I recently gifted stocks, which had a market value below my cost price, to three of my four adult children. I planned to use the loss to offset capital gains I had last year, or to offset future gains. The fourth child chose not to receive the shares, so I sold the same number of shares that the others received, again generating a capital loss, and I paid him the cash.
When I told my accountant what I had done, she said that by giving the shares to the three children I could not use that loss for tax purposes, but I could do so where the stocks were sold and cash given to my son. However, my broker disagreed and said I could use the entire loss for tax purposes. Who’s right?
Your broker is correct. When you transfer securities to an adult child, in the eyes of the Canada Revenue Agency you are considered to have disposed of the shares. For tax purposes, it’s the same as if you had sold the shares at their market value at the time of the transfer.
If you have capital gains in the current year, you must first use the capital loss to offset those gains. Any remaining losses may be carried back up to three years or forward indefinitely to offset gains in those years.
It seems your accountant may have been confusing the gifting of stocks to your adult children with a “superficial loss.” A superficial loss occurs when you dispose of securities at a loss and you or a person affiliated with you purchases the same securities within 30 calendar days before or after the sale (and continues to hold them 30 days after the sale). According to the CRA, an affiliated person includes a spouse or common-law partner, for example, or a corporation controlled by you or your spouse.
If you transferred the losing shares to your spouse and elected to do so at their fair market value, this would also be considered a superficial loss because your spouse is an affiliated person. However, under CRA rules “the writer’s adult children are not affiliated persons,” said Dorothy Kelt of TaxTips.ca. The capital loss is therefore allowed, she said.
Can I transfer an exchange-traded fund in-kind out of my tax-free savings account and into my non-registered investment account? Or must I sell it first, transfer the cash and repurchase the ETF in the investment account to be considered as a withdrawal from a TFSA?
Yes, you can transfer assets in-kind from your TFSA to your non-registered account. You do not need to sell and repurchase the ETF. The withdrawal amount is equal to the fair market value of the investment at the time of transfer. Keep in mind that, when you make a TFSA withdrawal, whether in-kind or in cash, the amount is added to your TFSA contribution room, but not until on Jan. 1 of the year after the withdrawal. This is in addition to the annual dollar limit ($6,000 for 2020) that is also effective on Jan. 1 each year. I strongly suggest that you closely track your TFSA contributions and withdrawals so that you know your available contribution room, as the numbers provided by the CRA’s “My Account” service are often out of date. If you are planning to make an in-kind withdrawal from your TFSA, also remember that the cost base of the investment – which you’ll need to calculate your capital gain or loss when you eventually sell the ETF – is the market value at the time of the transfer, not the price you originally paid when you bought the ETF in your TFSA.
I bought CI First Asset Tech Giants Covered Call ETF (TXF) the day before its ex-dividend date of June 23. On that day it fell 51 cents or 2.9 per cent, even though the Nasdaq Composite Index was up 0.74 per cent. TXF usually tracks the Nasdaq pretty closely. What gives?
There’s nothing unusual going on here. TXF’s most recent distribution, of 48.12 cents a unit, was paid on June 30. To receive that payment, an investor had to be a shareholder of record on June 24 – the “record date.” But because it takes two days for a stock trade to settle – that is, for the cash and shares to actually change hands – the investor would have had to purchase the shares by June 22. The reason June 23 is called the “ex-dividend date” is that a buyer who purchased the shares on or after that date would not be entitled to receive the June 30 distribution. So, all else being equal, on the ex-dividend date one would have expected the price of TXF to fall by roughly the value of the distribution to reflect the fact that buyers on June 23 or later don’t receive the 48.12-cent payment. TXF fell by 51 cents that day, which is very close to the distribution amount.
E-mail your questions to firstname.lastname@example.org. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
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