Investing

Can u replace TFSA cash with non-registered-account's holdings w/o CRA overcontribution penalty?

  • Last Updated:
  • Apr 10th, 2021 7:02 pm
[OP]
Newbie
User avatar
Dec 26, 2019
28 posts
2 upvotes

Can u replace TFSA cash with non-registered-account's holdings w/o CRA overcontribution penalty?

The present reality
TFSA
Cash: $75,500 (you’ve maxed your TFSA contribution)

Non-registered account
Shares in Company XYZ: $40,000


The desired outcome
TFSA:
Shares in Company XYZ: $40,000
Cash: $35,5000

Non-registered account:
Cash: $40,000



For tax efficiency, you want to move your $40,000 holding from your non-registered account to your TFSA, but you want to do so in a way that the CRA doesn’t penalize you for overcontributing. Can such a no-penalty switcheroo be done?

Edit 1: In the scenario, the $75,500 in TFSA cash is already in a trading account (e.g. Wealthsimple Trade). The non-registered account is also with same brokerage (e.g. also with Wealthsimple Trade).
Last edited by pleasantpeasant on Apr 7th, 2021 11:17 pm, edited 3 times in total.
17 replies
Deal Addict
User avatar
Jan 14, 2009
2546 posts
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Vancouver, BC
There's a deemed disposition when you transfer shares into a TFSA. You cannot protect existing capital gains.
Sr. Member
Sep 18, 2019
714 posts
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1Ogiku2 wrote: and by that you will get a penalty for over contribution in the same year.
Thanks for pointing it out. I just realized the over contribution penalty after I posted
Deal Addict
Mar 3, 2018
2169 posts
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GTA
Have the bank do a direct transfer of TFSA cash to TFSA trading account. Buy the same XYZ stock in the TFSA trading account. Sell the XYZ stock in non registered account. If a capital gain it needs to be reported. If a capital loss it is not allowed (superficial loss) if within 30 days of repurchase. As long as the TFSA funds are never in your hands during the bank transfer there is no over contribution.
Deal Addict
Nov 24, 2013
1653 posts
973 upvotes
Toronto
pleasantpeasant wrote: The present reality
TFSA
Cash: $75,500 (you’ve maxed your TFSA contribution)

Non-registered account
Shares in Company XYZ: $40,000


The desired outcome
TFSA:
Shares in Company XYZ: $40,000
Cash: $35,5000

Non-registered account:
Cash: $40,000



For tax efficiency, you want to move your $50,000 holding from your non-registered account to your TFSA, but you want to do so in a way that the CRA doesn’t penalize you for overcontributing. Can such a no-penalty switcheroo be done?
What you're asking cannot and should not be done. Too many complications. Best bet is to buy XYZ in TFSA and sell XYZ in non-registered.
Deal Addict
Mar 3, 2018
2169 posts
2180 upvotes
GTA
1Ogiku2 wrote: that would mean OP needs two separate TFSA accounts, which he does not have, I think. Also, he is maxed out already, so it would be a over contribution.
Direct transfers between institutions do not hit TFSA contribution limit per CRA. OP can close TFSA cash account on transfer of funds to TFSA trading account. Or keeps both as I did. Similar to transferring your RRSP from one bank to another.
Last edited by DaveTheDude on Apr 7th, 2021 9:13 pm, edited 1 time in total.
Deal Addict
Sep 2, 2009
1714 posts
1461 upvotes
Ottawa
Short answer is: no.

Closest you'll get without waiting is selling your shares in the non-registered (forego loss or pay tax on gains next year; you'll be down the tax), buying in TFSA, plus pay the fee for the sale and the purchase.
Sr. Member
Dec 22, 2007
861 posts
482 upvotes
Mississauga
DaveTheDude wrote: Have the bank do a direct transfer of TFSA cash to TFSA trading account. Buy the same XYZ stock in the TFSA trading account. Sell the XYZ stock in non registered account. If a capital gain it needs to be reported. If a capital loss it is not allowed (superficial loss) if within 30 days of repurchase. As long as the TFSA funds are never in your hands during the bank transfer there is no over contribution.
this is the way
Deal Addict
Mar 3, 2018
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1Ogiku2 wrote: Yes, but i also means he needs two TFSA accounts with 37.5K in each. And the OP did not indicate that this is what he has, no?
Not sure why he need two accounts with 37.5 in each account.

