# Selling stocks



## marina628 (Dec 14, 2010)

I am asking this question for my father ,He has a large amount of stocks in non registered account(receives dividends of around $500 a month which he pays income tax on).He is thinking about selling them now vs leaving them to be sold after he dies.Is there any tax difference?


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## MoneyGal (Apr 24, 2009)

Selling them all at once now? Or selling them in different calendar years?

As a general rule, he could split the gains over two different years (like 2011 and 2012) and potentially save on that that way. It just depends on what the rest of his tax situation looks like - his accountant or tax preparer (if he uses one) would be able to tell him very easily (all of the tax software packages have modelling sections which allow you to run different scenarios based on the client's actual tax situation...)


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## marina628 (Dec 14, 2010)

I guess the real question is what happens if he died and still had the stock ,would they have to be sold and the lump sum paid out to the estate?Could my mom hang on to them? My mom is listed as beneficiary on the account.They would like to hold them to get their monthly income from them .
Moneygal their income is about $30,000 each a year including this income.


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## Sampson (Apr 3, 2009)

marina628 said:


> I guess the real question is what happens if he died and still had the stock ,would they have to be sold and the lump sum paid out to the estate?Could my mom hang on to them?


My understanding is (I hope I don't put my foot in my mouth):

The stocks would not be sold, but depending on where they are held (RRSP vs other accounts), there may be an immediate deemed disposition, taxes owing would be calculated, then they would be transferred over to your mother. If in the RRSP, they can be transferred tax-free to your mother if she is the beneficiary. If in a different account, the estate would have to pay any owed capital gains taxes from the deemed disposition.

Regardless of where the stock is held, your mother can certainly hang on to them.


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## marina628 (Dec 14, 2010)

Ok thanks everyone for the advise.


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## humble_pie (Jun 7, 2009)

yes sampson has got it right. The executor of the will, in this case the father's will, has the power to sell the assets or to transfer them in kind to the heirs. In either case there will be a deemed disposition of the assets as of the date of death. In the case of a transfer in kind, the market value of each holding on the date of death will become the cost base of the holding for the heirs.

if an executor sells any shares, any gains or losses since the deemed disposition values will be reported on the estate tax return & flowed through to the heirs. (however i'm avoiding mentioning the sequellae to the transmission of rrsp or rrif assets in kind to heirs, since there are various qualifiers such as is the heir a spouse or a dependent child, etc.)

another issue one always wants to consider for securities held outside a registered account is the taxation consequences of either a sudden sale prior to or a deemed disposition upon death, when holdings are so old that substantial capital gains are built in, which may be on paper only but they will be triggered by such sale or such deemed disposition. This is a common dilemma with the estates of older folks.

i do deal with this dilemma all the time because an optioned account means the underlying securities stand ready to be assigned, ie sold, at any time. Therefore i am always trying to keep the total cost base of any holding some reasonable distance below market but not insanely below market, so that the capital gains tax bite of any accidental assignment would not be too injurious. This sometimes means gradually driving the cost base upwards.

this would be identical to an elderly person trying to adjust the cost base of an old holding upwards so that the capital gains tax bite of a sale or deemed disposition would not be too injurious.

to adjust a cost base upwards, i've developed a strategy that i think of as a pirouette. It's not a PET pirouette, maybe it's a pie pirouette.

every year i pirouette a holding or 2 in order to keep em with a cost base perhaps 20% or 25% below market. For obvious reasons one never wants to drive cost base above market.

it's late in the evening now, if anybody's interested in the pirouette i'll dance it out another day.


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## FrugalTrader (Oct 13, 2008)

What if there was joint ownership of the non Reg account, would there be deemed disposition on half the account?


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## kcowan (Jul 1, 2010)

In joint nonreg accounts, the tax is paid in proportion to the contributions. This would be the case upon death as well.


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## marina628 (Dec 14, 2010)

My Dad owns everything in the account , not joint and some stocks he bought in the 1970's.There is nearly $200,000 profit on what he paid ,he takes some dividends and drips some as well.He just gave me general info this week as they did their wills again and he was wondering the best way to do this .He prefers not to sell anything but would if it was a tax savings on the estate.This stock represents most of his estate other than their home ,he has other property but it is going to my cousin and my brother.Cousin is like his son and my brother so no disputes from his kids on that situation.My sister and I are suppose to get what's left of the stock when both of them die ,My husband and I are buying the family home at a 1/3 discounted price while my parents are living and money will be split between my brother and sister.The is essentially the entire estate ,they give each grandchild $10,000 when they turned 18 and they have 2 young grand kids left and that money is in trust accounts for kids with the parents of each kid.


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## Charlie (May 20, 2011)

I'd check the plan for giving land to the cousins to make sure it doesn't mess up the tax free rollover to a spouse. I think the spouse has to inherit everything for this to work. He could gift the land before -- or have your mom gift it (or bequeath it later) to continue to defer the tax on the accrued portfolio gains.

Given his income levels, a plan to systematically trigger gains early may not be worth the hassle. Not much of the gain would be subject to high rate tax -- (based on current income he'd be adding $100K taxable to a $30K income) and any current boost to his income would affect age credits and the like. So maybe it saves tax of 5%-8% of the gain at the cost of deferral.


