Posted on February 27, 2024 by Mark | 101 Comments
Should I transfer stocks into my TFSA?
Thanks to a reader question, I’m going to tackle this question today in this updated post and offer some perspectives including what I’ve done in the past. I’ve also updated how I manage our dividend reinvestment plans (DRIPs) across our investment accounts, including inside the TFSA.
“Hi Mark,
I don’t know if you have covered this anywhere in your blog but I’ve got a question about transferring shares from non-registered account to a TFSA account. I’m not sure I’ll have necessary cash saved to invest into my TFSA as of or after January 1 (as I have maxed out all my RRSP contribution room). I have shares in BNS, BMO, RY and others and I’m thinking of transferring $5,500 or more worth of shares into my TFSA.
My questions are:
- Is this wise?
- Will it trigger a capital gain (if I sell)? If so, is that reportable to CRA?
- What about calculating the adjusted cost base? I didn’t always keep track but it is doable.
Just wondering if you have experience with this.
Thanks. I really enjoy your blog!”
First of all reader, thanks for being a fan – always great to hear from readers and get questions!
My second thought, I just want to highlight I’m not an accountant / tax professional so please be mindful of any decisions I’ve made here with my own portfolio may not apply to you.
Third, let’s tackle those questions!
Is it wise?
Like everything in life, including personal finance decisions, “it depends”!
What I mean is, it depends on your financial plan, goals and tax strategies that you want to employ.
Personally, I’m a fan of maximizing all registered accounts first (tax-free = TFSA; tax-deferred such as RRSP; tax deferred such as RESP, if you have kids) BEFORE non-registered investing.
From my oldie but goodie file. 🙂
This is just one of those reasons:
why pay tax today (via taxable investing) when you can let assets grow tax-free (TFSA) or tax-deferred (RRSP)?
In the early days of this blog, I didn’t eat my own cooking. The TFSA wasn’t around so taxable investing after my RRSP was contributed had to do!
As of 2009, the TFSA arrived.
I’ve used my TFSA (both of our TFSAs in fact) as an investment account since Day 1 although I did have some taxable investments like I mentioned before the TFSA was launched.
Ultimately, I believe your desire to invest inside your TFSA, RRSP, RESP if you have kids, is a personal decision but I’m biased to making contributions to the TFSA first, then RRSP, for most Canadians, in that order.
Anyhow, back to you, I believe anytime you have an opportunity to maximize contributions to your TFSA in any year, you should.
The TFSA is a gift of an account for all adult Canadians to use.
Again, this account can be for short-term saving street or long-term investing boulevard but I have a HUGE bias to the latter.
For the most part, if you have non-registered assets like the Canadian bank stocks you mentioned (disclosure – I own some of these stocks as well) then you should be able to transfer those stocks “in-kind” from your non-registered investment account to your self-directed TFSA account at your brokerage.
Consider “in-kind” like “as-is”. Just call your brokerage up and tell them you want to transfer shares “in-kind” to your TFSA. Nothing else is really needed – they will take care of it. The transaction time is typically about three business days for all assets to “settle” inside the TFSA after you make the call.
This leads me to your second question.
Will it trigger a capital gain (if you sell)?If so, is that reportable to the CRA (Canada Revenue Agency)?
It might and yes are my answers.
Again, I’m not a tax professional but I’ve done what you are considering in the past.
In my situation, I sold a non-registered asset and triggered a tiny capital gain in the process. I reported that small gain to the CRA in that tax year.
If your investment when sold triggers a capital gain (i.e., you sold an asset for more than you paid for it), then a percentage of tax must be paid in the year that gain occurred. That gain is added to your regular income in that tax year.
If you want to keep the shares you own (and not sell them for cash first), then I believe transferring shares “in-kind” in the manner I mentioned above is the way to go.
When you transfer shares to your TFSA however the CRA considers this a “deemed disposition”. You technically sold the assets at fair market value (FMV) for your TFSA contribution.
Read on about the deemed disposition here from my friends at TaxTips.
This means your TFSA contribution amount is the market value at the time of transfer. For tax purposes, you have effectively disposed of the shares in the taxable account, so any capital gain is taxable to you. If however, you have a loss on the shares in your non-registered account before making the “in-kind” transfer then the capital loss is not deductible.
The implications of moving non-registered assets to the TFSA: Deemed dispositions can produce capital gains (or losses) and therefore trigger tax consequences.
- If your non-registered investment is in a gain position, making an ‘in-kind’ transfer directly into your TFSA will trigger a ‘disposition’. You’ll pay tax in the year of the transfer on 50% of the gains but then the asset will be inside your tax-free TFSA going forward to grow and compound away.
- If your non-registered investment is in a loss position, making an ‘in-kind’ transfer directly into your TFSA, you will lose the loss. Regarding the loss position, in order to claim the capital loss you would need to sell your stock(s) outside the TFSA first. Then a superficial loss rule kicks in. This rule prevents investors from selling a stock to claim a loss and then buying it back right away. The rule means if you sell a stock outside of the TFSA and buy it back within 30-days, the loss will be denied.
What about calculating the adjusted cost base? I didn’t always keep track but it is doable.
Yes, that’s doable and please do.
Calculating your adjusted cost base (ACB) can be a pain so I typically refer people to this free software tool to do it (no affiliation).
On my end for what it’s worth, as part of my updated FAQs, I/we actually don’t DRIP/reinvest dividends or distributions for any assets inside our taxable accounts any longer.
As I get older I want to simplify my financial life and save time on such things.
To keep things easy this is what we do related to DRIPs:
- I’ve turned off all DRIPs for our taxable accounts. Income comes in as cash to be used or invest money as needed.
- I’ve turned off all DRIPs for our RRSPs and my LIRA. That income will be used for any semi-retirement spending/withdrawals starting in a few more years…
- We do however DRIP investment assets inside our TFSAs. We want assets to compound away for another 20+ years.