He can have $1 in one and 75K in another, or 35.5K cash in one and $40K XYZ stock in the other. You just arrange direct transfers between TFSA accounts to get the desired outcome the OP indicates. He also has a non registered account with 40K cash when done.
Newbie
Sep 20, 2019
26 posts
71 upvotes
Edmonton
sell in your non registered account and buy in the tfsa. too easy.
[OP]
Newbie
User avatar
Dec 26, 2019
28 posts
2 upvotes
DaveTheDude wrote: Have the bank do a direct transfer of TFSA cash to TFSA trading account.
Sorry for not being clear. The TFSA cash is already in the TFSA trading account.
The $75,500 in "TFSA cash" is already in Wealthsimple Trade TFSA.

Or am I misunderstanding you? I don't understand why there would be a need for cash in the TFSA trading account when there's already the maximally contributed amount of $75,500. Wouldn't your first step already trigger an overcontribution?
DaveTheDude wrote: If a capital loss it is not allowed (superficial loss) if within 30 days of repurchase. As long as the TFSA funds are never in your hands during the bank transfer there is no over contribution.
Sorry, what is "it" referring to? What is not allowed?
Deal Addict
Mar 3, 2018
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pleasantpeasant wrote: Sorry for not being clear. The TFSA cash is already in the TFSA trading account.
The $75,500 in "TFSA cash" is already in Wealthsimple Trade TFSA.


Sorry, what is "it" referring to? What is not allowed?
If you sell XYZ stock in your non registered account and it was at a loss it would not be allowed for tax purposes if you repurchased the same stock in a TFSA within 30 days.
[OP]
Newbie
User avatar
Dec 26, 2019
28 posts
2 upvotes
DaveTheDude wrote: If you sell XYZ stock in your non registered account and it was at a loss it would not be allowed for tax purposes if you repurchased the same stock in a TFSA within 30 days.
Oh I see.
1. What happens if someone did so? What rule is broken and what is the penalty?
2. So is there a way to avoid this "unallowable" situation by doing a direct switcheroo? (If I understand you correctly, your suggestion is not a "direct switcheroo". Rather, it's a manual "buy in TFSA, sell in non-registered" method.)
Member
Jun 6, 2014
265 posts
102 upvotes
Toronto, ON
Since you already have the cash in the account the only way to do this in the current year is to sell the stocks in the non-registered and buy them back in the TFSA.

Tax rules are the same whether you "transfer" the shares direct into your TFSA or sell the stocks and buy them back.
Deal Addict
Dec 28, 2007
1030 posts
560 upvotes
If you can wait until the end of the year, you can withdraw the cash from the TFSA in December and contribute the shares in-kind in January. Capital gains still apply on the deemed disposition.

Otherwise the sell-and-rebuy procedure is the only other option. Careful if this is a thinly-traded stock; I did that maneuver a few years ago and ended up buying the shares from myself. A few days later, I got a phone call from my broker with a stern warning about "market manipulation".
Deal Addict
Jul 15, 2009
2335 posts
1491 upvotes
pleasantpeasant wrote: Oh I see.
1. What happens if someone did so? What rule is broken and what is the penalty?
2. So is there a way to avoid this "unallowable" situation by doing a direct switcheroo? (If I understand you correctly, your suggestion is not a "direct switcheroo". Rather, it's a manual "buy in TFSA, sell in non-registered" method.)
Has the stock gone up or down since you bought it?

If up, no issue, just sell non-registered, buy in TFSA. You will need to pay tax on the capital gain, but there's no way to avoid that.

If down, you would normally have a capital loss that you could match with a capital gain on some other stock to eliminate the tax on that gain. By buying the stock in the TFSA within 30 days before or after selling it non-registered, you lose the benefit of that capital loss. The only way around this (to not lose the capital loss) is to buy in the TFSA either more than 30 days before or more than 30 days after selling the non-registered. That means either owning twice the stock for at least 30 days or owning none of the stock for at least 30 days.

If the stock is down only a little bit, then maybe you don't care about losing the capital loss.
Deal Guru
Oct 7, 2010
10187 posts
1981 upvotes
He already over contributed if it is all cash deposited. If it is growth from stock, it doesnt matter.

Most of you guys are right. He cant move it without paying the tax man.

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