I think Mr. Cestnick is wrong as well. I believe capital loss will be denied under the superficial loss rules if the same security is sold in a taxable account and immediately purchased in a TFSA.
Trigger tax loss with tsf to TFSA
Cesnick in the G&M today claims you can:
"3. Trigger tax losses. If you're thinking of selling a security that has dropped in value in order to use the capital loss, but you like the future prospects of the investment, consider selling the security outside your TFSA, then contribute the cash to your TFSA and repurchase the investment inside the TFSA. The future growth of the investment will be tax sheltered."
Now my tax knowledge is very old, but still I question this, mainly because I have heard the same advice applied to transfers in kind, or repurchases, to RRSPs. I am not going to look up the exact wording yet again about superficial losses, which I am sure have not changed. It says the loss is denied when there is a transfer to a RELATED PARTY.
Certainly the RRSP owner is related to you and the TFSA owner is related to you. So I can only conclude this not only will not allow the loss, but will make the loss forever lost.
Anyone with up-to-date tax info?
"3. Trigger tax losses. If you're thinking of selling a security that has dropped in value in order to use the capital loss, but you like the future prospects of the investment, consider selling the security outside your TFSA, then contribute the cash to your TFSA and repurchase the investment inside the TFSA. The future growth of the investment will be tax sheltered."
Now my tax knowledge is very old, but still I question this, mainly because I have heard the same advice applied to transfers in kind, or repurchases, to RRSPs. I am not going to look up the exact wording yet again about superficial losses, which I am sure have not changed. It says the loss is denied when there is a transfer to a RELATED PARTY.
Certainly the RRSP owner is related to you and the TFSA owner is related to you. So I can only conclude this not only will not allow the loss, but will make the loss forever lost.
Anyone with up-to-date tax info?
1 - 11 of 11 Posts
From this post: http://www.canadiancapitalist.com/superficial-loss-rules-regarding-rrsps/
"After March 2004, CRA considers a loss as superficial if “a trust and its majority interest beneficiary (generally, a beneficiary who enjoys a majority of the trust income or capital) or one who is affiliated with such a beneficiary” buys (or has the right to buy) a property during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale."
I think a TFSA would also fall under CRA's definition of a trust with a majority interest beneficiary.
"After March 2004, CRA considers a loss as superficial if “a trust and its majority interest beneficiary (generally, a beneficiary who enjoys a majority of the trust income or capital) or one who is affiliated with such a beneficiary” buys (or has the right to buy) a property during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale."
I think a TFSA would also fall under CRA's definition of a trust with a majority interest beneficiary.
I'm pretty sure "Superficial Loss Rule" applies to TFSA as well.
Here's one answer from Canadian Tax Resource site
And here's the official Income Tax Act version on limitations;
Here's one answer from Canadian Tax Resource site
In Kind Transfers to TFSA
One question we receive frequently is how to contribute investments from non-registered accounts in kind to the TFSA.
A few years ago the superficial loss rules were changed to prevent people from selling securities at a loss and contributing the cash to an RRSP and buying the same security.
Prior to the change you could technically sell for cash, contribute the cast to an RRSP and repurchase the security and use any losses in the transaction. The CRA had stated however, that the general anti avoidance rule (GAAR) may apply and deny the loss anyway.
The superficial loss rule denies the loss if the taxpayer or a person affiliated with the taxpayer repurchases the security within 30 days. The amendment to the law in 2005 changed the meaning of affiliated person to include a taxpayer and a trust that they have a majority interest in. Since RRSPs, RRIFs, and the TFSA are trusts the superficial loss rules apply.
The sections of the act via the Minister of Justice website are as follows: S.54 “Superficial Loss, S.241(1)(g) “Affiliated Personas” and 146.2 “TFSA”.
One question we receive frequently is how to contribute investments from non-registered accounts in kind to the TFSA.
