# Does the current value of shares, or purchase price, count toward TFSA contribution?



## rnb (Sep 24, 2019)

Hi, I'm completely new to investing in any way and old enough to be embarrassed about that. Now that I'm climbing that learning curve and trying to get the shares/options I own into a trading account I realize the TFSA limit is something I need to consider up front. 

Backstory: I was older than 18 in 2009, and last week set up an iTrade account, put $10,000 into a tfsa, and bought some shares in 3 different companies (made $1k in a week...yay!). I also spent about $50k over the past three years on shares in the company I work for (and have about 80,000 options from them as well). I've foolishly done nothing with the share certificates and have been just sitting on them. The purchase price for the shares I bought I believe was $2 and the current value is $2.65ish. I'm pretty sure but would like some help confirming the best type of account to deposit so I don't incur tfsa penalties. At first I thought, "My TFSA contribution room is $53,500 after the $10k I already put in, so I should put all the shares I paid $50k for into the TFSA." Then it occurred to me that since the current share price is $2.65 putting them into the TFSA could be a really bad idea since their value is much more than what I paid, an certainly amounting to more than my TFSA contribution room of $53,000.

Would it be best to take my share certificates into iTrade and have $53,000 worth deposited into the TFSA itrade account (maxing my tfsa contributions)... and put the rest in the cash iTrade account? 

Hopefully I'm explaining that right, and thanks for any feedback/advice.


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## OnlyMyOpinion (Sep 1, 2013)

Welcome to CMF.
First, I assume your company is publicly traded/ listed, not still private.
Yes, you'll need to take your certificates in and sign them over to deposit them into your TFSA.
You are correct, the market value at the time they are deposited will be the 'contribution' amount.
You will also incur capital gains for that 'deemed disposition'. So come 2019 tax time you will have to report the capital gains in Schedule 3 of your tax return.
(you are taxed on half of the gain, the gain is 'selling' price minus the cost base of the shares).

A couple of other things:
1. It is great that you are saving and using up your TFSA space. But you can't claim losses in a TFSA if you sell shares in it at a loss ( it happens). So you may want to think about that.
2. Its ok to have some 'skin' in the game and have shares in your company but don't overdo it. If your company does well you'll be rewarded with your options and position/salary, but if the company does poor you have the potential to lose both your job and your savings. I am a fan of exercising those options and selling out those shares as they vest year to year and investing that money elsewhere.


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## Eclectic12 (Oct 20, 2010)

rnb said:


> ... Backstory: I was older than 18 in 2009, and last week set up an iTrade account, put $10,000 into a tfsa, and bought some shares in 3 different companies (made $1k in a week...yay!). I also spent about $50k over the past three years on shares in the company I work for (and have about 80,000 options from them as well). I've foolishly done nothing with the share certificates and have been just sitting on them. The purchase price for the shares I bought I believe was $2 and the current value is $2.65ish ...


Odd that they'd be issuing share certificates instead of having some sort of transfer agent have the info online like a brokerage. The certificates have the risk of losing them but overall, it is a loss of convenience.




rnb said:


> ... I'm pretty sure but would like some help confirming the best type of account to deposit so I don't incur tfsa penalties.


If you want to be 100% sure of on TFSA penalties, don't make any contributions to your TFSA. 




rnb said:


> ... At first I thought, "My TFSA contribution room is $53,500 after the $10k I already put in, so I should put all the shares I paid $50k for into the TFSA." Then it occurred to me that since the current share price is $2.65 putting them into the TFSA could be a really bad idea since their value is much more than what I paid, an certainly amounting to more than my TFSA contribution room of $53,000.
> 
> Would it be best to take my share certificates into iTrade and have $53,000 worth deposited into the TFSA itrade account (maxing my tfsa contributions)... and put the rest in the cash iTrade account?


Scotia iTrade should be able to tell you what the share value that will be considered a TFSA contribution is, based on what the shares are trading when deposited. As long as you highlight what the available TFSA contribution room is and check to make sure they stuck to it, you should be fine.

Since you mention a $10K TFSA contribution to have $53,500 left, it seems this is the first time you've made a TFSA contribution.
https://www.taxtips.ca/tfsa/contributions.htm


You are correct that the value the shares are trading at will be what the TFSA contribution amount will be. Keep in mind that you are deemed to have sold the shares that are contributed to the TFSA so with the trading value being greater than the purchase price, you will likely have a capital gain to report on your 2019 tax return (other capital losses may reduce it).