If/when I sell any of our non-registered assets over the coming decades the ACB calculation will be very straightforward on the CRA tax forms without DRIP implications.
Should I transfer stocks into my TFSA?
Generally, you can transfer investments in-kind from a non-registered investment account to a Tax-Free Savings Account (TFSA) as long as you have the available TFSA contribution room.
However, you may have to pay tax if the value of the investments has gone up since you purchased them (in other words, you have a capital gain). Once your investments are in the TFSA, they will grow tax free.
Learn more aboutin-kind contributions to a TFSA– including what happens if your investments have gone down in value– from the Canada Revenue Agency.
Some of you might also wonder in retirement, if you can move assets from your RRSP to TFSA.
You can!
If you transfer an investment from your RRSP to your TFSA, you will be considered to have withdrawn the investment from the RRSP at fair market value. That amount will be reported as an RRSP withdrawal and must be included in your income in that year (like any other RRSP withdrawal during the tax year).
At the end of the day, I can’t tell you the correct decision to make on this subject but I hope this post highlighted some considerations related to transferring stocks into a TFSA for any tax year.
Good luck with your decision and thanks for reading.
Let me know what you decide and why in a comment below. I welcome all other comments on this process as well.
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own Financial Independence, Work On Own Terms (FIWOOT!) path. Join the newsletter read by thousands. Always free.
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Hi, Mark! In your points #1 and 2 re: transferring into your TFSA from an unregistered investment account, does it make any sense that a transfer in kind when in a “gain” position would be a deemed a sale…..and the gain taxable……but a transfer in kind in a “loss” scenario would NOT be deemed a sale and NOT generate a claimable tax loss?
How is it that it doesn’t “work the same” in each situation? Asking for a friend. (AND me! 🙂
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Mark · Edit
Hi Michael,
Nice to hear from you…
When you sell stocks in taxable account, there can be a gain or a loss. You want gains of course, long-term in your portfolio. Depending on your long-term investing time horizon, with any stock, it can make sense to sell at a small loss, avoid taxable gain, then transfer the proceeds into the TFSA for more investing. Again, depends on your goals.
If you are doing an “in kind” transfer, then whatever the transfer date is essentially a sale at fair market value.
Hope that helps a bit!
MarkIn more detail….beyond me as a source: 😉
There are some considerations if you’re thinking of moving stocks to a Tax-Free Savings Account (TFSA). You may be able to make “in kind” contributions (for example, securities you hold in a non-registered account) to your TFSA, as long as the property is a qualified investment. In doing so, you may trigger a tax event. This type of “in kind” transfer is considered a disposition by the Canada Revenue Agency – meaning you may need to report a capital gain if the fair market value of the stock has gone up since you purchased it. If the stock value has gone down, you cannot claim the capital loss.
As tax rules are enforced by the Canada Revenue Agency (CRA), if you have questions about this type of transfer, you can contact the CRA. You can also speak to a registered financial advisor to learn more about this type of transfer.
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Lloyd (63, retired at 55) · Edit
“I believe anytime you have an opportunity to maximize contributions to your TFSA in any year, you should. ”
+1
*How* one accomplishes it can be a bit more involved and other issues can be a factor. Personally, I’ve only funded the TFSAs from general operating funds and it is budgeted for. I DETEST worrying over, or dealing with, the ACB crap. In fact, I just got a T5008 that is incorrect. I just know it’s gonna lead to a “discussion” with CRA down the line. Makes me almost not want to bother with non-reg equity investing. 🙁
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Mark · Edit
Yes, buying or selling creates T5008 – annoying I know. I try to avoid selling stuff in my taxable but it will happen over time. Likely when fully retired in another 10 years. I will slowly close out some stocks, maybe one a year. 🙂
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Lloyd (63, retired at 55) · Edit
I was working on donating the shares in-kind to not to have to pay any capital gains. Sadly, with the 2022 “re-invested capital gain” issue, I ended up having to pay some capital gains without having even selling the stock. I saw it was going to happen again for the 2023 taxation year (and probably even longer) so I bit the bullet, sold a bunch, donated a bunch and got rid of those holdings. Lesson learned.
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Mark · Edit
Yes, have to watch that I guess from time-to-time. All good. Small potatoes for you! 😉
Happy investing, chat soon.
MarkReply
Chuck · Edit
Hey Mark
Good and timely article. Finding new TFSA contribution money when retired is tough!
Thinking of moving 7k worth of stock from my Non registered to my TFSA that is currently in a loss position. I understand I will not benefit from that loss, but at least the stock can recover in a tax free account. I have no intention to sell the position for many years. Just collect the future dividends tax free.
Does this make sense? Am I missing anything?
ThanksReply
Mark · Edit
Not missing a thing from I can see!?
Small losses are fine inside non-reg. since they can offset capital gains there too.
TFSAs = no gains or losses to worry about as you know.
Happy investing, Chuck!
MarkReply
Barbara · Edit
Chuck, sell the stock from your non-registered account and then record the capital loss on your income tax for the year (later on when you file). Then re-buy it in your TFSA.
The cost is only two transactions fees, which are pretty low these days and you have the loss to use against any future capital gains.Reply
Chuck · Edit
Thanks Barbara. Much better idea!
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xxx · Edit
Better read up on superficial loss rules. If you or any family member sells a stock and then re-buys it within 30 days, then you aren’t allowed to apply the capital loss on your tax return. Also, if you or a family member buys the stock 30 days prior to the sell, same no go,
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Mark · Edit
Thanks for your comment…yes, I had this in my article. 🙂
MarkReply
Barbara · Edit
xxx, yes you are correct. I wasn’t thinking about that. But easy to just wait the 30 days.
I have done similar but in the opposite direction–took a big loser out of my RRSP and then put it into my nonregistered cash account. Now it has doubled from where it was when I took it out and will only be taxed on 50 percent of the gain, rather than 100 percent.
