TFSA Transfer Fees and Tax Consequences
Most financial institutions charge a transfer fee you when you want to transfer your TFSA account (full or partial) to another institution—and it is not an insignificant amount. Depending on your issuer, the transfer fee you’re charged can be as much as $100.
To avoid these hefty fees, you should instead take advantage of the re-contribution rule: Withdraw the funds from your current TFSA near the end of the calendar year, and in the following year, open a new account at the financial institution of your choosing and recontribute your withdrawal to it. For example, on Dec. 31 of any given year, you can withdraw all of the funds from your TFSA at your existing financial institution. And on the first business day of the following year, you can put the funds into your new TFSA at your new financial institution. Also, if you have a self-directed account and a significant amount of money in your TFSA, some financial institutions may pay this fee for you to earn your business.
Naming a TFSA Beneficiary or Successor Holder
When you open a new TFSA, you’ll be asked to name a beneficiary to inherit your TFSA upon your death. If you’re married or are in a common-law relationship, you can choose to name a successor holder instead of a beneficiary. The difference between the two designations lies in what happens to your TFSA after your death.
The successor holder becomes the new holder of the TFSA and all of its contents. Your spouse or common-law partner is entitled to an exempt contribution and doesn’t need to have any contribution room for this to occur. He or she can keep the account separate or transfer the assets into their own TFSA and no taxes need to be paid.
If you name a spouse or common-law partner as a beneficiary, it’s a little more complicated. The assets are allowed to be contributed to the survivor’s TFSA without requiring contribution room. This is also an exempt contribution and it must be done on or before Dec. 31 of the year following your death. Your survivor must also send Form RC240 to the Canada Revenue Agency (CRA) within 30 days of making the contribution. If the TFSA grew in value after your death before it was distributed to your survivor, the survivor will need additional TFSA contribution room to shelter any investment income earned.
If someone else is designated as a beneficiary, he or she can receive the assets without paying any tax. However, future income earned on those assets after death are taxable. If the beneficiary has unused contribution room, he or she can put the inherited assets into a TFSA to shelter all amounts from being taxed.
By naming a beneficiary or successor holder, probate fees can generally be avoided. In Quebec, things are different. The assets can only be transferred through the estate.
