Canadian Investing Taxes - Dividends, Interest, and Capital Gains

Are you curious about how investing taxes are calculated on dividends, interest, and capital gains across the various accounts in your portfolio? 

I am by no means a tax expert, but I do have enough knowledge to give general guidelines on how you can figure out your own investing taxes and prioritize your subsequent investments.

Investing Taxes in an RRSP

Let’s start with RRSPs. As you probably know, RRSP contributions and investment growth are taxable only upon withdrawal. 

At that point, RRSP withdrawals are taxed as income at your marginal tax rate at the time.  This means that it’s as if you earned the money at a job.

That’s the strategy behind RRSP’s: contribute, let it grow tax-free, and withdraw when you are in a lower tax bracket (hopefully).

The reason that the RRSP works so well as an investment vehicle, is that when you are retired, you will typically be in the lower tax brackets (unless you have a very large portfolio and/or a generous pension). Because of this, you’re able to invest money now before it is taxed while you are at a high tax bracket, and withdraw it when you are in the lowest tax bracket (i.e. retired).

Investing Taxes in a TFSA

The main benefit of the TFSA is that you don’t have to worry about paying investing taxes on anything that you hold within it. 

When you contribute to a TFSA, you are doing so with after-tax dollars, meaning that taxes have already been paid by you, on those amounts. 

In other words, even if your investments quadrupled in value within your TFSA, you still wouldn’t pay any tax on those gains. You also wouldn’t pay any tax on the dividend or interest income that you may have earned within your TFSA. 

Because of this tax efficiency, a common practice when it comes to the TFSA, is to use it for the investments that you think will grow the most, since in the future you’ll be able to take those investments and gains out tax-free. 

Investing Taxes in Non-Registered Accounts (Taxable Accounts)

Now on to Non-registered accounts.  This is where things can get a bit tricky. There are 3 types of taxes that you need to consider.

  1. Capital gains tax (preferred)
  2. Dividend tax from Canadian corporations (preferred)
  3. Interest tax and dividends from non-Canadian corporations

Investing Tax on Capital Gains

When you profit from selling a stock in a non-registered account, you will be subject to capital gains tax. What are capital gains? A capital gain is the difference between the selling price and buying price of a stock – less the commission. 

For example, if you sold a stock for $1,000 (inc selling fee) and paid $800 (inc buying fee), you would have a capital gain of $200. 

Capital gains tax is subject to a 50% inclusion rate. This means that 50% of your profit will be included as income. 

So in our above example, $100 would be added to your income and taxed at your marginal rate. Or another way to look at it is that any profits from a stock sale in a non-registered account are taxed at HALF your normal marginal rate.

Some Canadian investing tax experts argue that any part of your non-registered investment portfolio that produces interest income such as bonds or GICs should be placed inside a TFSA or RRSP in order to protect that income – due to the fact that it is taxed at 100% of your marginal tax rate.

However: I’d argue that with interest rates on fixed income so low, you’re better off protecting the much larger returns that your equities *should* produce long term.  The idea is, should you be more worried about protecting your 1% return on fixed income (even if it gets taxed at 100% of your marginal rate) or the 2-3% dividend returns + 4-6% capital gains that your equities are likely to realize over the long term (even though they do get preferential tax treatment)?  To me the math is pretty easy on that one.  Once fixed income starts edging into the 3-4% territory, the math starts to get a lot closer in terms of deciding what to keep under the RRSP/TFSA tax-sheltered umbrella, and what to leave outside in the taxable rain.

One additional advantage of keeping your capital-appreciating stocks outside of an RRSP is because you can claim your losses against your gains to reduce your taxes payable. Whereas within an RRSP, losses cannot be claimed. 

For example:

If in 2020 you sold stock for a $4,000 non-reg portfolio profit and $1,000 in losses, your total profit is now $3,000. To figure out your taxes payable, it would be: $3,000 x 0.50 = $1,500. This $1,500 would be added to your taxable income for that year and taxed at your marginal rate.

This is why you’ll read some tax strategies to sell your losing stocks at the end of the year. The losing amount will be deducted from your total winning amount and reduce your overall taxes. 

