3 Big Red Flags That Could Trigger a CRA Audit on Your TFSA

TFSA users engaging in business-like activities for profit will trigger a CRA audit.

| More on:
Caution, careful

Image source: Getty Images

Canadians can become rich through the TFSA because money growth is tax-free and contribution rooms are growing. The Canada Revenue Agency (CRA) sets the yearly contribution limit, and unused contribution rooms carry over to the following year.

However, the tax agency is watching to ensure users do not misuse, abuse or violate the rules. Certain activities raise alarm bells and trigger a CRA audit and assessment. The result could be costly penalties and tax payments.     

Frequent trading

Frequent trading of marketable securities, particularly stocks, goes against the objectives of the TFSA. The CRA can determine if a user is conducting a stock trading business. In addition to the frequency of transactions, the tax agency looks at the holding period. Active or day trading for a profit constitutes a business; therefore, the income becomes taxable.

Speculative investments

A 2023 case the Federal Court of Appeal decided in favour of the CRA involves the frequent trading of penny stocks. The short holding period of a speculative investment showed the real intent of the TFSA user. Thus, the court affirmed the tax due from the business income.

TFSA investors can invest in non-dividend paying stocks with growth potential but not speculative. For example, MDA Space (TSX:MDA) has delivered hefty returns (+152%) in the last 12 months. Had you invested $7,000 in the industrial stock one year ago, your money would be $17,668.45 today.

Created with Highcharts 11.4.3Mda Space PriceZoom1M3M6MYTD1Y5Y10YALL7 Apr 20218 May 2025Zoom ▾Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520222022202320232024202420252025010203040www.fool.ca

The $3.33 billion space technology company operates in the global space industry, providing robotics, satellite systems, and geo-intelligence solutions. MDA Space is at the front and center of the rapidly growing space economy. Management expects business growth from space companies, prime contractors, and government agencies.

Its chief executive officer (CEO), Mike Greenley, said that MDA has good revenue visibility given the $4.6 billion backlog (49% year-over-year increase) at the end of the third quarter (Q3) of 2024. In the three months ending September 30, 2024, revenues and adjusted net income rose 38% and 59.9% to $282.4 million and $34.7 million compared to Q3 2023.

With its diverse technology offerings and a significant growth pipeline, MDA is well-positioned to capitalize on strong customer demand and robust market activity. If you invest today, the share price is $28.32. Market analysts’ 12-month average price target is $33.12 (+17% upside potential).

Significant balance growth

A significant TFSA balance growth attracts attention and is related to frequent trading and speculative investments. However, the CRA will not intervene if a user does not engage in active trading but earns two ways from a TSX stock.  

Enerflex (TSX:EFX) deliver capital gains and dividend income to TFSA investors. At $14.97 per share, investors enjoy a +124.29% one-year price return on top of the 1.33% dividend yield. The $1.86 billion company provides energy infrastructure and energy transition solutions globally.

Created with Highcharts 11.4.3Enerflex PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Its President and CEO, Marc Rossiter, said Enerflex is a strong, resilient company positioned for sustainable growth and value creation. Management’s priority is to provide meaningful direct shareholder returns. Enerflex has a strong operational visibility, evidenced by the combined $2.9 billion backlog from two core business lines.

Audit candidate

Your TFSA is a candidate for audit if you conduct business-like activities in the account. The CRA will act promptly to penalize or collect taxes from erring accountholders.  

Should you invest $1,000 in Cameco right now?

Before you buy stock in Cameco, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Cameco wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Enerflex. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Is Fiera Stock a Buy for its Dividend Yield?

Fiera stock has one amazing dividend yield right now, but what else should investors consider?

Read more »

The sun sets behind a power source
Dividend Stocks

This Dividend Champion Has Paid Dividends for 51 Straight Years

All hail this dividend king for its proven potential to provide stable, reliable, and growing income.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

The Smartest Telecom Stock to Buy With $3,500 Right Now

Smart TFSA move? Telus stock shines for income & growth, outpacing rivals with a 7.7% dividend yield, two decades of…

Read more »

hand stacks coins
Dividend Stocks

I’d Put $7,000 in These Legendary Dividend Growers to Earn for the Next Decade

If you've got some cash for your TFSA, here are two stocks that should give you growing dividend income and…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Here’s How to Catch up to the Average Canadian TFSA at Age 45

The TFSA can create immense passive income, and this dividend stock is an excellent choice.

Read more »

edit Safe pig, protect money
Dividend Stocks

How I’d Secure My Retirement With a $7,000 Investment Today

If you have the discipline to invest with a long-term strategy, here’s how you can use $7,000 in a TFSA…

Read more »

Canadian flag
Dividend Stocks

TFSA: 3 Canadian Stocks to Buy and Hold for Life

The TFSA is the perfect place to create income for years, and these three are the best Canadian stocks to…

Read more »

dividends grow over time
Dividend Stocks

Where to Invest $9,000 in the TSX Today

These stocks pay attractive dividends that should continue to grow.

Read more »