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Mark · Edit
Thanks, Barbara – good comment on taxable investing benefits with capital gains. 🙂
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Anthony · Edit
If I have withdrawn a stock from my RRSP and sell it years later. What is the value I use for loss/gain? Is it what I originally paid for it, or it’s value when I withdrew it?
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Mark · Edit
All RRSP withdrawals are essentially taxed as income; your financial institution withholds the tax. The rates depend on your residency and the amount you withdraw. That money goes to your non-registered account. So, there is no loss or gains per inside the RRSP.
When it comes to withholding taxes, the tax that was withheld may not always be enough to account for the tax you owe at your tax bracket. You may have to pay more tax on the withdrawal when you include the withdrawal on your income tax and benefit return for that year.
Hope that helps!
MarkReply
John · Edit
Your new cost base is the value on the date you withdrew the investment from the RRSP, and gains would be from the day it came out. So if i have stock ABC in my RRSP bought at $20 in 1970 and pull it out in 2021 at $200. No gain in RRSP but i have taxable RRSP withdraw of $200 in 2021 . Then i sell the stock for $300 in 2023, that triggers a capital gain of $100 in 2023 ( $300-$200 the cost based on withdraw value, not the $20 original cost in the RRSP. ) Its as if your RRSP sold it ,you withdraw the cash and the buy it outside the RRSP at the same price you sold it for in the RRSP ( and you have to pay tax on the RRSP withdraw)
But as always check with your accountant for your situation , you may have other things going on not mentioned
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Mark · Edit
Yup, thanks John – agreed.
If you transfer an investment from your RRSP to your TFSA, you will be considered to have withdrawn the investment from the RRSP at FMV. That amount will be reported as an RRSP withdrawal and must be included in your income in that year (like any other RRSP withdrawal during the tax year).
I haven’t done this myself yet but in the future I might, once the RRSP/RRIF withdrawals occur.
See AlsoScotiabank Help CentreThanks for your details.
MarkReply
RONALD S. TUTHILL · Edit
Hi Mark: Very wise. I could never see DRIPs myself. Sure with DRIPS your stocks go up without you realizing it but you don’t get the cash. My main problem with DRIPS is trying to account for the ACB. This isn’t a problem in a registered account but in a non- registered account you have to account for it. I tried. I have Sentry Select Diversified Income Fund. In ’09 they sitched to a back end mutual fund and te money was reinvested in the company and I got more units. these units were given a price and at the end of the year I got a T3 with dividends, capital gains and other on it. As I say I tried to account for the ACB but after a few years gave up on it as a lost cause. All the while my units keep on increasing and instead of 7433 units I now have just under 19000 units. This wouldn’t be a problem in a registered account since stocks in a registered account is basically just money anyways. You can sell the shares and what is left is cash and no capital gain or loss. When it comes to transferring stocks from your non registered account to your TFSA I would thing it would be a hassle. You only get $6500.00 to max out your TFSA and most stocks of any amount would come in over that. If you have cash in you TFSA that could go towards the stocks you make a valid point about paying capital gains taxes so why not take the cash you have and buy more stock with it. I’m a great one to talk as I maxed out my TFSA this year but was reading my mail from the CRA and it appears I have $6500.00 in contribution room left. Mark the market is not playing fair. Every time I think of buying a stock it goes up in value. For the TFSA I was thinking of buying 2000 units of SGR-UN and 1000 shares of GEI. Maybe not your high priced, low yield stocks but should be safe. SGR-UN has me puzzled as it has been dropping which is strange for a REIT anchored by grocery stores.
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Paul · Edit
Ronald, REITs (SGR-UN) are interest rate sensitive and I see SGR-UN is invested in purely US based grocery properties. I suspect the US Fed continuing to increase interest rates is part of the headwinds it is experiencing. Although, I note it has a smoking high dividend of 9+% at current valuation.
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Mark · Edit
In terms of my TFSA, both TFSAs in fact, we DRIP everything there. Our TFSAs are maxed out and the plan is to go it again in early 2024. Saving for that now.
I don’t own SGR-UN but I see the price has barely moved in 5 years. I don’t own any GEI either but GEI (Gibson) could do well with energy needs rising in the coming years. Hard to say!
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RONALD S. TUTHILL · Edit
Hi Mark: As mentioned DRIPs and other financial instruments mean nothing in a registered account as the stock and dividends and distributions are essentially cash. Outside in a non registered account you have to account for the ACB and DRIPs outside in a non registered account are a pain. As in the example given on the T3 I get capital gains, roc, other and sometimes dividends and the units keep on rising so it is hard to figure out the ACB. Until Sept. of ’09 I used to get cash but then it was transferred to a back end loaded mutual fund and the cash went in each month as more units. It now has a market value of $70,000.00 and a book value of $43,000.00 in Waterhouse but that may not be right as Waterhouse has screwed up my book cost on many stocks.
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Mark · Edit
Yes, fully understand DRIPs inside registered vs. ACB in taxable – I used to track that for years. 🙂
As such, any desire to just let cash build up inside taxable/spend cash as you please? You’ve earned it!
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RONALD S. TUTHILL · Edit
Hi Mark: I bought a pile of stocks in ’20 as prices were down and I evened up on some stocks I had with odd shares but the cash has been rolling in and I don’t feel comfortable buying stocks over $100.00 so that is why I haven’t bought shares lately even though my cash account is a little less than $100,000.00 from a million. Of course there is the cost of the left hip operation which will drop it by $21000.00 and I will not get as much in June because of the instalment payment. The SGR-UN and GEI ideas were for the TFSA as the cash in it has built up and as mentioned when I was reading my mail from CRA I saw I still had $6500.00 of contribution room even though I transferred $6500.00 to it in Jan.
