Moving stock from normal investment account to a Tax Free Savings Account?
Moving stock from normal investment account to a Tax Free Savings Account?
This is technically a question specific to Canada but maybe it can be applied to other countries as well.
I have a fixed number of stocks in a regular investment account and in a Tax Free Savings Account (TFSA). For non-Canadians the TFSA is like a personal investment account except there is no capital gains tax. Last year I maxed out my contributions to my TFSA but I wanted to save more money so I put some funds into a personal investment account. This year due to the economy I can't save as much so I have extra contribution room in my TFSA. So my question is, should I just sell all my shares in my personal investment account, transfer the money to my TFSA account and buy the same stocks there? Are there any downsides to doing this?
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Please forgive me for doing a straight paste from the Canada Revenue Agency page:
"You can also make "in kind" contributions (for example, securities you hold in a non-registered account) to your TFSA, as long as the property is a qualified investment.
You will be considered to have disposed of the property at its FMV at the time of the contribution. If the FMV is more than the cost of the property, you will have to report the capital gain on your income tax and benefit return. However, if the cost of the property is more than its FMV, you cannot claim the resulting capital loss. The amount of the contribution to your TFSA will be equal to the FMV of the property."
Ok but this is pretty much a no brain decision right? Maybe it seems like this move is only positive and has no down sides.
The downsides are having to report Capital Gain, and losing the ability to report Capital Loss.
You just weigh those costs (tax owing for capital gain, or loss of tax credit for capital loss) to see if they are sufficiently offset by the expected returns.
I would personally just sell and move cash, that way I know what capital gain or loss to expect.
All things considered, I would too.