non-reg, TFSA, buying and seling

[moustacheverte]

I rebalanced my portfolio recently and I now realize I might have done something stupid.

I sold some index shares from my non-reg account and transferred the cash to buy another index in my TFSA. If I understand correctly, I'll pay taxes on the earnings when I sold the non-reg shares but if I transferred the shares in kind to the TFSA and then sold them, I wouldn't incur taxes. Is that correct?

[Retire-Canada]

but if I transferred the shares in kind to the TFSA and then sold them, I wouldn't incur taxes. Is that correct?

^^ that is not correct.


http://www.investorsgroup.com/en/media-room/articles/rrsps-rrifs-tfsas/make-TFSA-transfers-without-the-pain-of-tax-gain

http://www.moneysense.ca/columns/transferring-stocks-into-a-tfsa/

Transferring stock into a TFSA

In terms of your company stock, you don’t have to sell it; you can just transfer those shares directly into your Tax Free Savings Account, provided that it is held within a brokerage. A TFSA at a brokerage allows you to hold all sorts of investments: stocks, ETFs, mutual funds, etc. But be careful if you open this account at a bank. If you set up your TFSA with your bank’s brokerage arm you should be fine, but the version that you set up with a bank teller may have restrictions.

While you can transfer the stocks into your TFSA without selling them first, you could still trigger a tax event. If the stock has gone up in value you will have to pay tax on that gain. Only future gains will be sheltered and able to compound tax-free. However, if you have any capital losses saved up you can use them to offset the gain.

On the other hand, if the stock you want to transfer into your TFSA has fallen in value you cannot claim the loss for tax purposes. In order to claim the loss you’d have to sell the stock outside the TFSA first. But be mindful of the superficial loss rule, which prevents investors from selling a stock to claim a loss and then buying it back in right back. If you sell the stock outside of the TFSA and buy it back within 30-days, the loss will be denied.

[Kaspian]

Yep, you have to calculate (in total) what you paid for them and subtract that from what you sold them for and declare that as capital gains on your taxes.  I didn't know this either the first time I did it--and I thought TD  would automatically put that info on a form for me (like they do dividends), but I was wrong.  I had to go back through all my purchases of the fund to figure out average cost basis.  Now I carefully note down "Book Value", "Market Value", and number of shares on the day the sell transaction happens in my non-registered account.

It's not a "stupid" move though--espcially if you were moving cash to the TFSA to fill up last years' $10K room.  Long term, it's better to have things growing there than outside it. 

We can't avoid capital gains forever either--sooner or later you do have to pay the piper if you're making money.  :)   Yes, pay your taxes!   (And luckily--(you didn't hear this from me but...) the CRA is apparently pretty forgiving when it comes to small time investors if we have difficluty calculating capital gains and our total is off by a few bucks.  While you should make sure it's as accurate as possible, it's probably not going to incur an audit.)