If you contribute investments “in-kind” to a TFSA you are considered to have sold the investment for its fair market value. If there is a capital gain, you will be taxed on the gain. However, if there is a loss the loss is denied and you cannot apply it against capital gains.
Similarly, if you sell your investment and there is a capital loss and then you repurchase the same investment in your TFSA within 30 days of the sale, your loss will be denied and it cannot be used. You can wait 31 days before repurchasing the investment.
Similarly, if you sell your investment and there is a capital loss and then you repurchase the same investment in your TFSA within 30 days of the sale, your loss will be denied and it cannot be used. You can wait 31 days before repurchasing the investment.
A few years ago the superficial loss rules were changed to prevent people from selling securities at a loss and contributing the cash to an RRSP and buying the same security.
Prior to the change you could technically sell for cash, contribute the cast to an RRSP and repurchase the security and use any losses in the transaction. The CRA had stated however, that the general anti avoidance rule (GAAR) may apply and deny the loss anyway.
The superficial loss rule denies the loss if the taxpayer or a person affiliated with the taxpayer repurchases the security within 30 days. The amendment to the law in 2005 changed the meaning of affiliated person to include a taxpayer and a trust that they have a majority interest in. Since RRSPs, RRIFs, and the TFSA are trusts the superficial loss rules apply.
The sections of the act via the Minister of Justice website are as follows: S.54 “Superficial Loss, S.241(1)(g) “Affiliated Personas” and 146.2 “TFSA”.
And here's the official Income Tax Act version on limitations;
Income Tax Act s. 40(2)
(g) a taxpayer’s loss, if any, from the disposition of a property, to the extent that it is
(g) a taxpayer’s loss, if any, from the disposition of a property, to the extent that it is
(i) a superficial loss,
(ii) a loss from the disposition of a debt or other right to receive an amount, unless the debt or right, as the case may be, was acquired by the taxpayer for the purpose of gaining or producing income from a business or property (other than exempt income) or as consideration for the disposition of capital property to a person with whom the taxpayer was dealing at arm’s length,
(iii) a loss from the disposition of any personal-use property of the taxpayer (other than listed personal property or a debt referred to in subsection 50(2)), or
(iv) a loss from the disposition of property to
is nil;(ii) a loss from the disposition of a debt or other right to receive an amount, unless the debt or right, as the case may be, was acquired by the taxpayer for the purpose of gaining or producing income from a business or property (other than exempt income) or as consideration for the disposition of capital property to a person with whom the taxpayer was dealing at arm’s length,
(iii) a loss from the disposition of any personal-use property of the taxpayer (other than listed personal property or a debt referred to in subsection 50(2)), or
(iv) a loss from the disposition of property to
(A) a trust governed by a deferred profit sharing plan, an employees profit sharing plan, a registered disability savings plan, a registered retirement income fund or a TFSA under which the taxpayer is a beneficiary or immediately after the disposition becomes a beneficiary, or
(B) a trust governed by a registered retirement savings plan under which the taxpayer or the taxpayer’s spouse or common-law partner is an annuitant or becomes, within 60 days after the end of the taxation year, an annuitant,
(B) a trust governed by a registered retirement savings plan under which the taxpayer or the taxpayer’s spouse or common-law partner is an annuitant or becomes, within 60 days after the end of the taxation year, an annuitant,
OMG we all agree. That's no fun.
What if you already have enough cash in your TFSA, buy the investment then sell it in the non-registered account afterwards, then contribute the cash from that sale into your TFSA? Would the loss be denied if the sale occurred after you bought it in another account?
There are no losses/gains within TFSA. The loss/gain from your personal holding is calculated and triggered at the time of transfer ( or outright sale and repurchase) to the TFSA. There is what is called a deemed disposition. The superficial loss rules apply to THAT transaction.