What if you have a losing stock(s) for the year, but you believe it’s a long term winner? You’re probably thinking to sell it before the end of the year and purchase it again. Not so fast, you have to make sure you don’t violate the superficial loss rule.

What is the Superficial Loss Rule?

According to the Government of Canada’s explanation, This rule applies where a person or affiliated person acquires or had the right to acquire the same or identical property within 30 days after the disposition or 30 days before the disposition of the property in question. The disposition could have been made to anyone. In these cases, the loss on the disposition is denied and the amount of the loss is added to the cost of the substituted property.

In layman’s terms, it simply means that if you sell a stock at a loss, you can’t repurchase the shares back again within 30 days and claim the loss against your gains. However, if you do repurchase the same shares back within 30 days and you profit from it in the future, you can deduct the initial loss against your gain of THAT stock.

For example:

  • Purchase 10 ABC stock for a total cost of $1000
  • Sell 10 ABC stock for: $800
  • Loss: $200
  • Repurchase 10 ABC stock within 30 days for: $850
  • Sell 10 ABC stock in the future for $1200:
  • Profit: $1200-$850-200 (initial loss) = $150
  • Taxable Amount: $75 ($150 *50%)

As a side note, you should consider the superficial loss rule if you are attempting the Smith Manoeuvre (SM) or want to hold Canadian dividend stocks outside of your TFSA and/or RRSP. The SM suggests to sell your non-reg stock to pay down your house, then REPURCHASE the stocks. If you sell stock at a loss, you should wait 30 days before repurchasing. Otherwise, the loss will be omitted.

Investing Taxes on Dividends and the Dividend Tax Credit

What is a dividend?

Dividends are payments/distributions from public corporations to their shareholders. Dividend paying companies typically pay their distributions on a quarterly basis (every 3 months).  You as an investor should see a nice little deposit in your online brokerage account when these dividends get paid out.

Why are dividends tax efficient to shareholders?

Dividends are tax efficient for shareholders because distributions are paid out with after-tax corporate dollars. Meaning that the company pays out the dividend distributions AFTER it has paid all of its taxes to the government. 

This is the reason why when you receive a dividend payment from a Canadian public company in a taxable account (i.e. a non-registered account), you are eligible for the enhanced dividend tax credit.

How do I calculate the dividend tax and dividend tax credit?

With the enhanced dividend tax credit, gross-up any dividends that you receive (from a Canadian public corp) for the year by multiplying it by 38% (2020).

  • Ex: $1000 dividends received in 2020 * 38% = $1,380

You add this amount to your income for the year. You take this total amount and figure out your marginal tax rate.

  • Ex. $55k + $1,380 = $56,380

Multiply your grossed-up amount by your marginal tax rate to figure out total taxes owed.

  • $1,380 * 29.65% = $409.17 (for this example we’re using the combined federal and Ontario tax rate/bracket which is 29.65% for 2020)

Calculate Federal Tax Credit and Provincial Tax Credit

  • $1,380 * 15.02% (Federal rate) = $207.28
  • $1,380 * 10% (ON) = $138
  • Total tax payable on $1,000 worth of dividends: $409.17 – $207.28 – $138 = $63.89.
  • Or, you can go on the web and calculate it yourself.

How about dividends from foreign companies?

Dividends received from foreign companies do NOT qualify for the dividend tax credit and are 100% taxable. For all intents and purposes, you can treat foreign dividend income the same as interest income or income you earned at a job.

Investing Tax on Interest Income (In a Taxable Account)

What is interest income?

Interest income is interest received from GICs, high-interest savings accounts, bonds, and private loans.

How is interest taxed in a non-registered (taxable) account?

Interest income is 100% taxable. This means that if you earn $1,000 in interest for the year, $1,000 is added to your income and taxed at your marginal rate. (40% tax rate = $400 to be paid in taxes – OUCH!)

In other words, it’s just like you earned the money at a job.

How to Calculate US Capital Gains Tax in a Non-Registered Account

Another common question is how to calculate capital gains tax on US traded stocks within a Canadian non-registered account (in USD).  

While the calculations are very similar to trading Canadian stocks, the difference is that the currency exchange needs to be accounted for.

Basically, the buy price and sell price need to be converted to Canadian dollars first prior to calculating capital gains.  

Once capital gains after foreign exchange are calculated, the same 50% inclusion rate is used. 

