TFSA Rules on Buying Stocks

Save
Boy looking at money saved in a jar.
Boy looking at money saved in a jar. (Image: Flying Colours Ltd/Digital Vision/Getty Images)

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.

De-Listed Stocks

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.

Even stocks no longer listed in newspapers or exchanges can be qualified investments.
Even stocks no longer listed in newspapers or exchanges can be qualified investments. (Image: rolled newspaper 1 image by Piotr Bizior from Fotolia.com)

Escrowed Shares

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.

Shares held in escrow may qualify in a TFSA.
Shares held in escrow may qualify in a TFSA. (Image: contract image by martin schmid from Fotolia.com)

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.

Although venture businesses might be a higher risk, they are qualified investments for TFSAs.
Although venture businesses might be a higher risk, they are qualified investments for TFSAs. (Image: investment risks image by Pix by Marti from Fotolia.com)

Stock Options

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.

Stock derivatives can help TFSAs grow in value.
Stock derivatives can help TFSAs grow in value. (Image: stock chart with a pencil mark image by Dmitriy Lesnyak from Fotolia.com)

Related Searches

References

Promoted By Zergnet

Comments

You May Also Like

Related Searches

Check It Out

4 Credit Myths That Are Absolutely False

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!