Maybe you guys can get together and hug each other.OMG we all agree. That's no fun.
i think sparky is onto something.
i believe scenario is analogous to the swing trader who buys & adds 500 shares to an existing holding of 1000 shares. His purpose is to improve his portfolio, but it also happens that in carrying out this purchase, he has adjusted his unit cost downwards. He has owned the existing holding for several years. The aggregate of 1500 shares is now trading at a paper loss to his cost. A few days later he sells 500 shares to crystallize a loss on those shares. The 500 are not subject to the superficial loss rules because they came from the older holding of 1000 shares. He is free to repurchase them within the 30-day limit.
we are now veering close to US swing traders who maintain older core position inventories around which they conduct partial trades, thus always avoiding short-term gains with their high US taxation rate.
so the individual who pre-buys in his tfsa, waits a day or 2, or possibly past settlement, then sells in his non-registered account is merely responding to market circumstances, not avoiding superficial loss rules ...
i believe scenario is analogous to the swing trader who buys & adds 500 shares to an existing holding of 1000 shares. His purpose is to improve his portfolio, but it also happens that in carrying out this purchase, he has adjusted his unit cost downwards. He has owned the existing holding for several years. The aggregate of 1500 shares is now trading at a paper loss to his cost. A few days later he sells 500 shares to crystallize a loss on those shares. The 500 are not subject to the superficial loss rules because they came from the older holding of 1000 shares. He is free to repurchase them within the 30-day limit.
we are now veering close to US swing traders who maintain older core position inventories around which they conduct partial trades, thus always avoiding short-term gains with their high US taxation rate.
so the individual who pre-buys in his tfsa, waits a day or 2, or possibly past settlement, then sells in his non-registered account is merely responding to market circumstances, not avoiding superficial loss rules ...
OK I just figured out what you two are referring to.
Sparky, No your idea won't work because the government already thought of it. The rules say you cannot buy the 'replacement' security before (preemptive) OR after (30 days both ways) the sale that triggers a tax loss.
Humble, waiting a few days won't cut it. But you can always get away from the superficial loss rules by either
* waiting the 30 days with no position before buying the replacement, or by
* doubling your position for 30 days and then making the sale of half that will trigger the tax loss.
Neither probably makes investing sense and neither needs an RRSP or TFSA to do it.
There is no exception that allows you to sort of allocate the shares you sell back to a specific purchase as you implied: "because they came from the older holding". They are all the same security in the same pot. The superficial loss rules would catch the guy twice in your scenario. Once because he bought the 'replacement' 500 shares within the 30 day window before the sale triggering the tax loss. And again when he buys another 'replacement' 500 shares within the 30 day window after the sale.
The government does not treat each situation according to people's intent as you imply: "merely responding to market circumstances". The rules are specific. There is only one 'strategy' using the superficial loss rules that works for income splitting. This won't.
Sparky, No your idea won't work because the government already thought of it. The rules say you cannot buy the 'replacement' security before (preemptive) OR after (30 days both ways) the sale that triggers a tax loss.
Humble, waiting a few days won't cut it. But you can always get away from the superficial loss rules by either
* waiting the 30 days with no position before buying the replacement, or by
* doubling your position for 30 days and then making the sale of half that will trigger the tax loss.
Neither probably makes investing sense and neither needs an RRSP or TFSA to do it.
There is no exception that allows you to sort of allocate the shares you sell back to a specific purchase as you implied: "because they came from the older holding". They are all the same security in the same pot. The superficial loss rules would catch the guy twice in your scenario. Once because he bought the 'replacement' 500 shares within the 30 day window before the sale triggering the tax loss. And again when he buys another 'replacement' 500 shares within the 30 day window after the sale.
The government does not treat each situation according to people's intent as you imply: "merely responding to market circumstances". The rules are specific. There is only one 'strategy' using the superficial loss rules that works for income splitting. This won't.
http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html#P3498_137482 details what is determined as a superficial loss.
The easy solution to the issue appears to be waiting 31 days from the date of sale.
The easy solution to the issue appears to be waiting 31 days from the date of sale.
1 - 11 of 11 Posts
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