# Selling stocks and tfsa



## Anonymous1 (Jan 28, 2013)

Couldn't find a post with the answer im looking for.. 
I opened a TFSA account with TDW this year (contribution limit reached). I bought some stocks, which have now gone up. I am looking at selling these stocks, but now ill be over the maximum contribution limit for the tfsa. 
Should I open up a cash account and fund it with the sale of the stocks, or whats the best way to do this?
Thanks in advance!


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## SpendLessEarnMore (Aug 7, 2013)

You can sell the stock no problem. Your contribution limit will have increased after you sold the stock.

Example: Say your contribution limit is $10,000. You bought 1000 stocks for $10. Stock went up to $12

You sell stocks in your TDW TFSA at $12 each for a total $12,000. 

So now your contribution limit is $12,000. Which means if you withdraw $12,000. You can put back $12,000 and not the original $10,000.

Just make sure you know when to withdraw and deposit without incurring tax penalties.


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## Eclectic12 (Oct 20, 2010)

Anonymous1 said:


> Couldn't find a post with the answer im looking for ...


Not sure why not as I recall several threads here on CMF that as part of the discussion, included this situation ... but it's easy to miss.




Anonymous1 said:


> I opened a TFSA account with TDW this year (contribution limit reached). I bought some stocks, which have now gone up. I am looking at selling these stocks, but now ill be over the maximum contribution limit for the tfsa ...


No ... you won't be over the contribution limit. Like the RRSP - the TFSA contribution limit applied to the *contributions* ... not the value of the investments in the TFSA. 

Example: Start with $25.5K TFSA contribution limit as one was over 18 in 2009, a Canadian resident to date and has never contributed.
Contribute $10K on Jan 1, 2013, that triples by Sept 2013 and is then sold.

TFSA contribution limit = amount granted + last years withdrawals - contributions made
= $25.5K + $0 - $10K = $15.5K.

The TFSA account value is changing but the TFSA contribution limit won't change until either another contribution is made in 2013 or Jan 1, 2014 (when the gov't grants more room and any withdrawals in 2013 would be added back).

If there are any doubts, CRA clearly says:


> The TFSA contribution room is made up of:
> 
> your TFSA dollar limit ($5,000 per year plus indexation, if applicable);
> any unused TFSA contribution room from the previous year; and
> any withdrawals made from the TFSA in the previous year, excluding qualifying transfers or specified distributions.


This does not include any mention of the value of the investments in the TFSA.
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html




Anonymous1 said:


> Should I open up a cash account and fund it with the sale of the stocks, or whats the best way to do this?


No need to from a TFSA contribution limit point of view .... now if you plan withdrawing from the TFSA for other reasons, then this might make sense.




SpendLessEarnMore said:


> You can sell the stock no problem.
> Your contribution limit will have increased after you sold the stock ...


This is not correct ... selling or buying more stock in the TFSA does not change the TFSA contribution limit ... it only has the *potential* to affect it, assuming the holder decides to make a withdrawal.

I point this out as the wording of the OP suggests that Anonymous1 thinks that a withdrawal is required to stay within the TFSA contribution limit.

It is the *withdrawal* that will added to the TFSA contribution limit, in the *following year*. 

The overall effect is going depend on the sale of what was withdrawn. 

If one sells for a gain and withdraws, one can make use of more than the gov't has granted. If one sells for a loss and withdraws, one will have less than what the gov't granted (and is destroying contribution room).


Cheers


*P.S.*

Perhaps an easier way of explaining is that the only way to be over the TFSA contribution limit is to contribute more than the limit.


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## My Own Advisor (Sep 24, 2012)

Eclectic12 is correct...

The TFSA contribution limit applied to the contributions ... not the value of the investments in the account.

You can buy and sell as much as you want inside the account and it does not affect contributions.


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## Toronto.gal (Jan 8, 2010)

Anonymous1 said:


> 1. I bought some stocks, which have now gone up.
> 2. I am looking at selling these stocks, but now ill be over the maximum contribution limit for the tfsa.


*1.* Congrats! 

*2.* As usual, very detailed explanations from Eclectic, and hopefully you'll read every word!

But in short, on the subject of selling stocks, the gov. is only interested in your contribution limits, not your gains {assuming they were eligible}, nor losses. 

1) capital gains are tax-free [and not part of your contribution]
2) capital losses are not tax-deductible [because you pay no taxes]


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