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Paul · Edit
Hi Ronald: be careful, you may not have $6500 of room still to contribute and the penalty for over contributing is fairly punishing. My CRA account currently says “2023 TFSA contribution room: $6,500.00 As of January 1, 2023”
That means at 12:01am Jan. 1, 2023 I had $6500 of room. I contributed the $6500 a week or so later but that doesn’t change CRA’s statement above. That statement will remain there until the end of this year. I definitely do not have $6500 of unused contribution room.
To verify whether you have room, you can click on “savings and pension plans”, click on “view TFSA details”, then click “transaction summary” to get a list of all your contributions from 2009 to 2022.
Cheers – Paul
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John G · Edit
BUT … the numbers on the CRA site are often notably out of date (as you suggest – it is now, in late May, showing the room you had as of Jan 1). So one can’t really trust them on current year status, in my experience. Better keep track in some other way, e.g. on the broker’s site where you have (probably) done the transfers.
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Mark · Edit
Yes, indeed. I’m happy to keep my own records for this stuff. Mine is not up to date, yet.
MarkReply
Ping · Edit
Hi Ronald: Rather than having all that cash sitting around doing nothing, you could donate some of that money to food banks, United Way, etc. That’s a much better use of all that cash, especially at this time when there are a lot of people needing help! It is good karma to help others. And the more you give, the more you will receive!
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Mark · Edit
Ya, unfortunately the CRA site can be delayed/not up to date related to TFSA room. Definitely keep your own records 🙂
MarkReply
Graham · Edit
I can, but have never Dripped in any accounts. Seems it would produce odd number and fractions of individual shares especially in a smaller account like the TFSA. At present I move the TFSA cash dividends temporarily into a BMOIL HISA where they presently earn 4.75%, which is more than many stock dividends pay.
I could, but have never transferred shares direct from RRIF to TFSA. With just $7000 allowed, the transfer would have to be of an oddball number of individual shares. It might work with some ETFs. I would rather contribute cash, combine with HISA or cash in TFSA and then buy something there.
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Mark · Edit
Good stuff. Interestingly enough, we are very unlikely to move non-reg. assets to TFSAs in a few years since we’ll need non-reg + RRSPs for living expenses in semi-retirement. We intend to keep TFSA assets intact for the coming decades. Banks + low-cost XAW mainly inside those TFSAs. Thoughts?
Mark
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Graham · Edit
To be honest, I haven’t paid a lot of attention to our TFSAs. Initially thought of them as a place to conserve capital, so bought bonds and GICs. But when interest rates dropped, started to by preferreds. Because of the small amounts available to invest, I would wait until there was enough cash to buy 100 or more of an equity or preferred. For equities, we have ended up with about 40% of our approx $300k in dividend payers like RY, BCE, FTS,RUS, CNQ plus some XIU. Another 27% is in GICs and Corporate Bonds and the rest, except for Cash/HISA ,is in a mix of Rate-Reset and Perpetual preferreds. Overall yield is just over 5% mainly helped by the preferreds that have an average yield of 7%. No plan to withdraw. Equities, re-invested dividends along with regular contribution will hopefully provide growth. No interest in dripping. Rather decide what is best use of income as we go. Whoever eventually takes over our portfolios might think differently 🙁
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Mark · Edit
Ya, I get the optionality that comes with dividends for sure…re: no DRIPping or taking cash as you please.
I will continue to keep our DRIPs running for TFSAs for the foreseeable future = reinvest everything I can inside those x2 accounts.
I like those stocks as well: own RY, BCE, FTS and CNQ; they all make up between 3-5% of our portfolio value.
TD probably makes up the most for us, around 5%. Telus is “up there” too.https://www.myownadvisor.ca/my-top-5-stocks/
No need for GICs or other here, I don’t think (?), until I’m 100% retired which could be another 10+ years. We’ll see. 🙂
Hopefully part-time work within the year.Thanks for your comments!
MarkReply
Barbara · Edit
I drip some stocks and it never results in fractions of shares. A number of stocks are purchased and any leftover cash that isn’t sufficient for a full share is deposited as cash.
This is with iTrade, my preferred brokerage (and I have tried a few), perhaps not all of them are the same.
Dripping ETFs works differently of course.Reply
Graham · Edit
I am sure BMOIL does it the same way. In a TFSA, we don’t hold large numbers of stocks. For example, if we own 100 RY, the quarterly dividend is not enough to buy even 1 stock. If we hold a few hundred more, I still don’t like to see odd numbers in our portfolio. Which will happen when dripping. Saving the dividends in HISA or no-fee ETF and then re-investing is my choice.
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Sharon · Edit
CRA is not necessarily up to date on TFSA. They can get behind in their date entries.
I have some non dividend paying stocks in my TFSA and some dividend paying ones in my NR account. I am mulling over making major in kind switches between the accounts that would put all or most of the dividend payers in my TFSA, thus giving me access to tax free dollars and reducing my income tax in my NR account.This would all have to be done at the end of the year so that I could replace the stocks moved out of my TFSA quickly. If anyone sees a flaw in this plan let me know!
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Hi Mark,
Thanks again.
One other consideration regarding DRIPs in non reg, and I speak with experience, is that if you find yourself wanting to sell for tax loss purposes you can have your plan ruined when DRIP occurs within the 30 days.
I stopped all DRIPs in my non reg because of this and needing soon to withdraw the dividend funds anyway for retirement income.
Paying the tax anyway. So, may as well have it available.
I will also move non reg to TFSA whenever possible.
A further consideration is to withdraw from TFSA dividend income so that you can move more non reg to TFSA.
FFT
Cheers, IanReply
Mark · Edit
Ah, very good experience to share Ian.
You’re highlighting something that other semi- or full-on retirees have hinted to me as well 🙂
By stopping all DRIPs in any taxable accounts, you can use the “optionality” of dividends to build up as cash and therefore withdraw said cash for retirement income spending. Beyond spending, you also have the cash to pay any taxation come spring on that taxable income. Might as well have it handy.
