"TFSA as margin" is a misunderstanding; you cannot use your TFSA to borrow money (trade on margin) directly, due to Canadian tax rules. Instead, Questrade's "Margin Power" feature allows you to use the equity in your TFSA as collateral for a loan in your separate, non-registered margin account. This gives your margin account increased buying power without compromising your tax-free savings.
How "TFSA as margin" works (via Margin Power)
- Separate Accounts: You have two accounts: a registered TFSA and a non-registered margin account.
- Margin Account Loan: In the margin account, you can borrow money from Questrade to invest.
- TFSA as Collateral: With Margin Power activated, the investments in your TFSA act as collateral for the margin loan.
- Increased Buying Power: The collateral from your TFSA adds to the buying power of your margin account, allowing you to purchase more investments than you could with only the cash and margin account assets.
- Tax-Free Status Maintained: Your TFSA remains tax-free and its contribution room is unaffected by this arrangement.
- No Direct Borrowing: You are not borrowing money from your TFSA, but rather using its assets as a security for a loan in a different account.
Key differences and risks
Feature | Margin Account (with Margin Power) |
|---|---|
| Account Type | Non-registered |
| Purpose | To borrow money and leverage investments |
| Taxation | Capital gains are taxed at a reduced rate (currently 50% of gains are included in income) |
| Collateral | Your TFSA and/or margin account assets are used as collateral |
| Risks | Can result in larger losses if investments decrease in value |
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