Make sure to transfer shares at a slight gain as transferring shares in a loss position means you lose the capital loss forever.
https://www.taxtips.ca/personaltax/investing/transfersharestorrsp.htm

What is in the TFSA needs to be something you are confident will gain over the long term as losses within the TFSA are useless, unlike losses in a taxable account. The few times I have done a transfer of shares, it has been shares that I am keeping for the long term, have confidence in the company and that were temporarily at a lower share price (which reduces the capital gain).

https://www.taxtips.ca/filing/capitallosses.htm


Cheers


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## fireseeker (Jul 24, 2017)

OnlyMyOpinion said:


> 2. Its ok to have some 'skin' in the game and have shares in your company but don't overdo it. If your company does well you'll be rewarded with your options and position/salary, but if the company does poor you have the potential to lose both your job and your savings. I am a fan of exercising those options and selling out those shares as they vest year to year and investing that money elsewhere.


This is, by far, the most valuable and important response to your question, rnb.
I echo OMO's advice, although I do so more stridently: Sell your shares.
Your "investment" in your company includes, say, your next 10 years of income. That might be $500,000. It might be $1 million. Plus there are all the options.
You do not need to put any more eggs in that basket. In fact, you urgently want to diversify. 
Sell your shares, don't bother putting them into the TFSA. Put the proceeds into your TFSA and invest them in other companies.

Congrats on climbing the learning and investing curve. You may be embarrassed, but you are well on your way to saving yourself untold amounts of money and time in lost opportunity and needless fees.


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## AltaRed (Jun 8, 2009)

I agree completely. It is double jeopardy to have a fistful of shares in the company you work for. I held the minimum shares possible in the company I worked for.


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## rnb (Sep 24, 2019)

fireseeker said:


> This is, by far, the most valuable and important response to your question, rnb.
> I echo OMO's advice, although I do so more stridently: Sell your shares.
> Your "investment" in your company includes, say, your next 10 years of income. That might be $500,000. It might be $1 million. Plus there are all the options.
> You do not need to put any more eggs in that basket. In fact, you urgently want to diversify.
> ...


Thanks for the feedback... everyone. I do realize how it sounds, all the eggs in one basket re: $50k into my employer (yes a public co.). I have the benefit of being close enough to the project to have confidence where most wouldn't, but I really do appreciate the advice to diversify. I've worked at a few casinos in my time and understand the gamble, I consider this money already spent and am okay with going for the ride (for now). 

However, I don't have that confidence with any other investment target and realize if I'm going to make the best of this tool I have to learn how to play conservatively, smartly. 

Capital Gain = the profit from selling 'capital property' ie. shares... 50% of which is taxed at my marginal rate. Ok, got it. So when I sell shares I pay tax on half my winnings. How does it work, then, when a TFSA is described as:

"The Tax-Free Savings Account (TFSA) is an account that does not apply taxes on any contributions, interest earned, dividends, or capital gains, and can be withdrawn tax free. "

- If a stock i invest in through my TFSA tanks and I sell at a loss, I can't claim that loss... as a loss. (On my taxes I assume this is referring to). Ok good to know, makes me want to now go find out what things _can_ be claimed as a loss.



> Odd that they'd be issuing share certificates instead of having some sort of transfer agent have the info online like a brokerage. The certificates have the risk of losing them but overall, it is a loss of convenience.


- Online would be convenient, I can't find two of the three share certificates and think I may have to get them reissued. =\ Capital Transfer Agency is the warrant agent but I think I would have heard about an online option. 



> If you want to be 100% sure of on TFSA penalties, don't make any contributions to your TFSA.


- This is probably my ignorance. Part of the reason I thought it was a good idea to max the tfsa using the shares I own, was if they do skyrocket, i would be on happy street based on the above description of what a TFSA is (an account that does not apply taxes on any contributions, interest earned, dividends, or capital gains, and can be withdrawn tax free). Clearly my understanding of a TFSA is not fully formed. 



> Scotia iTrade should be able to tell you what the share value that will be considered a TFSA contribution is, based on what the shares are trading when deposited. As long as you highlight what the available TFSA contribution room is and check to make sure they stuck to it, you should be fine.


Agreed!



> Keep in mind that you are deemed to have sold the shares that are contributed to the TFSA


Ah ha... now the fog clears. If I put any of my existing shares into the TFSA I will immediately incur capital gains because it's considered a 'sale' and they are up. Jeez, i liked my incorrect understanding better lol. Thanks for pointing that out! A lot! 



