In Canada, Money, Taxes

Transferring investments from an unregistered margin account to a tax-registered RRSP, TFSA or RESP Canada

The first rule of anything to do with tax-registered accounts, is to call the Canada Revenue Agency (CRA) when you are in doubt.

I am not promising they are all great and are able to answer your question clearly unless they are senior tax agents, but you can at least get a clear enough answer from them, or get transferred to a senior agent.

Do not ever rely on customer service or clerks at your bank, or any other financial institutions to give you CORRECT tax advice.

I had gone into a bank lately and asked them a simple question:

If I transfer my investments from my unregistered account (meaning, not an RRSP or TFSA account that is tax-sheltered), into a tax-sheltered/registered account like an RRSP or TFSA, what counts as my contribution room at the time of transfer? Book value or market value?

Their answer to me was: BOOK value.

I am like — Oh-kay… so I calculated the book value of the investments and then considered that as contribution room.

Long story short, this is WRONG AF, and after calling the CRA, I am going to lay down the TWO LAWS to transferring investments from unregistered to registered accounts.

1. You look at MARKET VALUE at the time of transfer.

Book value is the price you purchased at, and market value is what it is worth on the market (could be higher, could be lower).

Full example later.

2. You will have to pay a CAPITAL GAINS TAX at the time of transfer.

So if your market value is higher than your book value, you will have to pay a capital gains tax of 25%.

To be more precise, the capital gains tax is actually calculated as 50% taxes on 50% of your capital gains, which .. equals out to a 25% tax.

If your market value is LOWER than your book value, you cannot claim this as a capital loss. You are better off selling the investment, and then claiming the loss on your tax return as a credit, then transferring the money.

EXAMPLE: Capital Gains

Let’s say we have $6000 in TFSA contribution room.

You bought 100 Shares of Acme Company = $3000 (Book Value) a year ago.

Now you want to transfer investments instead of selling them, taking the cash, and then putting it into the registered account.

100 Shares of Acme Company = $6000 (Market Value).

A) Your contribution room to your TFSA is fully used up.
B) You will have to pay 25% tax on $3000 (capital gain tax).

EXAMPLE: Capital Loss

Same $6000 in TFSA contribution room.

You bought 100 Shares of Acme Company = $3000 (Book Value) a year ago.

Now you want to transfer investments instead of selling them, taking the cash, and then putting it into the registered account.

100 Shares of Acme Company = $2000 (Market Value).

A) Your contribution room to your TFSA is only $2000. You have $4000 leftover to bulk up.
B) You do not get to claim that $1000 capital loss on your taxes.

In this case, it is better to sell the investment, and then use it for tax loss purposes, then put the cash into your TFSA.

Conclusion?

Only transfer investments near/close/around book value or slightly higher than book value… or CASH.

If you are always buying stocks or funds like I am, this is not a difficult thing to do, but in the even that your investment has really gone up, it may be prudent just to put cash into your registered accounts rather than transferring investments to avoid the tax loss.

Alternatively, you could transfer part of it every year until you are fully transferred, and just top up with extra cash for the remainder, to minimize your taxes.

I guess this makes some sense in that you don’t take the full hit of capital gains tax on the transfer, and MAYBE next year your investment will have gone down a bit, so you will pay less of a tax… or basically spread out the tax over the next few years and slowly transfer investments into your registered accounts.

Although transferring investments may seem like a WTF idea because it makes more sense to put cash, there are a few benefits to it:
A) No transfer or selling fees – yeah you have to pay a little when you sell something!
B) No extra cash used from your account to be “locked up” into a registered account

.. and in general, a great idea for people who want to maximize all long-term returns. Might as well transfer it now, get it tax-sheltered and take the mini tax hit on capital gains, than to wait and not transfer it at all, and have it be worth ten times that in the future, and completely UNSHELTERED.

Your call.

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Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me $50K - $75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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