Personal Finance

Is it not a good idea to sell all stocks and buy it back this year in case capital gains tax goes up?

  • Last Updated:
  • Oct 16th, 2017 11:18 am
Deal Guru
Aug 2, 2010
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J_u_n_i_o_r_3 wrote:
Oct 11th, 2017 3:47 pm
Is it not a good idea to sell all stocks and buy it back this year in case capital gains tax goes up?

Thanks
Yes of course, sell everything and prepay your taxes even if you don't have to and also run the risk of having to buy back in at a higher price and that the capital gains tax do not go up.

Altruisim rules!
Member
Dec 28, 2015
379 posts
107 upvotes
Westmount, QC
J_u_n_i_o_r_3 wrote:
Oct 11th, 2017 3:47 pm
Is it not a good idea to sell all stocks and buy it back this year in case capital gains tax goes up?

Thanks
And what if it doesn't go up?

Are you going to purchase options for your stocks so you can buy it back at same price you sold it at?
Member
Dec 28, 2015
379 posts
107 upvotes
Westmount, QC
atomiton wrote:
Oct 12th, 2017 1:40 pm
I'd support a $10K TFSA only if the RRSP maximum was dropped to approximately offset the increased TFSA.

RRSP is a regressive benefit, helping those that earn the most. The TFSA is more egalitarian.

Of 24.5 million Canadians who file taxes, 507,000 earn more than 150,000 ( ~145,000 income will give you the max RRSP benefit of ~26,000 ). Only about 2% of Canadians earn enough to get the maximum deduction on their RRSPs. ~5% earn more than $100,000

All data from this article:
http://www.financialpost.com/personal-f ... story.html

So... if you give 24.5 million taxpayers $4.5K more in TFSA, that's potentially 122.5 billion in additional room. Sure, a large chunk of that won't get used, but at the very least, the top 2% will use all of it. So, let's reduce the RRSP to increase the TFSA.

For example: Reduce the max RRSP contribution from 26,000 to 19,000 and increase TFSA from $5500 to $10,000.
Basically, that means anyone earning just over $100k would have the max available RRSP contribution room available to them.

507,000 ppl earning more than $150K would have 7k less RRSP room... or about 3.5 billion less RRSP room in total.
880,000 ppl earning between $100K-150K would lose between $0 - $7000 in room... let's average those incomes at 120,000.... so they lose $2,600 each which takes another 2.3 billion out.

So overall, you've DECREASED RRSP contribution room by $5.8 billion, but increased TFSA room by $110 Billion. Win - Win.

BUT WAIT... those earning less than $50k aren't going to use the additional $4500 of TFSA room... just like their not even using their < $9000 RRSP room.... so let's exclude those 18 million Canadians ( 3 in 4 ) earning less than $50k... which means $81 Billion of additional room that probably won't get used... leaving us with a realistic $39 billion additional TFSA room that could be used, while only reducing RRSP room by ~$6 Billion.

Unfortunately, people will see reducing the RRSP as some evil tax-grab... not realizing that only 3–4% of high-income Canadians will truly be affected.
I like your perspective but I don't think tfsa should be increased. The limit is fine where it is, just index the amount to go up annually by inflation
Member
Dec 28, 2015
379 posts
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Westmount, QC
atomiton wrote:
Oct 12th, 2017 4:33 pm
The big mistake was that the TFSA was decried as yet another tax break for the rich... because people weren't taking advantage of their RRSPs to start with. If the government had said we're reducing RRSPs as part of the package fewer would have complained... because they see it as "sticking it to the wealthy" It was the perceived unfairness that people didn't like.

Tying the RRSP to income is, of course, regressive, but imagine if you just gave EVERYONE $25,000 RRSP from when they turned 18. People would be up in arms about how they can't take advantage of the RRSP room and actually complain about how they have $500,000 of contribution room at 26... which they'll never use so the RICH benefit most. People would be upset... that an 18-year old given a $150,000 salary would be able to use it all... and they wouldn't.

By tying it to income, people still complain that they don't have enough money to contribute, but their room wouldn't look so vast. Someone earning an average of $40,000 / year between 18 and 26 would only have $57,600 in room. They probably haven't put a dent in that, but it seems something they can aspire to. They don't complain as much... Of course, the 26-year old trust fund kid getting a $150,000 salary from when he turned 18 still has been able to defer taxes on $500,000 but your average Joe doesn't think about that.

The TFSA was a lump sum of $10,000... and with record numbers of people piling money into real estate after the stock market seemingly failed them in 2008... who's got $10,000 to put into a TFSA?

"More tools for the rich!" the angry mob cried.

