# TFSA-End of year take-out to reinvest?



## DavidJD (Sep 27, 2009)

Is anyone considering pulling out some of their TFSA holdings before Dec.31/2010, to replace or swap with more suitable investments (based on tax implications) in the new year? 

Perhaps to build some contribution room before the end of year so you can use it in early 2011?

I am exploring a couple of 'balancing' alternatives with my overall portfolio.


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## slacker (Mar 8, 2010)

Yes I am. I have mostly bonds and REIT's in TFSA right now. I'm starting to save up for house downpayment, so I'm thinking it may be better to swap the REIT and Bonds out of TFSA, and swap in the cash savings.

Does that make any sense?


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## the-royal-mail (Dec 11, 2009)

How about taking $5K out of TFSA now and applying it to RRSP for 2010? Use the tax "refund" from the RRSP to replenish some of the money in the TFSA after the 1st of the new year.


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## Sampson (Apr 3, 2009)

DavidJD said:


> Is anyone considering pulling out some of their TFSA holdings before Dec.31/2010, to replace or swap with more suitable investments (based on tax implications) in the new year?


Why do you have to move the holdings out of the account?

Is it transactions costs?

Just buy what you want to eventually hold in the TFSA outside in a non-registered account, then do an asset swap of what you want moved out.

Takes only one phone call, a call you would make to withdraw monies from the TFSA anyway.


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## DavidJD (Sep 27, 2009)

Sampson said:


> Just buy what you want to eventually hold in the TFSA outside in a non-registered account, then do an asset swap of what you want moved out.


True - I am also looking at various angles. Timing may work in my favour - if TFSA contents are at a high and other items I want to transfer in are at lows, but equivalent value - I may do a swap. However if the items I want to replace in my TFSA are also high, I may want to take my time to accumulate/transfer in when I can put the most in...

I will do whatever reduces the fees related to swaps/transfers-in i.e. fewest trades.
I have one free withdrawal at TDW/yr - additional withdrawals are $25
I hold some Canadian dividend paying stock that are quite high in value in an unregistered acct and would have NO tax on the dividends in the TFSA. I would incur a gain transfering in...
I have over $40K in the TFSA right now and want to diversify or at least increase my holdings within it as much as possible.

When the account opened in 2009 I timed it to within a day to transfer in $5K worth of stock at a 52-week low which has paid off nicely. 

I hadn't thought of the RRSP switcheroo...very good idea for some.


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## OhGreatGuru (May 24, 2009)

DavidJD said:


> ...
> I have over $40K in the TFSA right now and want to diversify or at least increase my holdings within it as much as possible.
> 
> When the account opened in 2009 I timed it to within a day to transfer in $5K worth of stock at a 52-week low which has paid off nicely.
> ...


Let's see: 
- by fortunate investing and/or good luck, you have made 300% tax-free capital gains in 2 years;
- you have accumulated an amount in your TFSA that is 4 times what someone opening a TFSA today would be entitled to contribute;
- and you want to further manipulate your holdings to avoid even more taxes.

You have pretty well outlined some of the major problems with TFSAs from a social/fiscal policy perspective. Keep up the good work and hurry the government on its way to either tightening the rules or getting rid of TFSAs.


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## Cal (Jun 17, 2009)

Double check on your TD transaction costs, they recently reduced the transactions fees for trades if you hold enough $ worth in various TD accounts. 

Not sure how your overall portfolio is balanced, but this may be a good time to rebalance.


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## patmanz (Jul 26, 2010)

OhGreatGuru said:


> Let's see:
> - by fortunate investing and/or good luck, you have made 300% tax-free capital gains in 2 years;
> - you have accumulated an amount in your TFSA that is 4 times what someone opening a TFSA today would be entitled to contribute;
> - and you want to further manipulate your holdings to avoid even more taxes.
> ...


keep up the good work +1

wondering what kind of investment you are holding, speculative equities or just good timing entered at the bottom on the last "crash" ?


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## patmanz (Jul 26, 2010)

DavidJD said:


> I hadn't thought of the RRSP switcheroo...very good idea for some.


Me neither, this is good stuff.