Many retirees that have saved well are doing the same as well: moving any non-reg. $$ not always needed for spending to their TFSA every Jan. when TFSA contribution room opens up. Very smart tax-wise.
Kudos.
MarkReply
John G · Edit
I am not sure why a tax loss sale of shares subject to DRIP is ‘ruined’ by a DRIP dividend. You still have the real loss on the shares that are sold. You may end up with a few shares of the company in your account after the main sale, when the DRIP produces them, but that hardly ruins the tax loss. It may be a minor nuisance to get rid of them, if it costs you $10 in commission to sell shares worth not very much.
How else would the sale be harmed by the DRIP dividend?
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Mark · Edit
I suspect Ian’s point is that it can complicate things – meaning you may or may not have the cash sitting there if you continually DRIP shares since most dividends are reinvested vs. letting cash accumulate (a bit) as you please.
Everyone is different, not right or wrong since that’s the entire point about dividednds – they are optionality – they provide options to shareholders.
Thanks John!
MarkReply
Randy Williams · Edit
Hi Mark,
I’ll be 68 this year and retired for 12 years. I’ve also followed you for years.
Your comment about turning off DRIPs on your non-registered has me thinking. We use our non-registered account to pay for big trips ie $10k+. We pay the capital gain.
As I now only own and hold dividend paying stocks, I rarely trade, so I use RBC. They charge a lot ($9.95) for a trade, but they give me an up to date valuation of all my stocks so I know what the capital gain will be.
Also they do not charge for in kind transactions. The first week of January I have them transfer stocks in kind from my RSP to our TFSAs. It is a complicated process because stocks can not be transferred in kind directly between registered accounts, they have to go through a non registered account. But RBC does it at no charge.
To DRIP or not to DRIP is now the question!Reply
Mark · Edit
Great to hear from you, Randy!
Hey, I used to DRIP my taxable account for years, but the ACB is just annoying now. Soon, in a few years, I will be using the cash to pay for stuff/semi-retirement lifestyle so it doesn’t make too much sense to keep DRIPping when I might eventually sell some assets from time-to-time to free up cash for withdrawals.
I will say if you don’t need the $$$, DRIP away. If you do want some money, let dividends or distributions get paid, move cash that builds up and spend that or invest that into the TFSA, other? This way, you’re not always selling capital and incuring trading costs to do so. Just my thinking for now and I try to simplify and automate my life moving forward 🙂
Correct: no way that I know of yet whereby you can move RRSP stocks to TFSA “in kind”, there is an intermediate two-step process since RRSP assets are tax-deferred…and need to be calculated for.
A great source:
https://www.taxtips.ca/rrsp/in-kind-withdrawals-from-rrsp-or-rrif.htmIf you transfer an investment from your RRSP to your TFSA, you will be considered to have withdrawn the investment from the RRSP at its FMV. That amount will be reported as an RRSP withdrawal and must be included in your income in that year. You can claim the tax withheld on the withdrawal at line 43700 of your income tax and benefit return. If the transfer into your TFSA takes place immediately, the same value will be used as the amount of the contribution to the TFSA. If the contribution to the TFSA is deferred, the amount of the contribution will be the FMV of the investment at the time of that contribution.
Where is the next big trip? 🙂
MarkReply
Randy Williams · Edit
Hi Mark, thanks for your response. We’re heading to South Africa in October. This is the only continent I have not yet visited. Probably will be a $30k+ trip.
We are then looking at a cruise from Tokyo to Portugal in February 2024. Should end up costing about $50k.
Traveling is exciting and expensive, but it is the best thing about being retired.Reply
Mark · Edit
Are you trying to make me jealous, because it’s working 🙂
Awesome to read and folks like you inspire me to semi-retire sooner than later.
Keep me posted!
MarkReply
Paul · Edit
Randy, one other thought. If you are married and could benefit from some additional pension income to split with your wife, instead of moving securities from your RRSP, open a RRIF (it can be a partial RRIF, not your entire RRSP), move some securities from your RRSP into the RRIF (shouldn’t be any RBC brokerage charge for that) and then make the in-kind transfer as you have been to your TFSA. Withdrawals from RRIF’s are eligible for income splitting whereas from RRSP’s are not (except under some very specific circ*mstances).
Cheers – Paul
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RONALD S. TUTHILL · Edit
Hi Paul: The smoking high yield was one thing that got me interested. When interest rates rise stocks usually fall so this may be the reason why the stock has fallen but it is a TSX REIT that is anchored by US grocery stores and people have to shop for food so you would think the value would hold up. Inside a TFSA interest rates should not matter much as like outside it is a long range view even though I’m 75. I’ve gambled in the past with mixed results. one was not gambling but just bad luck. I bought shares in Penn West Petroleum and it was going great and then some top brass from Suncor came in and said this can’t be right so they cut and slashed at the companies books and when they were done the company instead of being the largest private land owner in western Canada was a small oil and gas exploration company and the price dropped to $2.84 and they changed the name to Obsidian Energy. I was so disgusted I sold the company. Like I say, it was a good company but circ*mstances change.
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Craig · Edit
Hi Mark, I withdraw all my dividends from my TFSA and Non reg accounts to live on. In January I take the $6500 allowable contribution plus the total dividends taken from my TFSA the past year, i.e. $2800, so $9300 from my Non reg “In kind” to my TFSA. The idea being over the next 10- 20 years the Non reg is shrinking and the TFSA is growing. Since the TFSA dividend withdrawls are tax free, my future income has smaller tax consequences.
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Mark · Edit
I’ve heard about a few retirees doing that, Craig. Having the non-reg. shrink in value over time and the TFSA growing should have, to your point, few tax consequences especially when CPP and OAS are likely to come online for you in your 60s.
What are you doing with any RRSP assets? Slowing drawing down those as well?