"Reduce the TFSA! I'm too ignorant to realize that it benefits me more than the wealthy due to my tax bracket!"
Many had money from heloc to dump into tfsa though due to big re price increases
Member
Dec 28, 2015
379 posts
107 upvotes
Westmount, QC
Thalo wrote:
Oct 13th, 2017 12:38 am
Anti-east is fine by me! :)

If by anti-Canadian, you mean anti-confederation then you need to take a look at the party in power now who is actively blocking a province's ability to get its trade goods to international markets.
How are they actively blocking it? It's just nobody wants it .
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Feb 19, 2010
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MrWhiteCoffee wrote:
Oct 13th, 2017 7:32 am
How are they actively blocking it? It's just nobody wants it .
Had to quote this for posterity. It's such a monumentally stupid comment that it needs to be memorialized before you realize it and delete it. :facepalm:

It's one thing to be an ideologue and entirely another to be absolutely oblivious.
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Jan 18, 2014
341 posts
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Rouyn-Noranda
Conquistador wrote:
Oct 13th, 2017 10:34 am
Had to quote this for posterity. It's such a monumentally stupid comment that it needs to be memorialized before you realize it and delete it. :facepalm:

It's one thing to be an ideologue and entirely another to be absolutely oblivious.
You realize that it's TransCanada that decided not to go forward, right?
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Nov 24, 2013
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MrWhiteCoffee wrote:
Oct 13th, 2017 7:28 am
I like your perspective but I don't think tfsa should be increased. The limit is fine where it is, just index the amount to go up annually by inflation
It is indexed, but to keep-it-simple, the annual amount rounds to the nearest $500. We could see it go up to $6,000 next year or the year after depending on the final CPI numbers.
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John47 wrote:
Oct 13th, 2017 1:22 pm
You realize that it's TransCanada that decided not to go forward, right?
And you realize the reason that they made that decision, right?

(And don't say it's because of the price of oil because that's not it.)
Sr. Member
Oct 6, 2015
658 posts
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Why would capital gains tax go up? I don't understand. Nobody from the government has even brought up the idea. Remember it was the Liberal government in the late 1990s that actually lowered capital gains taxes. The government desperately needs the stock market to go up to reboot the economy now that housing is doing a nose-dive.
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Jun 12, 2007
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Even if capital gains went up, aren't the rates traditionally "grandfathered" so it's effectively the same as "sell and buy over again" without having to do the actual transaction?

So if the capital gains rates increases today from 50% to 75%, I would just evaluate my current capital gain as $X. When I sell my investment 10 years from now, my additional capital gains is $Y.

My capital gains tax will be 50%X plus 75%Y, the same as if I sold and rebought my investment ?
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Nov 24, 2013
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l69norm wrote:
Oct 16th, 2017 9:54 am
Even if capital gains went up, aren't the rates traditionally "grandfathered" so it's effectively the same as "sell and buy over again" without having to do the actual transaction?

So if the capital gains rates increases today from 50% to 75%, I would just evaluate my current capital gain as $X. When I sell my investment 10 years from now, my additional capital gains is $Y.

My capital gains tax will be 50%X plus 75%Y, the same as if I sold and rebought my investment ?
There's limited frames of reference, as the inclusion rate has only rarely changed (incr to 75% in 1990, decr to 67% then 50% in 2000, and no change since), but I believe the operating assumption is that the inclusion rate to use would be based on the trade settlement date if it does change. Earlier this year when many speculated that an inclusion rate change would occur in the federal budget, some sold and repurchased trying to hit a settlement date before the budget day.

What you're describing would create tracking headaches for individuals and CRA auditors for years into the future, versus the simpler and more likely scenario where inclusion rate would be based on when the gain is realized.
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l69norm wrote:
Oct 16th, 2017 9:54 am
Even if capital gains went up, aren't the rates traditionally "grandfathered" so it's effectively the same as "sell and buy over again" without having to do the actual transaction?

So if the capital gains rates increases today from 50% to 75%, I would just evaluate my current capital gain as $X. When I sell my investment 10 years from now, my additional capital gains is $Y.

My capital gains tax will be 50%X plus 75%Y, the same as if I sold and rebought my investment ?
I agree with Mike15.

In what you're describing, depending on the date of the change, there would be a mix of inclusion rates for the current tax year but to get the 50% inclusion rate you would have had to have realized those gains/losses before the date of change. Any gains/losses realized after the date would be at the new inclusion rate so, no, there is no "grandfathering". The transaction has to have occurred.

Having said that, PM Selfie Socks and his minion Morneau are in enough hot water over their proposed tax changes already that it would be another step towards the banana peel of political suicide to even hint at changing the capital gains rate yet this year. IOW, it ain't happenin'.

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