Advisories
Advisory 24
Lending and Amortization - Tax Free Savings Accounts
We have received a number of inquiries concerning the treatment of Tax Free Savings Accounts (TFSA’s) and loan policy. Credit unions are wondering if this product would fall under Section 25130 RRSP Loans. The short answer is no.
TFSA’s are quite different than a RRSP and more closely resemble a savings account or GIC. Contributions and interest on borrowed money are not deductible for tax purposes, and they potentially can be assignable as security for a loan.
We understand that Concentra have stated that if they are the Trustee for the TFSA, that until proposed legislation is passed, the TFSA cannot be pledged as security for a loan. Once this legislation comes into effect we would strongly suggest that an assignment of the TFSA be taken for any loans made for contributions to a TFSA. The loan would than be governed by the same rules as taking any deposit account as security. If you do not take an assignment to secure your loan, then for competitive reasons, we will view the loan as unsecured but are prepared to allow a 10 year amortization as is currently allowed for RRSP’s.
You may wish to include a new bullet point under Section 25100.4 – Amortization that reads:
– Tax Free Savings Account – Unsecured loans will have a maximum amortization of 10 years:
No additional approval will be required from this office, but you will require Board approval should you wish to incorporate the above clause in your policy.
December 2008
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