In 2009, Tax-Free Savings Accounts debuted in Canada. Any income earned within a TFSA is tax-free. Monies earned in these accounts do not negatively affect other benefits such as pensions or tax benefits for children. Allowed investments include stocks, mutual funds, Guaranteed Investment Certificates, and bonds. Certain stocks and stock derivatives are allowed as qualified investments for TFSAs.
Suspended or de-listed stocks can be qualified investments for TFSAs. The criteria for accepting these, as reported by the Canada Revenue Agency, is for the shares to be either publicly traded or issued from a public corporation. The current status of the shares is not the determining factor for a TFSA-qualified investment.
Shares held in escrow may also be considered qualified investments for TFSAs provided certain criteria are met. The escrow shares must have been issued as opposed to a direct allocation to a trust fund. The escrow shares must have equivalent rights as non-escrow shares. The non-escrow shares must meet eligibility status for a TFSA-qualified investment if the escrow shares are to also qualify.
Venture Capital Stock
The TSX Venture Exchange and the Canadian National Stock Exchange promote emerging companies. Venture stocks are considered qualified investments provided that the shareholders are not connected or related to the specific venture business.
Certain derivatives of stock are also qualified investments. Writing naked options may result in the TFSA being revoked since this is viewed as carrying on business. Business-related activities are not allowed within a TFSA. Buying call options are allowed while purchasing put option contracts are not. Writing covered options is considered moot as no property is exchanged until the option is exercised.