To figure out the exchange rate on the day of the trade, the Bank of Canada website has all the forex history you need.

Here’s an example:

  • Stock:  XYZ on NYSE
  • Buy Price USD: $10 x 100 shares = $1,000
  • Buy CAD/USD Exchange: 1.41 (on day of buy trade)
  • Buy CAD:  $1,410
  • Sell Price USD: $15 x 100 shares = $1,500
  • Sell CAD/USD: 1.43 (on day of sell trade)
  • Sell CAD: $2,145
  • Capital Gain:  $730 minus commissions
  • Capital Gains Tax: ($730 minus commissions) x 50% x marginal tax rate

In the above example, if it was simply a stock on the TSX, then the capital gain would be $500 (minus commissions). However, since there may be a loss or gain due to the value and volatility of the USD currency itself, it can work in favour or against the investor.

Another method my accountant told me about is to use an average USD/CAD exchange for all the transactions to avoid looking up the exchange rate on the day of the trade for every transaction. While this may simplify things, you’ll need to work through the numbers yourself to see which option reduces capital gains the most. For a frequent trader, I can see how using a single annual average forex rate can be advantageous.

Personally, to keep things simple, I hold US securities in registered accounts. As per my article on portfolio allocation, US dividends stocks are kept in an RRSP to avoid the withholding tax on the dividends and the occasional USD trade may be made within my TFSA.

Reduce your Investing Taxes by Claiming your Capital Loss

What is a capital loss?

It’s simply where you sell a stock in your non-registered portfolio for a loss.  

From here, it just seems like a loss, but there is a bright side. Unlike investments within your RRSP (or TFSA), capital losses within a non-registered portfolio can be claimed against your capital gains for the year (or previous years).

Here are some important facts about capital losses:

  1. Capital losses can only be claimed on investments within taxable investment accounts (also known as non-registered accounts).
  2. Only 50% of capital losses can be claimed.
  3. Capital losses can be claimed against capital gains in the current year, up to 3 previous years or carried forward indefinitely. However, it can be claimed against income on the year of the taxpayer’s death (comforting hey?).
  4. Tax loss selling must be made before December 24 of that year as it takes 3 days to settle the trade.

How Tax Loss Selling Works – An Example

Say for example Jim (@ 40% marginal tax rate) had $10,000 in capital gains in 2020, but also $4,000 in capital losses.  What is the resulting tax payable?

There are two ways to calculate this, both of which turn out with the same result:

  1. $10,000 – $4,000 = $6,000 x 50% x 40% = $1,200 tax payable
  2. $10,000 x 50% X 40% = $2,000 capital gains tax; $4,000 X 50% X 40% = $800 capital loss claim; result = $1,200 tax payable.

The last question is why would you sell for a tax loss? The main reason for this, is that sometimes at the end of the year, you realize that you’ve made some bad stock picks that have a low probability of recovering. Why not dump the losers, claim the tax deduction and move on? 

What about tax-loss selling or tax-loss harvesting for index investors?

Keep in mind that tax-loss selling primarily applies to investors that pick individual stocks within a taxable account. 

It doesn’t apply as much to index investors since as an index investor, you are buying and holding the entire index long-term. You don’t have any “losers” per se, since you aren’t actually trying to pick the winning stocks and avoid the losing stocks (i.e. as an index investor, you are just buying all the winners and the losers). 

If an index experienced losses in the year, then you also have to be careful about the superficial loss rule mentioned earlier. 

For example, if the S&P/TSX index (the main Canadian index) fell in a given year, you can’t just sell that ETF to claim a capital loss, and then buy it again immediately. 

It also looks highly suspicious to the CRA if you sell an index from one provider (ex. Vanguard) and then buy the same index ETF through another provider like iShares. In that case, you are still technically re-buying the same index, and so I seriously doubt that the CRA would rule in your favour as it clearly appears that you are doing this just to minimize taxes.

What you can do (and the CRA has not spoken out against this to the best of my knowledge) is buy a similar ETF to the one that you just sold – then 30 days later, sell that ETF and buy the one that you really want (and had originally).  There is no reason to over-complicate your life with stuff like this unless your overall portfolio is large enough that the loss that you experienced represents a decent tax write off.  If you are sticking to investing only in your RRSP and/or TFSA, then obviously this strategy doesn’t apply to you.  