MarkReply
Pierre · Edit
One issue that has not been discussed much here are the related brokerage fees, and in particular why bother doing an in-kind transfer in the first place? Most brokers charge fees for in-kind transfers (also sometimes called swap). You may find it is actually both cheaper and simpler to sell the shares you own in one account and immediately buy them in the other, rather than doing the transfer, even after considering the buy/sell commissions and the bid/ask spread. Every broker’s fee schedule is different, so it is worth looking into it.
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Mark · Edit
Great point, Pierre, given not all brokerages are created equal – so it’s important to consider the fees associated with any sells and buys. A few times per year, shouldn’t be an issue for most folks but frequent selling and buying and moving assets around in your portfolio is not wise long-term.
Mark
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Georg · Edit
As a 23 year retiree I transfer the required minimal withdrawal amount from my RIF as in-kind equities and in some cases more than the minimum accepting that there is a sliding scale of withholding taxes on the over minimum amount. For Estate planning reasons I’m trying to draw down the RIF balance and increase the TFSA balance while not losing potential equity growth. The stocks in both accounts are DRIPs and continue to produce dividends and hopefully increase in value. Attention should to be paid to the asset balances and diversity within both accounts. Also, if the in-kind equities being transferred into the TFSA are American and the dividends they generate are large enough there may be taxes payable to the US government. Another consideration is making that in-kind transfer when the market and share prices are down which allows you to transfer a greater quantity of in-kind shares for the dollar amount of the minimum RIF withdrawal. Optimistically, when the market goes back up the value of the in-kind transfer increases accordingly.
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Mark · Edit
Nice to hear from you!
Congrats on your success in retirement!
For those estate planning purposes, I think that’s very smart. When we run the math and show folks the tax consequences of keeping their RRSP/RRIF into their 70s and 80s – some are shocked when CPP + OAS + other income streams are already in place.
So, to that point, it can make great sense to kill off/withdrawal all RRSP/RRIF assets by early 70s and move all funds not needed for living expenses to the:
1. TFSA first, then
2. Non-reg.The U.S. withholding tax of your U.S. stocks inside a TFSA is a pain but I suspect it’s still better than paying tax on that in your taxable account…
?
Mark
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JS · Edit
Thanks Mark, great post!
Would you mind citing the CRA form/document from which the following ensues:
> “When you transfer shares to your TFSA the CRA considers this a “deemed disposition”.
I can’t find an governmental source for it and I have a hunch that it applies to just about any form of trust for which the “giver” is also one of the trust’s main beneficiaries. (DPSP, RRSP, etc)
Also, if we transferred Canadian dividend-generating equities into a TFSA, would you recommend enabling DRIP on them, or should we let the dividends accumulate in the account and periodically reinvest. OR if we have a choice, should we try to keep canadian dividend-generating stocks out of the TFSA so that we reserve the room for assets with more compound growth potential?
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Mark · Edit
Most welcome 🙂
https://www.taxtips.ca/glossary/deemed-disposition.htm
Deemed disposition
This expression is used when a person is considered to have disposed of a property, even though a sale did not take place.I can’t offer tax advice, but I can say that transferring Canadian dividend-generating equities into a TFSA, would mean you need to claim a capital gain from non-reg. to TFSA before doing so OR if at a loss, the loss doesn’t count 🙂
In terms of DRIPs, I personally like DRIPping as much as I can, including taxable but periodically I do stop the DRIPs, some DRIPs, let some cash build up and deploy for some purchases.
I like CDN stocks in my taxable and TFSA 🙂
Thoughts?
MarkReply
Sharon · Edit
If there’s a capital gain when transferring, one has to claim and pay tax on it but a loss doesn’t count. This makes no sense and unjust. Seems very unfair to me!
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Sharon · Edit
I don’t know what I was thinking when I posted this. It’s only true if one transfers in kind. Selling before transferring allows one to claim any loss. My apologies for my previous whine!
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Mark · Edit
All good, Sharon!
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Mark · Edit
Well, you can always claim a capital gain or capital loss with taxable investing? Nothing forcing any investor to transfer in-kind 🙂
I read your other comment 🙂
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Sharon · Edit
Even if it only applies to transfers in-kind. So in order to claim capital loss one has to sell first, wait 30 days before buying it back in the “to” account which could be higher or lower. Whereas in the case of a capital gain, you’re automatically dinged on the tax no matter what. 🙂
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Mark · Edit
Yup, that’s it. Wait the 30-days.
Don’t repurchase an identical property sold in your non-registered account within your registered account (RRSP, RRIF, TFSA, etc.), or vice versa, within the superficial loss period. In-kind contributions to registered accounts of non-registered investments with unrealized losses will also result in such losses being denied.²
https://www.manulifeim.com/retail/ca/en/viewpoints/tax-planning/superficial-losses
Cheers!
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HM · Edit
Hi Mark, in my situation I have a LIF which I am thinking of transferring stocks in kind from to my TFSA. As you probably know, the LIF has a minimum and a maximum withdrawal amount. The max is either a pre-determined percentage of the account value on Jan 1st, or the gain in value over the previous year (which ever is higher). In my case I did really well last year and have a high max withdrawal value. Since the account consists of all dividend paying stocks does it make sense to transfer the max out of the LIF (while I can) and put the stocks into my TFSA? I will take a tax hit on what I move, but it seems to me from a estate planning prospective this would make sense. Get as much money out of the LIF as possible and take the dividend income tax free for life. I also have another related question, can I transfer stocks in kind from my LIF to my wife’s TFSA? What do you think?
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Mark · Edit
Nice to hear from you HM.
Without knowing all your details, can’t offer advice, etc. yes, aware of LIF mins and max and I always think it makes sense to max out the TFSA in any way reasonable, each January.
Since I’m still working, I intend to max out the TFSA with new cash every year for a few years.
Other options I see from others including taking out small RRSP withdrawals and/or turning the LIRA into a LIF and using withdrawals from that to fund the TFSA every year for tax-free compounding.All approaches have pros and cons but from an estate planning perspective, getting rid of LIFs/RRIFs while you are younger and moving that money into TFSAs as much as possible makes great sense to me and something I’m planning on doing.
