TFSA Contribution Superficial loss Rule (I did something incredibly stupid today)

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TFSA Contribution Superficial loss Rule (I did something incredibly stupid today)

Post  Max on Fri Jan 28, 2011 1:07 am

When contributing "in-kind" (transferring stock into a TFSA instead of cash), you have to be careful.

When you transfer in stock that has an accrued gain, for tax purposes it is considered a sale (with full tax consequences) and then a repurchase inside the TFSA where it is sheltered from further tax consequences.

However, when you transfer stock that has an accrued loss, it works differently. The CRA decides that any accrued losses are not deductible and your cost basis carries forward into the TFSA. What this means is that effectively you are in the same position as if you had originally purchased the stock inside the TFSA.

What this means for me is that I converted a $2,000 capital loss into a non-taxable loss and as a consequence, I lose approx 30% x $2,000 x 50% capital gain taxable amount = $300 (I pay more taxes than I otherwise would have).

All because of a paper transaction that has no consequences to anyone but the CRA. My excuse: I forgot.

Max
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Re: TFSA Contribution Superficial loss Rule (I did something incredibly stupid today)

Post  Fred on Fri Jan 28, 2011 4:57 am

My solution: Don't sell it now. If you feel the stock has potential to recover, then hang on to it... otherwise, if you sell you are locking in those losses.

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Re: TFSA Contribution Superficial loss Rule (I did something incredibly stupid today)

Post  Max on Fri Jan 28, 2011 11:02 am

I guess you are right. If I eventually gain money on the stock, there would be no loss and the conversion from taxable to non-taxable would be advantageous. Still, it was poor tax planning and I should have known better.

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Re: TFSA Contribution Superficial loss Rule (I did something incredibly stupid today)

Post  Max on Thu Mar 17, 2011 1:37 am

Happy ending. I sold at a gain and therefore the superficial loss rule is irrelevant.

Max
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Re: TFSA Contribution Superficial loss Rule (I did something incredibly stupid today)

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