Here’s how it would look in a possible 2020 scenario:

  • I start 2020 owning 1,000 shares of VCN at $34.00 per share.
  • December 20th rolls around and VCN is now trading at $26.00 per share.  (No, this is not a prediction!)
  • I have lost $8.00-worth of value for each share that I own – totalling an $8,000 loss – which can be used to offset any gains.
  • I login to my Questrade account to sell my shares, and “book” the loss.
  • I take the $26,000 that I received in my discount brokerage account when I sold the 1,000 shares, and I use it to purchase XIC (which is a similar holding, but actually invests in a few dozen less small-cap stocks).
  • I could also just sell it and take the risk that the market is going to go anywhere for 30 days, then re-buy my original VCN shares back again.
  • I then sell my XIC shares 30 days later, and buy my VCN shares back.

To summarize, tax-loss selling is a strategy that can be great for investors who at one point picked an individual stock(s) or ETF that they thought would do well, yet after some time realized that they made a mistake, and would now like to sell it and move on.  It’s also worth mentioning that for investors that want to keep their life super-simple, our Wealthsimple Review explains how Canada’s #1 robo advisor will actually complete this “tax loss harvesting” on your behalf once you have $100,000 in assets with the company.

However, the strategy can also be used effectively by index investors who have a large enough portfolio and a large enough loss in any given tax year to justify “booking” or “making real” a paper loss in their non-registered account in order to reduce their taxes owing.  Our all in one ETFs article shows some excellent options for folks that like the idea of claiming a tax loss in their non-registered account, but also value overall simplicity.  That said, remember to read the fine print when booking a transaction like this.

This guide was originally written by Frugal Trader, and updated for 2020 by Kornel Szrejber and Kyle Prevost.

 

130 Comments

  1. Ben on May 7, 2010 at 4:56 pm

    I am close to retirement and I have accumulated stocks in a non registered account during my career through a company stock purchase plan.

    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?

  2. FrugalTrader on May 8, 2010 at 8:17 am

    Ben, if you sell or transfer the stocks, I believe that you will face a capital gains tax. You might be better off waiting until retirement to sell, that is, if you believe your company will continue to be strong until then. Ofcourse, you may want to consult with an accountant.

  3. Ed Rempel on May 10, 2010 at 1:39 am

    Hi Ben,

    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

  4. Tommy on July 16, 2010 at 3:06 pm

    Hi Ed,

    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!

  5. Emily on September 8, 2010 at 12:16 pm

    FT,

    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!

  6. FrugalTrader on September 8, 2010 at 1:50 pm

    @Emily, to purchase via SPP, you need to contact the company directly. For example, with Scotia Bank, you can find the info here:
    http://scotiabank.com/cda/content/0,1608,CID1017_LIDen,00.html

    Best of luck!

  7. Alex on October 10, 2010 at 4:34 pm

    It’s my first year investing in US stock with a Canadian broker( questrade ). I was wondering if I have to fill up special income tax forms for US stock that I sold in my non-reg account? And do I have to file something to the US gov?

  8. FrugalTrader on October 10, 2010 at 5:31 pm

    @Alex, no tax payable to the US govt. However, if you invest in US stocks in the future that have dividends, you can request to have your withholding tax reduced by contacting the discount broker. They will send out a form to complete.

  9. Donna on December 28, 2010 at 6:04 pm

    A Canadian owns a company and manages investments for his clients through the rental of a seat on the NYSE and a subscription to a service which enables trading (ie Interactive Brokers). 82% of the income comes from management fees charged to the client. The company also has some cash which the person uses to trade futures . He does day trading with this account. This is the other 18% income for the company. A T5008 is received at the end of the year. Is the reported income a capital gain or regular income? thanks

  10. Pasan on December 29, 2010 at 11:15 pm

    Hi,

    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!

  11. FrugalTrader on December 30, 2010 at 1:48 pm

    @Pasan, in that case, you’re better off selling the stock, claim the loss, then contribute the cash to the TFSA.