> Make sure to transfer shares at a slight gain as transferring shares in a loss position means you lose the capital loss forever.


This one I'll have to chew on for a bit... thanks for the link. 

Just regurgitating all the above highlights for me how little I know about even the basics, but at the same time has me feeling more confident in what to do next. Step 1: drop all these shares into my iTrade Cash account asap.

Again, thanks for the hand holding and extra input. I'm going to go read all those unread Investopedia emails in my Inbox now. Will most certainly be back! 
=]


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## Topo (Aug 31, 2019)

rnb said:


> - If a stock i invest in through my TFSA tanks and I sell at a loss, I can't claim that loss... as a loss. (On my taxes I assume this is referring to). Ok good to know, makes me want to now go find out what things _can_ be claimed as a loss.


No losses can be claimed in a TFSA. This is independent of the investments held in the account. It is the structure of the account (i.e. Tax Free).


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## lonewolf :) (Sep 13, 2016)

rnb said:


> Thanks for the feedback... everyone. I do realize how it sounds, all the eggs in one basket re: $50k into my employer (yes a public co.). I have the benefit of being close enough to the project to have confidence where most wouldn't, but I really do appreciate the advice to diversify. I've worked at a few casinos in my time and understand the gamble, I consider this money already spent and am okay with going for the ride (for now).
> 
> 
> 
> ...


 The company might do fantastic & the stock could do the opposite. The company could be losing money hand over fist & the stock could rally


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## Eclectic12 (Oct 20, 2010)

rnb said:


> ... Capital Gain = the profit from selling 'capital property' ie. shares... 50% of which is taxed at my marginal rate. Ok, got it. So when I sell shares I pay tax on half my winnings.


In a non-registered account, where one is only considering capital gains (CG) from selling then yes.

Keep in mind some investments like REITs and ETFs pay income that is classed as a CG so there might be a mix of income taxed at different rates. 




rnb said:


> ... How does it work, then, when a TFSA ...


Buying and selling in a TFSA has no capital gains. If you sell for 300% more, you keep 300% more (minus trading fees).

CG from selling investments a few situations, the most common for an investor is selling the investments in a non-registered account.




rnb said:


> ... - If a stock i invest in through my TFSA tanks and I sell at a loss, I can't claim that loss... as a loss. (On my taxes I assume this is referring to). Ok good to know, makes me want to now go find out what things _can_ be claimed as a loss.


In a non-registered (NR) account, selling for a capital loss (CL) mean one can reduce CG in that tax year, carry the CL back three years or bank the CL for a future time when another investment is sold for a CG.

If you have a $1K loss from 2018 then in a NR account sell for a $3K CG then you can report the $3K CG, subtract off the $1K loss and report a $2K CG. A CL can only be applied to CG.


FWIW ... the same holds true for an RRSP. The "silver lining" to a loss in an RRSP is that the gov't shares your pain as they don't get to tax what is not available to withdraw.
For example, have an RRSP FMV of $5K then have a $2K loss in the RRSP, the gov't can only tax the $3K that is left as it is withdrawn instead of the $5K it was trading at.




rnb said:


> ... - This is probably my ignorance. Part of the reason I thought it was a good idea to max the tfsa using the shares I own, was if they do skyrocket, i would be on happy street based on the above description of what a TFSA is (an account that does not apply taxes on any contributions, interest earned, dividends, or capital gains, and can be withdrawn tax free). Clearly my understanding of a TFSA is not fully formed.


It's not your understanding that is potentially an issue - it's keeping mind how difficult it is to do consistently.

If I could use hindsight to load up my TFSA with all my big gainers, as you say - I'd be on easy street. I'm not that good at knowing which ones will be the best choices so I try to keep my risk low and if there's a market downturn, leverage that.

BTW ... on a side note, the TFSA is Canadian tax free. If you buy US stock that pays income, the US does not recognise the TFSA as a retirement account so they will take a 15% non-resident (NR) withholding tax from the income. There is a bit of a benefit in that the tax treaty reduces the usual 30% to 15% for Canadians.
https://www.moneysense.ca/save/investing/investing-u-s-stocks-in-a-tfsa/

The RRSP is recognised as a retirement account so for US stock paying income, it is exempt for almost all stock. (There are some exceptions called Master Limited Partnerships.)