Did you see this? 🙂
https://www.myownadvisor.ca/how-and-when-to-withdraw-from-rrsp-and-tfsa/Curious about your thoughts!
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John G · Edit
i don’t see an answer from Mark to your final question: can you transfer funds from your LIF/RIF to your wife’s TFSA. I think (with considerable confidence) that you are not allowed to do this. The funds for a TFSA have to come from the owner of the TFSA. So it’s not like a spousal RRSP, for example.
That said, if you give your wife the cash and she chooses to put it into her TFSA, the result is about the same – but you can’t cut out the middle(wo)man.
And the tax consequences of taking assets out of the LIF are not affected by what happens to the assets once they are out.
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Mark · Edit
Thanks, John.
Given LIF/RRIF is designed to deliver income, you cannot (as far as I know!) transfer funds tax-free from a RRIF to a TFSA….but you can use money withdrawal from RRIF to add to a TFSA (as long as you have available TFSA contribution room) of course like any other TFSA contribution. This includes any “in-kind” transfer.
A good way to think about any RRSP/RRIF or LIF is tax-deferred growth as long as assets, stocks stay inside the account. When money is withdrawn from LIF/RRIF then income is taxed and you can do whatever you wish 🙂
Source/Reference for you here in Ontario:
https://investingquestions.ca/question/how-do-i-transfer-investments-from-my-rrif-to-my-tfsa/Also from a past Globe and Mail article:
“You can withdraw your minimum annual RIF payment as an “in-kind” transfer. It would need to be moved to a cash account, but after that it is yours to do with as you please.
Any funds that are taken out of the RIF irrespective of where they are then moved to (including a TFSA), are taxable as income. If you choose to move the amount “in kind” or cash does not change the taxability either. You can transfer either to an investment account and then to a TFSA if you choose. Many people seem to be of the mind that they can transfer from an RSP or RIF to a TFSA and avoid the tax. This is not true, so be very careful if you’re expecting not to pay tax on any funds whether “in-kind” or cash that are taken out of an RSP or RIF.”
Happy investing!
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John G · Edit
I have no issue wih what you have just said. The question was whether HM could tranfer money/assets from HIS LIF directly to his WIFE’s TFSA. Your statements and sources do not address that. Transferring to his OWN TFSA is a different question.
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Mark · Edit
Well, the good news with TFSA contributions is there no attribution 🙂
Meaning, you can gift or lend money to your spouse or common-law partner to contribute to their TFSA, and there will be no attribution back to you…whether than income comes from cash savings, RIF, LIF, etc. Once funds/income is withdrawn from the TFSA then withdrawn funds will be attributed back to the TFSA account owner.
The CRA information on TFSA contributions, states “You can give your spouse or common-law partner money to contribute to their own TFSA without having that amount, or any earnings from that amount being attributed back to you, but the total contributions you each make to your own TFSAs cannot be more than your TFSA contribution room.”
Happy investing!
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May · Edit
Another great article! Thank you Mark for sharing your knowledge!
This process works the same for any type of investment, right?
If, for example, you have mutual funds in my taxable account and want to transfer to a registered account, the tax implication is the same as how it is explained in your article, is that right? Thank you again Mark.Reply
Pete · Edit
Thank you Mark. A regular reader here, you’ve helped to frame the implications of non registered to TFSA transfers. Your work is much appreciated!
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Mark · Edit
Awesome Pete! 🙂
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Jacques · Edit
Hi Mark. I was wondering. I am holding WAYL.cse in my. TFSA. it is currently halted, last trade at .74.
I was wondering if i could transfer the stock in kind from my TFSA to my non registered account, and claim a capital loss when it starts trading again.
Any advice would be great
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Mark · Edit
I would check this out. In some cases, you would need to wait 30-days to start trading again.
https://www.moneysense.ca/columns/in-kind-transfer-tfsa-tax/Reply
Dave · Edit
Hi Mark, I have the same question as Jacques above. However the article that you have linked is the opposite scenario of Jacque’s question. Like Jacques, if I’m holding a losing stock in my TFSA, would it be possible to move it to a non-registered account like CAD Cash account and sell it there in order to report a capital loss? Many thanks!
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Mark · Edit
Hey Dave,
Thanks for your question.
I shared with Jacques the link to MoneySense since it covered the superficial loss rule if he went from non-reg to TFSA; more for context.
I should have answered his question more directly 🙂
When you or other investors go from TFSA to a non-registered account, you cannot claim a capital loss inside the TFSA. Tax free account = tax free and therefore no tax consequences good or bad. If you want to move out the asset dud from TFSA, and then sell inside the non-registered account, fine, I see no reason why you can’t take your capital loss then.
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John G · Edit
worth adding, to be very clear: if you move the dud asset out of the TFSA to a non-registered account, the asset will have an ACB of its market value at the time of the transfer, and NOT the ACB of its acquisition price when the TFSA got it. So Mark’s statement about taking the capital loss ‘then’, i.e. when you sell it from your non-registered account, is accurate, but the loss is calculared from the time it enters the non-registered account.
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Barbara · Edit
Correct.
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Mark · Edit
Thanks John!
Any plans for your RRSP/RRIF or LIRA/LIF if you have one?
Mark
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John G · Edit
When my RRSP became my RRIF, I changed my holdinga from DRIP to taking the dividends as they are paid. They more than cover the annual minimum payouts, and should do so for another couple of years. So I don’t have to sell in a soft market to pay the minimum.
In practice I take out more than the minimum, and thus pay some withholding tax at the time (which reduces the pain at tax time later… and it’s splittable ‘pension income’, which also reduces the pain) – in part because of advice on this site about timing of ‘decumulation’. I take it out to spend it – I otherwise put in the max to my TFSA, so don’t need to move the money there.
