Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

A few years ago, I sold the stocks in my tax-free savings account and withdrew the cash for a down payment on a home. Now, I want to move some of my non-registered assets back into my TFSA and use up the available contribution room. My understanding is that I must sell the holdings in my non-registered account first – which would trigger capital gains taxes – before contributing the cash to the TFSA and repurchasing the shares. Alternatively, I was considering waiting until a future maternity leave when my income is lower, hoping to lessen the tax implications. Any advice?

First, a clarification: You do not need to sell and repurchase your investments. You can transfer the shares “in-kind” to your TFSA, which will avoid brokerage commissions. However, when you transfer shares in-kind to your TFSA (or registered retirement savings plan), for tax purposes you must still report the transfer as if it were a sale, using the fair market value of shares at the time of the transfer as the “sale” price to calculate your capital gain. (Only 50 per cent of capital gains are added to your income and taxed.)

If you transfer shares with unrealized losses, however, you are not permitted to use those losses for tax purposes to offset your capital gains. That’s because, when you maintain ownership of the shares, the Canada Revenue Agency considers it a “superficial loss." If you have shares with unrealized losses, you may be better off selling the stocks first and contributing the cash to your TFSA so that you can claim the loss. Keep in mind that, to avoid triggering the superficial loss rule, you must wait at least 30 days before repurchasing the same security in your TFSA. Alternatively, you could purchase a similar but not identical security immediately in your TFSA without triggering the superficial loss rule.

Story continues below advertisement

If you expect to have a lower marginal tax rate soon – say in the next year or two – waiting to do the in-kind transfer could make sense. However, consider that you will be paying taxes on any investment income received while your stocks remain in your non-registered account. So, if the timing of your maternity leave is uncertain, you may wish to consider doing the in-kind transfer now.

It’s also important to consider how much your marginal tax rate will actually drop when you take a leave. “She’ll probably be getting employment insurance maternity benefits … and her employer [may] top up her maternity benefits. Perhaps her income won’t be that much lower,” said Dorothy Kelt of TaxTips.ca. That would also strengthen the argument for transferring the shares now.

Another option is to make an in-kind contribution to your registered retirement savings plan, assuming you have room available. Because RRSP contributions are deducted from income, “an RRSP contribution of some of the investments would help offset the income from capital gains,” Ms. Kelt said. However, “if she’s in the lowest tax bracket then TFSAs are the best option.”

There are a lot of variables to consider, and I suggest you run some different scenarios to see which is likely to produce the most beneficial results for you.


I am looking for an exchange-traded fund that pays a dividend every month to help make up for my lost job. I noticed that the iShares Diversified Monthly Income ETF (XTR) has a yield of about 5.8 per cent, which seems pretty good. However, it also has a management fee of 0.55 per cent plus a management expense ratio of 0.62 per cent. This adds up to 1.17 per cent, which sounds more like a mutual fund. Am I making a mistake in my calculation or is that correct?

You are making a mistake. The MER, which measures the annual cost of owning a fund, includes the management fee (plus the fund’s operating costs and taxes). So you’ll be paying roughly 0.62 per cent in costs annually to own XTR, not 1.17 per cent.

Now for the bad news. XTR’s holdings – which consist of eight other ETFs that invest in Canadian and U.S. stock and bonds – don’t generate enough income to cover XTR’s high yield. In 2019, roughly 46 per cent of XTR’s monthly distribution of five cents a unit consisted of return of capital, or ROC. (This information can be found in BlackRock Canada’s “Tax Information Centre” under “2019 Distribution Characteristics.")

Story continues below advertisement

ROC is the portion of a distribution that doesn’t consist of dividends, interest or realized capital gains. To generate its 5.8-per-cent distribution, XTR is augmenting the income generated by the underlying ETFs by paying you with a portion of your capital in the fund. This is money that would otherwise remain invested in the fund and grow over time.

When a fund pays out a significant amount of ROC, it often exerts a drag on the unit price. This is precisely what has happened in XTR’s case: The units, which closed Friday at $10.25, are trading about 10 per cent lower than they were a decade ago. That doesn’t mean investors lost money, though, because they collected distributions along the way.

The lesson here is that, when an ETF pays an unusually high distribution, you need to dig a little deeper to see how the yield is being generated. A large amount of ROC isn’t necessarily a bad thing, but you should understand that in exchange for receiving a high payout now you’re sacrificing growth in your capital over the long run.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies