Last week's column about tax-loss selling prompted lots of questions from readers. Today, I'll answer several of them.
If I sell shares for a loss in my non-registered account and then decide to repurchase them in the same account before the required 30 days have passed, what happens?
Although you cannot claim a capital loss in that situation, you're not completely out of luck: You are permitted to add the loss to the adjusted cost base of the shares you own. That will reduce your capital gain (or increase your capital loss) when you ultimately sell the shares.
My wife has a mix of Canadian and U.S. stocks held in her taxable account. If we sell some of the U.S. stocks at a loss, could the losses be used to offset gains on her Canadian or U.S. winners?
Yes. It also works the other way around: Losses on Canadian stocks can be used to offset gains on U.S. stocks. Just be sure to calculate the loss or gain on your U.S. stocks properly. To do this, you must calculate both the cost and the proceeds in Canadian dollars, using the exchange rate that was in effect at the time of the purchase and the sale, respectively. Any brokerage commissions can be added to the purchase cost or subtracted from the sale proceeds.
What if I buy a security in a registered retirement savings plan (RRSP) or tax-free savings account (TFSA) that I already own in an unregistered account, then sell the shares in the unregistered account? Can I claim the capital loss in that situation and get around the "30-day rule" pre-emptively?
No. According to the Income Tax Act, if you sell shares at a loss but you (or an affiliated person) purchase identical shares within 30 calendar days either before or after the sale – and you still maintain control of the shares at the end of that period – the loss is considered a "superficial loss" that cannot be used to offset capital gains. An affiliated person can include a spouse, common-law partner or a corporation controlled by you or a spouse.
In January, 2017, I transferred almost $5,500 worth of a stock, at a loss, from my non-registered account to my TFSA. The shares were deemed to be sold, while their market value was deemed to be a TFSA contribution for 2017. Can I claim a capital loss on these shares?
No. Since you transferred the shares to your TFSA and maintained control of them, in the eyes of the Canada Revenue Agency you didn't actually sell them and therefore you cannot claim a capital loss. In the future, you could instead sell shares at a loss in your non-registered account, contribute the cash to your TFSA and then repurchase the shares after 30 days. That would allow you to use the capital loss to offset capital gains. As discussed in last week's column, another option is to sell the shares and then purchase a similar, but not identical, security, in which case you would not have to wait 30 days for the loss to be allowed.
When you make an in-kind withdrawal from a registered retirement income fund (RRIF) to a non-registered account and then transfer the shares to your TFSA, what are the tax implications if the stock has either a gain or loss in your RRIF?
The tax consequences of an in-kind withdrawal of shares from your RRIF are no different from a withdrawal of cash. In either case, the amount withdrawn is added to your taxable income for the year. (With an in-kind withdrawal, the dollar value of the withdrawal is determined by multiplying the number of shares by the stock's market price at the time of transfer.)
Whether the shares had a gain or loss inside the RRIF is irrelevant because, apart from withdrawals, RRIF accounts are non-taxable. Furthermore, immediately transferring the shares to a TFSA does not get around the tax consequences; the amount withdrawn from the RRIF is still added to your income. Also keep in mind that, if your RRIF withdrawal exceeds the mandatory minimum withdrawal requirement for the year, tax will be withheld on the excess amount.