When I needed a large amount a couple of years ago, I took a big lump from my TFSA – then decided, again thanks in part to your writing, that this was a bad idea, since it lowered the amount I was earning tax free, so the following year I took some $ from the RRIF and put it back into the TFSA.
The TFSA is all on DRIP. My non-registered account I have also taken off DRIP – I withdraw the dividend income and spend it (and of course pay tax on it in due course, as dividends. I try not to sell there, though I have to from time to time.)
I have a couple of dividend-focused ETFS in my non-reg account. The advantage is that if I have to sell something, selling them does not create the same hesitation as choosing one of the individual stocks to sacrifice (just before it goes up again?)
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Mark · Edit
Nice, John….
I/we also at Cashflows & Portfolios see a lot of retirees doing that:
“When my RRSP became my RRIF, I changed my holdings from DRIP to taking the dividends as they are paid.”
Typically, in the early RRIF years, same goes for others = cash dividends “more than cover the annual minimum payouts” which is outstanding…and ideal 🙂
Again, I also see anything not needed from RRSP/RRIF to essential living expenses going into the TFSA every Jan. Very tax smart and I’m likely going to do the same at some point.
Hard to argue with juicy tax-free income. I’ve heard some retirees are now making close to $8k per year, per account, in tax-free income inside the TFSAs. Add another 10 years or so of compounding time and that amount could double. Incredible.
Cheers,
MarkReply
Sharon · Edit
I’m not sure what it meant when John G said he took out a large lump sum from TFSA, and it was a bad idea? Can you please explain how that lowered the tax free amount, etc.?
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John G · Edit
If the purpose of a TFSA is to build value over the longer term, aiming at its being the last fund to be spent, then taking out a large amount for a capital expense hurts that goal. It would have been better to take the money from my RRIF or unregistered investments so that the TFSA could keep growing. In due course I replaced the money in the TFSA from other sources.
Mark · Edit
Totally agree, preserve the TFSA as much as you can.
Mark · Edit
John G. replied. I like his approach but ultimately the decision is up to you (as you know).
MarkSharon · Edit
I agree as well, particularly the part about putting the money back after. I have done it myself with the purpose that I will replace that amount with a larger contribution room.
Mark · Edit
Good stuff.
moneyhelp · Edit
Hi Mark,
I thought so, but something you mentioned has me scratching my head, I’m hoping you can clarify.
2 Things:
1) “no gains or tax when you go from one registered account to another as long as you have contribution room” – I understand if you are transferring from a TFSA to an RRSP, but, If you are transferring a stock in kind from one RRSP to another RRSP, will that affect your contribution room? Since its not a deemed disposition, I’d assume it won’t affect your contribution that you may still have available. No?
2) “You cannot transfer investments directly between TFSAs and RRSPs” – I think this is incorrect isn’t it? Meaning, if I own Apple stock in one RRSP and I have another RRSP account which also holds Apple stock and let’s say I want to consolidate my Apple stock position into only one RRSP account, I cannot do this?
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moneyhelp · Edit
This may be a dumb question. I was already aware of a deemed disposition when transferring shares “in kind” from a non-registered account to a registered account, and either have to pay tax if there was gain or cannot claim a loss due to triggering the superficial loss rule; however, does the same apply when transferring from a registered account to another registered account (ie. RRSP to TFSA OR from one RRSP to another RRSP)?
I assuming no, but thought I’d ask.
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Mark · Edit
Hey MoneyHelp – based on my understanding, no gains or tax when you go from one registered account to another as long as you have contribution room…but….
TFSA TO RRSP: GREAT IDEA
Funds can be withdrawn from a TFSA at any time, for any reason, without tax consequences. In fact, the contribution room will be returned to you the following calendar year. If your TFSA investments have done well and you’re looking for a tax break for the current calendar year, that money may be better invested in your RRSP.
You cannot transfer investments directly between TFSAs and RRSPs but you can sell for cash in one and repurchase them in another. Just be sure you have the contribution room in your RRSP, which is usually posted with CRA. Best idea: RRSP contributions are fully taxed when they are withdrawn (ideally in retirement), but they can be deducted from your 2018 taxes if you make the contribution before next March.
RRSP TO TFSA: BE CAREFUL
If you withdraw from an RRSP the funds will be subject to an immediate withholding tax. Once you file your taxes for the year you could wind up paying more or you could pay less, depending in your income level. It makes more sense to withdraw from an RRSP if your income is low. Unlike a TFSA, the re-contribution space from an RRSP withdrawal will be lost.
Assuming you have not maxed out your TFSA, you can put the funds right back in your TFSA. The CRA also keeps a record of your TFSA contribution space.
A quick Google will tell the tale but essentially once you have cash inside your RRSP, keep it there. Depending upon investing strategies, you might want to withdraw from TFSA to feed RRSP in your asset accumulation years.
I personally leave both alone!
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RBull · Edit
In time this will be a consideration for me likely with unregistered accounts. For registered accounts my broker has said I can’t make a direct in kind contribution to another registered acct -TFSA. I didn’t really pursue this further as didn’t have any need at the time. If this is correct I suspect there is an easy work around: RRSP>unregistered>TFSA
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ben · Edit
that’ll work
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Barry · Edit
You can transfer directly from your RIF to your TFSA as I will do in 2021. I was so advised by TDW.
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Mark · Edit
Good stuff Barry, but I assume that’s an in-kind transfer per se? My understanding is you cannot transfer directly since you’re going to be taxed on RRIF withdrawals but I could be wrong.
Happy Holidays!
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cannew · Edit
For us older folks who have to withdraw funds from a RRIF, I always transfer the max allowable of shares In Kind to the TFSA. The funds are being taxed regardless, but it allows us to get some stocks that are generating a nice return and growing into the TFSA.
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Seems smart to use funds you don’t need, from RRIF, to RRSP. Tax free dividend income will be very valuable in the years ahead!!
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