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 and what we intend to do in the future!
I’ve also updated how I manage our dividend reinvestment plans (DRIPs) across our investment accounts, including inside the TFSA and how we intend to continue funding our TFSA in the future now that we’re no longer working.
Read on!
“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!
Answer #1 – Is this 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 my reasoning behind registered investing first vs. taxable investing:
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 actually didn’t eat my own cooking.
The TFSA wasn’t around so taxable investing after my RRSP was contributed is what I did.
Then, as of 2009, the TFSA arrived.
Since 2009 we’ve MAXED out both of our TFSAs as an investment account and been rewarded accordingly with lots of growth.
Ultimately, I believe your desire to invest inside your TFSA, RRSP (and RESP if you have kids) is a personal decision but I’m biased to always making contributions to the TFSA first, then RRSP in that order.
The TFSA is a gift of an account for all adult Canadians to use.
Answer #2 – Will it trigger a capital gain (if I sell)? If so, is that reportable to CRA?
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 years ago, 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.
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 know when you transfer shares / make an in-kind transfer to your TFSA 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) in your non-registered account 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.
Answer #3 – 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 refer to folks to sites like these for support:
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.
That means we’ve turned off DRIPs in our non-registered accounts for a few years now for these reasons in retirement:
- Income comes into our taxable accounts every month, to spend as we please.
- No need to maintain ACB calculations.
Very simple in retirement.
As part of our plan to make future (i.e., 2027) TFSA contributions, we are very likely to sell some non-registered stocks in early 2027, pay our capital gains, and move the proceeds to the TFSA. This will help us shift taxable assets to tax-free assets over a period of many years.
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 about in-kind contributions to a TFSA – including what happens if your investments have gone down in value – from the Canada Revenue Agency when in doubt.
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).
Good luck with your decision and thanks for reading.
I welcome all other comments on this process as well including our approach for 2027 TFSA funding.
Mark
Mark
My name is Mark Seed – the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I’ve reached financial independence and I’ve retired from the workforce in my early 50s. Now, I share my lessons learned for free on this site. Join the newsletter read by thousands every week.
