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If you transfer a losing stock from an unregistered account to a TFSA, can you claim the capital loss? Well, that depends
Q. I was surprised to find out from a friend that making an in-kind transfer of losing stocks from a non-registered account to a TFSA would not trigger a “deemed disposition” for tax purposes. However, if the stocks had gone up in value, there would be a deemed disposition and you would have to pay the tax on any capital gains. That doesn’t make any sense to me. Can you confirm this policy and provide some explanation? — Rudy B.
A. Your friend is correct, Rudy. If you hold stocks showing a loss in a non-registered account and you transfer them in kind to your TFSA (or your RRSP, for that matter), you cannot claim a capital loss. However, if you transfer stocks with unrealized gains, then Canada Revenue Agency considers this a “deemed disposition,” and you would be responsible for reporting the capital gains and paying tax on them.
This sounds unfair, but it’s really not. To understand why we need to review the CRA’s treatment of capital gains and losses.
Normally, when you sell an investment for less than you paid, you can claim a capital loss, which you can use to offset capital gains you have realized in the current year or up to three years in the past. You can even carry forward your capital losses to offset gains you may realize in the future.
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However, if you sell a stock to realize a loss and then buy it back within 30 days, the CRA considers this a “superficial loss,” and you cannot claim it.
The superficial loss rule applies even if you sell the stock in a non-registered account and then buy it back within 30 days in your TFSA or your RRSP, or even an account owned by your spouse, or by a corporation you control.
Note that there is no corresponding “superficial gain” rule. If you decide to sell a stock that has appreciated in value and then buy it back immediately, the CRA is quite happy for you to pay the taxes now rather than deferring them.
A similar rule applies when contributing stocks in-kind to your TFSA. If you transfer a losing stock to a registered account, CRA treats your loss the same way it would if you’d sold the stock and then repurchased it immediately: the loss is denied. But if you contribute a stock that is showing a gain, this isn’t a problem, since you are paying the taxes you owe before the stock is transferred.
So, Rudy, if your goal is to both harvest the capital loss on your stocks and make a TFSA contribution, I suggest doing it in two steps. First, sell the stocks in the non-registered account to realize the loss, and then contribute the cash proceeds to your TFSA. If you still like the long-term prospects for your losing stocks, you can wait 30 days before repurchasing them.
Correction 09/19/17: A previous version of this article stated that contributing stocks in-kind to your TFSA is considered a superficial loss. The loss is in fact simply denied by the CRA.
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“However, if you sell a stock to realize a loss and then buy it back within 30 days, the CRA considers this a “superficial loss,” and you cannot claim it.”
You cannot claim it but the ACB of the newly acquired stock would be adjusted to include the loss, so eventually you’ll recover the loss. But if you buy the same stock in a registered account then you are screwed.
So transfer in kind to/from registered account is in fact UNFAIR, and that’s just another deficiency of the Canadian tax law.
Ok, I am stupid and mess my life saving. Anyway, I am unable to find straight answer here.
Can I claim the loss that I made by purchasing stock in TFSA?
And if I transfer TFSA loosing stock to non registered account and then sell that stock, can I claim the loss?
I mess up big time, I am doing lot of trading in TFSA thinking I can regain my losses but I might get tax on it as CRA might think I am doing day trading. Is there a way to explain to CRA?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
What if you do it differently, rather than transfer in kind buy in your registered account and then sell the same stock a few days later in your unregistered account.
Example:
On January 1st, you deposit cash to your TFSA and buy 60 shares of stock X for $100.00 a share.
On January 2nd you sell 60 shares of stock x in your non-registered account.
Is the 30 day delay still required if you complete the transaction in this order?
I am not concerned with trading fees as they are only $10.00 per trade.