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## Eclectic12 (Oct 20, 2010)

slacker said:


> Yes I am. I have mostly bonds and REIT's in TFSA right now. I'm starting to save up for house downpayment, so I'm thinking it may be better to swap the REIT and Bonds out of TFSA, and swap in the cash savings.
> 
> Does that make any sense?


Huh? I'm not sure what you are trying to accomplish.

Also - while the REIT is in the TFSA, you don't have to worry about Return of Capital (ROC), re-calculating your Adjusted Cost Base (ACB) each year and potentially reporting the ROC as a capital gain each year.

Why would you want to go back to those calculations?

Of course - the other question is whether the REIT is truly a REIT or it's an income trust that's in progress of converting back to a corporation.


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## slacker (Mar 8, 2010)

@electic: I'm trying to reduce taxes on the cash holdings. Say I have $40k in cash waiting to be deployed in a house downpayment. Does it make sense to hold it in my TFSA? where I'm current holding bond fund, and REIT? (when I say REIT, I mean REIT)

I can do math, so the ACB calculations is not a big deal.


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## Cal (Jun 17, 2009)

slacker said:


> Yes I am. I have mostly bonds and REIT's in TFSA right now. I'm starting to save up for house downpayment, so I'm thinking it may be better to swap the REIT and Bonds out of TFSA, and swap in the cash savings.
> 
> Does that make any sense?


No. Keep the stuff earning you money protected in the TFSA. If the $ is in a 'high' yield non registered account keep it there. Your interest is minimal.

I can only assume that your REIT is earning more than the 2% that your high yield account would earn. So protect the investment that is making you money.


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## DavidJD (Sep 27, 2009)

OhGreatGuru said:


> Let's see:
> - by fortunate investing and/or good luck, you have made 300% tax-free capital gains in 2 years;
> - you have accumulated an amount in your TFSA that is 4 times what someone opening a TFSA today would be entitled to contribute;
> - and you want to further manipulate your holdings to avoid even more taxes.
> ...


TFSAs are new. They cannot be perfect at the beginning and the feds have shown that they are willing to make adjustments. Loop holes that some have taken advantage of have been closed (over contibutions with minimal penalties etc) I follow the rules. If the rules are the same for all Canadians than I have no qualms about any success I may have. My dramatic increase in value is absolutely related to high risk. If you are not willing to take the risk than you cannot begrudge others who do, when it pays off. Do you begrudge those who take on high risk and lose?

By the way it is only on paper...



I am very confident that the contribution room will be tightened in the coming years.


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## warp (Sep 4, 2010)

Care to let us know what "risky " things you bought that turned your TFSA into $40K ?

I thought I was doing well with 40-50% gains in several TFSA's I watch over.

( of course in other TFSA's I watch over, I have done much less well.)


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## Y&T2010 (Dec 29, 2009)

Yeah, wow $40K in a TFSA? That is an out-of-this-world investment 

I thought I was doing well with my 30% since January lol.

I ended up selling all of my TFSA's for a down payment just a few weeks ago and plan to reinvest back in January.
Most of my TFSA's were income trusts too, so I didn't want to be sticking around with the drama that might unfold when they incorporate and slash their distributions.


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## Eclectic12 (Oct 20, 2010)

slacker said:


> @electic: I'm trying to reduce taxes on the cash holdings. Say I have $40k in cash waiting to be deployed in a house downpayment. Does it make sense to hold it in my TFSA? where I'm current holding bond fund, and REIT? (when I say REIT, I mean REIT)
> 
> I can do math, so the ACB calculations is not a big deal.


I had a long message written but then noticed the following in Canada Revenue Agency's web site:

"The proposed amendments would effectively prohibit asset transfer transactions between registered or *non-registered accounts* and *TFSAs*."

More Info: http://www.fin.gc.ca/n08/09-099-eng.asp

Note that according to the following site, the new rules when passed will apply to transactions after Oct 16th, 2009. So it appears that the advantages of a swap are likely already gone.
http://www.taxtips.ca/tfsa.htm


A sale within the TFSA and withdrawal is okay - but then why sell a high paying asset that is tax sheltered before you need to? 

