“The 50% inclusion rate is a reason why most financial gurus suggest that you keep investments for the purposes of capital appreciation/gain outside of your RRSP. If you keep your capital appreciation/gain assts inside an RRSP, you will be taxed on 100% of the gain because all income withdrawn from an RRSP is taxed at your marginal rate.”

The problem with this statement is that you are forgetting that the 50% is on profits of after-tax money. So in actuality you are getting taxed twice which comes out to more than the 100% if it were in RRSP, which is pretax money.

I think what they are trying to say is that is would be better to put in other types of investments which are taxed at a higher rate than capital gains.

Example:
You have $1 to invest. Assumes constant tax rate of 0.33% and 10% growth over whatever period.

RRSP: principle * (1 + growth) * (1 – tax rate)
RRSP: $1 * (1 + 0.10) * (1 – 0.33)

= 0.737

non-reg: principle * (1 – tax rate) +
principle * (1 – tax rate) * (growth) * (1 – tax rate / 2)
$1 * (1 – 0.33) + $1 * (1 – 0.33) * (0.10) * (1 – 0.33 / 2)

= 0.726

Something else to consider is growth of investment eg $100k into an acct and it grows to $200k for withdrawal. Due to this factor (and other factors), non-reg withdrawal tax may actually be lower than rsp over a very long time, maybe 30+ years. Even tho non-reg is being taxed twice (in and out), the lower tax on divs and gains may eventually be more economical vs rsp’s perpetual marginal rate for withdrawals, but probably after many decades.

Owe 100 shares of a company that is DRIPPed.
Then buy 150 shares of this company and put in a sell order to sell 150 shares.

How do you record capital gains and ACB for the 2 scenarios
(1) The 150 shares are sold before the ex-dividend date, so no DRIP
(2) The 150 shares are sold after the stock as DRIPPED

Any help would be appreciated.

A. If i have $20,000 in capital gains what will my Canadian taxes be?

B. Will the amount of Canadian taxes be credited against my USA taxes due

thx

rob

CRA is not allowing capital losses on transfers “in kind” to a TFSA. If you transfer in a stock that has a gain, you have to claim the gain, but if there is a loss it is denied.

You should follow FT’s advice – sell the stock first and then contribute the cash.

Ed

If I transfer a stock from a non-registered account to TFSA, I was under the impression that, it count as selling the stock from the non- registered account for Tax purposes. If I had a capital loss on that stock, can I claim that loss?

e.g Bought stock ABC at $1000 in non-reg. account and transfered to TFSA when it is $800. Can I claim a loss of 200?

Thanks!

Best of luck!

Slightly off topic however, I am looking into the SPP with BNS and can only find info for current shareholders wishing to acquire additional common shares of the Bank. How do you go about becoming a shareholder in the first place. I found this same issue with many Canadian companies offering SPP. I am very new to this so would appreciate some direction. Great article by the way!

Thanks for explainging the “30-day rule”. Since I have 40K non-registered money, and still have a personal mortgage, I am looking to perform SM by paying down my mortgage first and then reborrow for investments.

A lot of stocks are still down, if I decide to sell at loss, and repurchase back within 30 days, I technically lose the “capital loss” priviledge. However, if I am purchasing the same stock within 30 days, and I still see the future growth of the stock, the loss portion can be deducted from the profit when I do sell the security in the future right? In words, the loss can reduce the adjusted cost base of the same security?

ie. Buy Stock A for $1000
Sell at $800 ($200 loss)
Repurchase in 3 weeks at $900

In the future, I sell at $1200
My adjusted cost base is 1200 – 900 – 200 loss = 100 capital gain

Is this correct calculation?

Thanks!

There are a few issues to your question, Ban. Yes, if your shares are up, the capital gain will be taxable. However, it is only 50% of the gain that is added to your income, not the amount you sell.

If you buy bonds, the interest is all 100% taxable every year, which will also run into more tax.

You should probably consider the non-tax issues as well. Having all your shares in one company is very risky – far more risky than owning a broad stock market investment. Any one company can go bankrupt.

Many people somehow think that having shares of the company they work for is safer, because they know the company. However, they already have their job and more tied up in that company.

The general rule of thumb is that you should have no more than 5-10% of your investments in any one company – even one you work for.

It probably makes sense to become more conservative when you retire, since you are no longer adding money to your investments, but probably the biggest mistake many seniors make is to become far too conservative. You probably still have 25 years in front of you if you are average health, so it is probably still appropriate to have a significant growth portion of your portfolio.

The best strategy might be to sell most of the shares and buy a diversified portfolio based on your risk tolerance and retirement income/growth needs, using some far more diversified investment for the equity portion.

There is also the issue of whether you should sell now or after you retire, or if you should do it all at once or sell over time. Depending on your income, you may be in a lower or higher tax bracket after you retire. Most seniors are also affected by various clawback programs on income from the government. When you add that to normal income tax, many seniors are in 40-70% tax brackets, so don’t just assume you will be in a lower tax bracket after you retire.

Since your investments are non-registered, your choice of investments will have a significant effect on your tax bracket, so you have lots of planning options.

Ed

Being close to retirement, I am now more risk averse and would like to move these stocks to a safer place such as Government Bonds. Wouldn’t doing this now push my already high marginal tax rate up and result in capital gains being taxed very highly compared to keeping the stocks and selling them little by little during my retirement years when I have less income?

Is there any ways to move my non registered portfolio to safer grounds without being punished for doing it in one move during the years with the highest marginal rate of my career?