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Q. I simply transferred 200 shares of an ETF from my margin account to my TFSA at a loss. Can I declare the loss, or does it fall into the 30-day rule? –Stavros

A. Investments equivalent to shares, exchange-traded funds (ETFs) and mutual funds can typically be transferred “in-kind” between accounts, in order that the funding is transferred from one account on to the opposite with out promoting it. When an funding is transferred from a non-registered funding account, like a money or margin account, right into a tax-free financial savings account, the switch is taken into account an eligible TFSA contribution. The contribution quantity is predicated available on the market worth of the transferred funding on the time of switch.

The “30-day rule” you’re referring to, Stavros, known as the “superficial loss rule.” A superficial loss outcomes when a capital loss is triggered in a taxable account, however the identical funding is bought in one other account inside 30 days earlier than or after the loss is incurred.

The superficial loss rule applies to not solely your repurchase of the funding, but additionally a repurchase by your partner, an organization you management, or a belief with you or your partner as a beneficiary. The rule has been put in place to stop Canadians from avoiding tax by promoting an funding, solely to have a companion or company repurchase it on their behalf.

Within the case of a switch of an funding out of your non-registered margin account to your TFSA, Stavros, this doesn’t lead to a superficial loss. Nevertheless, the Earnings Tax Act does deny a loss triggered on a deemed disposition of an funding at a loss upon switch to a TFSA or registered retirement financial savings plan (RRSP). So, though the superficial loss rule wouldn’t apply, the end result can be the identical—your capital loss can be ineligible.

Apparently, should you switch an funding in type that’s buying and selling at a capital achieve, the capital achieve is triggered and is taxable.

With a purpose to efficiently declare a capital loss, Stavros, you would wish to promote an funding and switch the ensuing money proceeds to your TFSA. This will lead to transaction prices to promote, and extra transaction prices to reinvest in your TFSA. If the capital loss tax financial savings is greater than the transaction prices, it most likely is sensible to set off a loss by promoting and transferring money.

If you wish to repurchase the identical funding in your TFSA, bear in mind you should wait a minimum of 30 days so as to take action, in any other case the superficial loss guidelines will apply even should you promote the funding earlier than contributing.

You can at all times contemplate shopping for an analogous funding as a substitute of the identical funding with a purpose to get the money invested with out ready. In different phrases, you can promote shares of 1 financial institution and purchase shares of one other financial institution. Or you can promote one U.S.-equity ETF and purchase one other comparable one.

Capital losses can solely be claimed in opposition to capital positive aspects on investments offered for a revenue in taxable non-registered accounts. Tax financial savings may be as excessive as 27% of a capital loss. Capital losses may be claimed in opposition to present 12 months capital positive aspects, or when you have a web loss for the 12 months, you’ll be able to carry the loss again as much as three years, or ahead indefinitely.

So, I hate to be the bearer of unhealthy information, Stavros, however your capital loss can be ineligible. Regardless, utilizing non-registered investments to fund your TFSA contributions is sound tax planning, and now you understand subsequent time to promote earlier than you contribute.

Jason Heath is a fee-only, advice-only Licensed Monetary Planner (CFP) at Goal Monetary Companions Inc. in Toronto. He doesn’t promote any monetary merchandise in any way.