So say you transfer at FMV of $2.80 your company stock to your TFSA. You are deemed to have sold the stock so there will be an $0.80 per share CG to pay taxes on when the transfer is made (assuming no CL to wipe it out). 

If you need money in the future where you have to sell for $1.80 - you'd get your $1.80 and nothing else. The same CL in a non-registered account would mean the $1.80 plus a CL $0.20 per share for current/three years back/future.




rnb said:


> ... Ah ha... now the fog clears. If I put any of my existing shares into the TFSA I will immediately incur capital gains because it's considered a 'sale' and they are up. Jeez, i liked my incorrect understanding better lol. Thanks for pointing that out! A lot!


The gov't wants their cut, before the shares become Canadian tax free.

That's where to help tilt the returns in my favour for a TFSA contribution in-kind, I look times like the early 2009 drop had companies that I figured would weather it out, keep paying dividends and come out the other end to thrive trading substantially lower. For example, BMO at $30. I planned to keep the shares for the long term anyway so it looked like a good time to do a transfer for less of a CG and have both income paid until selling and CG from selling taken out of the picture.




rnb said:


> ... Just regurgitating all the above highlights for me how little I know about even the basics, but at the same time has me feeling more confident in what to do next. Step 1: drop all these shares into my iTrade Cash account asap.


Have you check out the costs iTrade will charge you for taking control of your share certificates?
I've tried downloading their detailed listing of costs but am not getting a PDF to see what they charge.




rnb said:


> ... thanks for the hand holding and extra input.


It might help to borrow a tax book that has a section on investing or an investing book that has a section on taxes to get a better bird's eye view of the tax layout. Forums are great for specific questions but IMO not as good for getting the broader picture.


Cheers


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## rnb (Sep 24, 2019)

Eclectic12 said:


> If I could use hindsight to load up my TFSA with all my big gainers, as you say - I'd be on easy street. I'm not that good at knowing which ones will be the best choices so I try to keep my risk low and if there's a market downturn, leverage that.


In light of this, I think I've made a mistake putting my shares for this one Canadian company into my iTrade Cash account last week, primarily because I am more than confident this share will gain. That's why I originally had this 'put it in TFSA and enjoy the gains tax free' strategy in mind... but, I got nervous and to avoid uncertainty with TSFA contributions dumped the shares into my cash account. So, I think I still want to max the TFSA to follow my hunch of big gains acoming by transferring funds from the cash account into the TFSA. 

Please help me confirm if I'm generally understanding this math correctly via the following example, with a few round numbers for arguments sake: 

- currently available TFSA contribution room: $50,000 
- amount in Cash account = $60,000 (current market value of recently deposited shares in company 'A')
- average buy price for those shares was $1 each
- assume i'm at 40% marginal tax rate

Therefore, to move the funds from the cash account to the TFSA understanding my cost to be calculated as "tax on half the capital gains", would the following be correct?...

My cost = 40% of (capital gains / 2)
My cost = ((proceeds of disposition - (adjusted cost base + outlays and expenses) / 2) * 40) / 100
My cost = ((50,000 - 25,000) / 2 * 40) / 100 
My cost = (12,500 * 40) / 100
My cost = $5000


Wow my brain hurts... hopefully I've got that right. Haven't had to think about order of operations for a long time.

And from this comes a few more questions...

- I didn't calculate anything for "outlays and expenses" but assume they would be a minor fraction in the example above, these are trading fees and whatnot yes?
- I suppose it makes sense to do this type of a transfer when the stock is at a low point because my apparent capital gains, and resulting tax on the transfer, would be less? 
- Is the 'My cost' amount is calculated at the time of transfer, but paid at end of year tax time (not as part of the immediate transaction)?
- is the ACB calculated as the _average_ cost of the shares? ie. some I may have paid $0.90 for, some $1.10...

Again, thanks for stick handling me through this... it is much appreciated.


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## fireseeker (Jul 24, 2017)

rnb said:


> My cost = 40% of (capital gains / 2)
> My cost = ((proceeds of disposition - (adjusted cost base + outlays and expenses) / 2) * 40) / 100
> My cost = ((50,000 - 25,000) / 2 * 40) / 100
> My cost = (12,500 * 40) / 100
> My cost = $5000


At a glance, this appears correct.
If your adjusted cost base is $25,000 and your marginal tax rate is 40% you would face a $5,000 cap gains tax hit next spring.




rnb said:


> - I didn't calculate anything for "outlays and expenses" but assume they would be a minor fraction in the example above, these are trading fees and whatnot yes?