  12. Ed Rempel on January 2, 2011 at 1:25 pm

    Hi Pasan,

    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

  13. Rob on January 12, 2011 at 3:56 am

    Frugal Trader,
    I am a frequent trader, not a daytrader but a swing trader. I was wondering if I have to declare all capital gains for each transaction regardless the amount, or there is a min to declare. I ask this because there are transaction that I came out flat ( maybe made 5 dollars or so)

    thx

    rob

    • FrugalTrader on January 12, 2011 at 8:33 am

      @Rob, my understanding is that you need to calculate all your transactions, no matter the amount. Best to confirm with an accountant, but that’s what I’ve had to do in the past.

  14. Ian A Rocks on January 19, 2011 at 6:40 pm

    I am a US citizen and wish to invest in Canadian Stocks in a Canadian and USA stocks and commodities in a Canadian denominated account. I will
    be considered a trader. I will have no Canadian employment income.

    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

  15. Cathryn on January 23, 2011 at 5:08 pm

    Number 73 is correct on the math.
    Also, do the math on TFSA’s vs RRSP’s – and see the interesting
    result there. Since the two vehicles deal with tax at different entry
    points, it is best to do the math right through two examples with
    indentical earnings.
    In Retirement, a RRSP – converted to a RRIF also gets an additional
    $2000 tax exemption ( x 2 if you have done Spousal) plus there
    is the added factor of the additional age tax credit along with the
    already existing personal tax credit.

  16. Nova_Scotian on May 26, 2011 at 2:19 pm

    Wondering how to calculate this.

    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.

  17. Showtime on September 9, 2011 at 8:03 pm

    Good tips. I have been questioning the merits of non-reg acct in general if there is still contrib room in tfsa or rrsp. I was thinking about this even before I came across RM’s post #73. My thinking is that non-reg is actually getting taxed twice: once at marginal rate because non-reg is funded w/ after-tax dollars, and taxed again when it generates gains/divs/interest, etc. Rsp and tfsa are only taxed once, tfsa at funding and rsp at withdrawal. There are some reasons to contrib to non-reg (eg can claim cap losses, no limits, etc) but it could be argued to not even use non-reg while one still has tfsa and rrsp room. That said, it should be noted for certain income levels (varies per province), divs in non-reg acct are exempt from tax…not only that cra will actually pay you, ie negative tax rate on divs.

    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.

  18. toasty on November 6, 2011 at 6:32 am

    Little late to this thread, but I believe stating that keeping capital gains outside of RRSP is correct, but for different reasons than stated here. You say:

    “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

  19. trollmonger on June 6, 2012 at 3:19 pm

    My wife owns a house that is not her primary residence. Accordingly, she will pay capital gains taxes when she sells.

    But what will be her tax rate? Is the capital gain part of her income? For example,

    Purchase price: $200K
    Sale price: $600K
    Capital gain is $400K of which $200K is taxable.
    If her employment income is $40K, is her tax rate based on 40K or 240K for that year?

    • FrugalTrader on June 6, 2012 at 9:17 pm

      @trollmonger, best bet would be to input your tax scenario into a tax calc, like taxtips.ca, and see what kind of tax owning there will be. As well, did you wife life in the home at all? If so, then the adjusted cost base will be different than her purchase price.

  20. trollmonger on June 7, 2012 at 12:52 pm

    Thanks FT,

    Taxtips answered my question. It wasn’t the answer I was hoping for though. That’s a lot of taxes!

    She did live in the house before we married. Her parents live there still. I didn’t think to have the house appraised when she moved out but I’m sure we’ll find a way to estimate the value at the time. We just need CRA to agree.

  21. Dan on September 18, 2012 at 12:14 pm

    Hi FT,
    I just found your blog and it is an awesome blog seems I am pretty much on the same boat as you are.

    A quick question about Capital Gain. I have a decent size investment managed by a private investment firm (a division of a big bank) on a non registered account which currently have about $50K capital gain should I liquidate the account. The investment is invested in money market, stocks and bonds in Canada and US.

    I recently decided to learn more about investing and have a self-directed account for RSP and TFSA on a brokerage account of the same bank. My goal this year is to take over my non registered investment account from the private investment firm and self manage it. Hence, avoid the hefty fee that they charge every month.

