Article content continued

For all of the swap transactions, the price selected for the shares swapped out of her TFSA was the highest price at which they had traded during the day up to the time of the swap. Conversely, for the shares swapped into her TFSA, the price chosen was the lowest at which they had traded.

As the Federal Court of Appeal observed, “the result of the (taxpayer’s) strategy was to inflate the value of the TFSA so as to benefit from a tax-free distribution from her TFSA (as opposed to a taxable withdrawal from her RRSP or a taxable gain within her Canadian trading account).”

Indeed, by the end of 2009, the taxpayer’s initial TFSA contribution of $5,000 was worth $205,795. For the years 2010 and 2012, the increase in FMV was $70,841 and $29,217 respectively. (Her TFSA decreased in value in 2011.)

The issue in the case was whether the taxpayer was liable to pay the 100 per cent advantage tax for the increase in fair market values in each of 2009, 2010, and 2012 resulting from her swap activity.

While a swap was not specifically listed as an “advantage” prior to Oct. 17, 2009, an increase in fair market value that was either directly or indirectly attributable to transactions “that would not have occurred in an open market in which parties deal with each other at arm’s length and act prudently, knowledgeably and willingly” and that was intended to benefit from the TFSA’s tax exemption was considered to constitute an advantage under the Income Tax Act.