Yes, likely very minor. Costs like $10 trading fees get added to your ACB.





rnb said:


> - I suppose it makes sense to do this type of a transfer when the stock is at a low point because my apparent capital gains, and resulting tax on the transfer, would be less?


Ideally, yes, if your crystal ball is good.



rnb said:


> - Is the 'My cost' amount is calculated at the time of transfer, but paid at end of year tax time (not as part of the immediate transaction)?


Yes, paid with your tax bill next spring. (Note that if you do more buying and selling of the same security in 2019 it can affect the final calculation.)



rnb said:


> - is the ACB calculated as the _average_ cost of the shares? ie. some I may have paid $0.90 for, some $1.10...


Yes, average price paid.


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## Eclectic12 (Oct 20, 2010)

rnb said:


> ... Please help me confirm if I'm generally understanding this math correctly via the following example, with a few round numbers for arguments sake ... Therefore, to move the funds from the cash account to the TFSA understanding my cost to be calculated as "tax on half the capital gains", would the following be correct?


As you are confident the shares are going to be a good investment in the long term - you likely want to ask iTrade to make an "in-kind transfer" of up to $50K FMV of the shares to your TFSA. iTrade will then move the shares over, avoiding having to pay a sell commission and preserving the shares as shares. You just have to make sure the transfer price used to figure out the CG or CL ensures there is a CG. 

https://www.taxtips.ca/personaltax/investing/transfersharestorrsp.htm


While I understand what you mean by "my cost", IMO it's better to call it a "taxable capital gain". This matches up with the tax forms plus avoids confusion with the ACB. That is what you are after - the "taxable capital gain".


For the assumed numbers, the $5K taxable capital gain looks correct, assuming there are no other capital gains from selling / transferring other shares and no other capital losses from selling other shares.




rnb said:


> ... And from this comes a few more questions...
> - I didn't calculate anything for "outlays and expenses" but assume they would be a minor fraction in the example above, these are trading fees and whatnot yes?


Yes ... though if you transfer in-kind the shares to the TFSA, there usually won't be a sell commission. If you sell for cash then there will be one of approximately $10, depending on what iTrade charges.




rnb said:


> ... - I suppose it makes sense to do this type of a transfer when the stock is at a low point because my apparent capital gains, and resulting tax on the transfer, would be less?


If you can identify a time of the year when it will be lower like Dec tax loss selling time then yes.

Keep in mind that if iTrade does the in-kind transfer like my broker does, you get to choose the transfer price from the range traded on the day you call in to make the transfer. Some brokers offer an online transfer but I don't know how the pricing works for this option. I usually call in at about 2pm or later to have a wider choice of the day's range. 

You do have to make the move at some point as you likely want to avoid waiting too long (i.e. analysis paralysis).




rnb said:


> ... - Is the 'My cost' amount is calculated at the time of transfer, but paid at end of year tax time (not as part of the immediate transaction)?


Again, I prefer "Taxable Capital Gain" because that matches up to the tax forms.

I usually estimate the capital gain per share so I know what share price to be looking for to make the transfer. It also gives me an idea of whether I need to do other things like use an RRSP contribution or another capital loss to reduce/eliminate the capital gain. 

Say May 2019 trading hits a good time to transfer. The calculation happens when filling out the 2019 tax return around Feb 2020 (or earlier if you are tax planning). The details are plugged into Schedule 3, Part 3 "Publicly traded shares, mutual fund units ...". Everything flows out of there where line 199 is where the 50% is applied to the net capital gain. It is transferred over to the the main return on line 127.

Or if you use tax software like Studiotax https://www.studiotax.com/en/, plugging in the numbers into Schedule 3, Part 3 means the calculations are all done for you.




rnb said:


> ... - is the ACB calculated as the _average_ cost of the shares? ie. some I may have paid $0.90 for, some $1.10 ...


Yes - average cost across all taxable accounts. Where you only hold that company stock in iTrade, that will be the only place that matters. If you hold some stock in iTrade and some of the same stock in a company arranged taxable account, you will have to combine the costs from the two accounts.

https://www.taxtips.ca/glossary/adjustedcostbase.htm
https://www.theglobeandmail.com/glo...he-abcs-of-tracking-your-acb/article17838427/

Some people will use a spreadsheet while others will use https://www.adjustedcostbase.ca/.


Cheers


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