As for the REIT ACB calculations - yes the math is simple, I just find it a pain to remember each year to find the amount of ROC the trust reported, recalculate the ACB and confirm that as the ACB is still positive. If the ACB is zero or negative, then the ROC is reported as a capital gain.

I much prefer a corporation where the ACB is calculated only when I have a transaction. In some cases, that's twice in ten years instead of every year.


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## the-royal-mail (Dec 11, 2009)

I was thinking of cashing out some of the money from my TFSA in December and using it for my RRSP, get the tax refund and then apply that to replenish some of the missing money from the TFSA in January.

Legal?


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## HaroldCrump (Jun 10, 2009)

the-royal-mail said:


> I was thinking of cashing out some of the money from my TFSA in December and using it for my RRSP, get the tax refund and then apply that to replenish some of the missing money from the TFSA in January.
> 
> Legal?


Yes


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> I was thinking of cashing out some of the money from my TFSA in December and using it for my RRSP, get the tax refund and then apply that to replenish some of the missing money from the TFSA in January.
> 
> Legal?


The way I read the article on the changes - yes.

I haven't had time to read the explanatory notes or call CRA but the changes seemed to be aimed at asset swaps or transactions that generate additional TFSA contribution room. 

Pulling cash out in Dec and putting it back from you tax refund is a dollar for dollar situation.


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## DavidJD (Sep 27, 2009)

the-royal-mail said:


> How about taking $5K out of TFSA now and applying it to RRSP for 2010? Use the tax "refund" from the RRSP to replenish some of the money in the TFSA after the 1st of the new year.


Now this is the kind of thinking that I come to this forum for!

Let's give TRMail credit for this so that when it is picked up by the investing column writers in the FPost and G&Mail (G.Pape's next book) we will all know where it came from.


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## the-royal-mail (Dec 11, 2009)

Thanks David, much appreciated.  

But how long do you give the feds to close this particular loophole now that it has been posted here?


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## Four Pillars (Apr 5, 2009)

the-royal-mail said:


> Thanks David, much appreciated.
> 
> But how long do you give the feds to close this particular loophole now that it has been posted here?


How on earth is this a loophole?

You are just giving the RRSP a higher priority than the TFSA and moving your money from the TFSA to the RRSP.

It's the same thing as if you had money saved up in an non-registered account (ie pre-tfsa days) and then made an RRSP contribution in the beginning of the year, and then put the refund back in the open account (or in your mortgage or whatever).

That said, it does sound catchy and makes you feel like you are doing something clever. Financial advisors are usually the ones who have these sort of "strategies" - they'll love this one.


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## DavidJD (Sep 27, 2009)

Agreed. No loophole just an understanding of the programs and a concious decision to let the rules apply to your actions.

This is about as much of a loop hole as the First Time Homebuyer Plan and the use of RRSPs.

If anything the gov gets what they want (and encourage) a larger contribution to your RRSP (and the future taxes that will apply upon withdrawal) and your refund is what you are entitled to based on your tax return etc. 

I still think there is more out there to discover.

I hope to get 80%+ of my investing into either RRSPs or TFSAs - but mainly in TFSAs.


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## HaroldCrump (Jun 10, 2009)

I agree..there is no loophole.
Ideally, you shouldn't even have a refund on your taxes of you knew in advance how much you were going to make that year and how much RRSP you would contribute.


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## the-royal-mail (Dec 11, 2009)

HaroldCrump said:


> I agree..there is no loophole.
> Ideally, you shouldn't even have a refund on your taxes of you knew in advance how much you were going to make that year and how much RRSP you would contribute.


That's true. What many of us think as a refund is actually getting back, with no interest payable, the excess tax that was kept from us at source throughout the year.

This may be my shortcoming, but I don't like recurring costs and try to avoid them. I prefer to save the money first to do something, then when the money is saved, use it and pay cash in one shot. So for RRSPs, through the year I save save save, then put $x in before the deadline and get a refund after my taxes are done. It's just how I do things, not saying it's the right or best way.


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## slacker (Mar 8, 2010)

@Electic: Thanks for pointing that out !!


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