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## marina628 (Dec 14, 2010)

Charlie
It is a log cabin on 10 acres of land in the woods , you need to fly in there to get to it or use a boat and ATV/SKI DOOS(full day to get there).My uncle has a plane so for years my dad and his brother have used it and my dad agreed to leave to both their sons , my brother and my cousin both have their pilots license and I guess one day they may get their own bush plane or continue to share my uncle's.I think maybe $50,000 value at most.


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## Charlie (May 20, 2011)

sounds like a wonderful place Marina! 

My comment was just on your dad's will. Lawyers are pretty good at catching this stuff when they help draw up a will -- but I do recall one case where a relatively small bequeath to someone other then the spouse negated the tax free transfer to the spouse of the rest of the estate. Not my forte -- just one more point on your planning checklist.

I think its just fantastic that parents are talking about this stuff with their kids.


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## marina628 (Dec 14, 2010)

It is difficult to put a price on it since back in the 50s my dad didn't pay anything for it , he applied for 'crown lands" back then , they cut the logs off the land and built it themselves.My Dad bought his first Landrover in 1962 because of this piece of land lol


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## Sampson (Apr 3, 2009)

humble_pie said:


> if anybody's interested in the pirouette i'll dance it out another day.


I would be interested in the dance.


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## humble_pie (Jun 7, 2009)

_" There is nearly $200,000 profit on what he paid ..."_

i do sense that Charlie doesn't think anything can be done about that 200k capital gain which would occur if god forbid anything were to happen to Marina's dad.

i'm not in Charlie's league taxwise, but i think there is something to be done, especially since i see another capital gain in the bush property, which seems to have zero cost base but may now be worth 50k. As all know, that's 250,000 in capital gains of which 125,000 is taxable & will be added to income in the year it's realized.

so i ask myself, why pay taxes on all of that extra 125,000 when much of this big tax bite can be whittled away by tiny annual nibbles in advance, without disturbing ordinary taxable income or endangering old age benefits.

here's an example:

taxpayer has 1000 old shares of RY with a cost base of 32/sh, or 32,000. Stock meanwhile is at 48. If sold, the raw gain would be 16,000, taxable gain would be 8,000.

taxpayer chooses a period when share price is predictibly declining. He sells 200 shares at 48.20 say & thus immediately incurs a small capital gains liability of (48.20-32.00) x 200, or 3,240.00. He expects to find an offsetting capital loss during the rest of the tax year; or if he doesn't, that 3,240, of which only 50% is taxable, means a mere $1,620 being added to taxable income, in most cases not enough to bump taxpayer into a higher bracket or deny social & old age benefits.

at some moment that day, or during the days that follow, taxpayer re-purchases the 200 shares, let us say at 48. His new cost base becomes (800 x 32) + (200 x 48), or 35,200.

taxpayer is still the proud owner of 1000 shares but his cost base has risen from 32,000 to 35,200. He can repeat the following year, indeed every year thereafter, until he gets the cost base up where he wants it.

capital gains taxation of the final disposition will therefore be considerably lighter.

this approach is useful for parties who 1) want to protect their heirs, or 2) sell call options, or 3) think they might die some day, or 4) believe they might develop an uncontrollable itch to liquidate valuable old stock holdings.

the tricky part is the sell/buy. There is a risk gap there, between the 2 trades. Toronto.gal could succeed at this with her eyes closed.


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## Toronto.gal (Jan 8, 2010)

As usual, very informative post hp. 

Thanks!


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## marina628 (Dec 14, 2010)

Thanks Humble that is more what i was feeling as well , he is in good health and 73 so he should plan to sell off small lots each year starting now.As for the bush property these days some local people have started some tourism business so I see in future 10 years this property may go up significantly , my Dad's property has lake access.


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## Westerly (Dec 26, 2010)

Hi all,
Very interesting discussion and I agree with realizing capital gains little by little where it does not affect pensions etc. I plan to start this when I hit about 55 depending on my/my spouse's tax situation at the time. 

As I understand it, the spousal rollover is automatic under ITA subsection 70 (5 or 6?) This means that the properties will automatically roll to the surviving spouse at the orginal ACB, no direct tax consequences at death, and there may be an opportunity to realize the CGs over a much longer life expectancy than Marina's father, whom I trust is enjoying his retirement.

There is an election to have the property roll at FMV and the election can be property by property - ie the properties going to the cousins will not affect the rest. The only caveat is that you cannot elect a portion of a property, such as real estate, it must be 100% of that property.

Marina, it sounds like a visit to the accountant would be timely, but be cautioned that even they often don't quite understand the nuances of section 70. 

All the best


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## marina628 (Dec 14, 2010)

I live in another province so really cannot help my dad much with hands on stuff.He retired 13 years ago and already been selling off small bits over these years.In any case I found somebody on Google for him to go see soon , the reason to speed all this up is my Father is being tested for cancer ,something showed up and we will get Test results soon.


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## Westerly (Dec 26, 2010)

I'm sorry for the stress you and your family must be going to through. I wish you all the best.


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