Q. I bought stocks through a private placement last year and was given a stock certificate which I have to hold for five months. At the end of April, I will be able to credit my TFSA with these shares. However, these shares have gone up in value. If I provide enough proof of purchase, would the broker credit these shares to my TFSA at book value or does it have to be at market value?
– Thank you very kindly, Rafael
A. Sorry Rafael, you are going to have to pay the tax. Your transaction is considered a transfer to a registered account and the assets will be deemed to have been disposed of (sold) at their fair market value.
There’s not a lot you can do in this case but consider the basic formula for determining a capital gain or loss:
The capital gain/loss = The proceeds of the distribution (sale value) – adjusted cost base (what you paid for it) – outlays and expenses.
The formula is important because if you can work the formula, you may be able to reduce your taxes. You probably can’t adjust the sale price or what you paid for the shares, but what about the expenses? Did you have to pay your broker anything when you purchased the shares? What about when you transfer the shares? Subtract those costs from the transfer value and you’ll reduce the tax owing.
If it’s any consolation, it will be capital gains tax you’ll have to pay so only 50% of the gain is taxable.
Do you have RRSP room? Would it make sense for you to make an in-kind transfer to your RRSP instead? You’ll still have to pay the capital gains tax on the transfer.
I don’t know the value or purpose of your stock holding but the RRSP tax refund will be larger than the capital gains tax owing. You could use the remaining RRSP tax refund to contribute to your TFSA. This approach will leave you with more money invested.
With either approach, you’ll have to pay the capital gains tax on the transfer. The good news is you made money on your stock purchase.
Allan Norman, M.Sc., CFP, CIM, is a certified financial planner and chartered investment manager at Atlantis Financial/IPC Investment Corp.
MORE ABOUT ASK AN INVESTMENT EXPERT:
- The best way to dump an advisor and mutual funds
- GICs have a hidden commission
- Am I protected if my brokerage goes bankrupt?
- How much of my investments should be in gold?