    My question is: when I am ready to take over my non registered investment account, should I liquidate it and realized the $50K capital gains? or will I be better off to actually transferred the investment to my discount brokerage without liquidating the assets? i.e. carrying the original costs of the investments to the discount brokerage (I understand from my broker that this is possible since both my discount brokerage account and non registered investment are divisions of the same big bank).

    FYI: this year my marginal tax will be very low since I took some time off and have not earn much income (my expected income outside any capital gain will be in the $20K-$30K neighborhood).

    Thanks FT,

  22. FrugalTrader on September 18, 2012 at 7:37 pm

    @Dan, thanks for the kind feedback. Do you still like the investments that are held in the private account? If so, then you should consider simply transferring in-kind to another non-reg account and managing them from there. I believe brokerages will charge about $150 to transfer stocks/bonds over to a new account.

    Does this help?

  23. Dan on September 18, 2012 at 11:11 pm

    Thanks FT,

    I do like some of the investments but will definitely get rid some of it.

    Consideration to liquidate or not was more for the tax purposes since this year my marginal tax will be at lower rate. I thought it would be a good idea to realize the gain. But I am not sure if that will actually matter.

    Thank you.

  24. FrugalTrader on September 19, 2012 at 9:46 am

    @Dan, it’s never a bad thing to pay less tax! However, you also need to look at the big picture and if you would sell the investment at all if it weren’t for the tax consequences.

  25. Mike on February 10, 2013 at 11:17 am

    Let’s assume that I buy 100 shares of the same stock each month for 25 years, and plan to sell them for retirement income as needed. It’s safe to assume that the price per share will change month by month, or year by year.

    In 25 years from now when I start selling portions of my portfolio for retirement income, how do I know what price I paid for the portion of shares I’m selling?

    Thanks,
    Mike

  26. Danielle on February 23, 2013 at 12:43 am

    Mike, the adjusted cost base of the shares is affected each time you buy more shares. If you continue to buy shares and the price per share goes down, then this will decrease your ACB. And subsequently affect any gains you may have. When you eventually sell, the gains and losses are calculated using the adjusted cost base. Think of all the shares going into a cost “pool” in which the cost is adjusted every time you buy more shares of the same company.

    When you do sell the shares the taxes you pay will be based on your marginal tax rate. Any capital gains will be included in your income for that year (50%). The other 50% of the gain is not taxable.

  27. gogernator on December 10, 2013 at 2:18 pm

    HI Folks, I have a quick question – I have a capital loss that I’m carrying of around 11k, I’m going to sell some stock options I have creating a capital gain, is the loss applied against the gain only, or on total amount of the share options excersied? An example would be:

    I excercise 40K in share options and recieve 30K in net cash (50% of 40K is 20K taxed at 50% = 10K in tax). Would my capital loss of 11K be applied against the 20K in capital gain gross ie my 20K becomes 10K and I now only owe 5K in capital gains tax?

  28. Wayne on March 10, 2015 at 11:38 pm

    I’m in something similar to the Smith Manoeuvre. I have a HeLOC and I pay into Segregated funds every month and the interest only payments. As my funds build up in value, eventually, I can cash out and pay off my home. My question is… How do I know what my Tax Hit will be before I cash out? someone said to cash out $30,000 for the next 5 years to minimize Capital Gains Tax? Can you tell me how I would figure out the Tax Hit? I guess I go back to the holder of my Seg Funds and ask them? Both my fund mgr and the holder of the funds said my taxes would be approx. $6,000 on withdrawal of $30K…. when I got my T-3, the capital gains was like $14K! what gives? How do I find out what my taxes on capital gains will be? I’d like to cash out totally but I’m afraid of the Tax Hit.
    Thanks
    Wayne.

  29. ova on March 24, 2016 at 9:09 pm

    My question is regarding the superficial loss rule. Are losses only unclaimable when you buy back the same security within 30 days after sale. Or is it also unclaimable if you sell within 30 days after buying. I’ve heard it’s realy a 60 day rule, 30 days before and 30 after. Can you please comment. Thanks.

  30. Mary on September 2, 2016 at 5:48 pm

    Instead of taking my RRSP payment I opened a regular stock account and transfered all of the payment including cash an stocks into it. I paid tax each year on my RRSP amount. I have now got cash sitting in this regular account that I would like to withdraw. Do I have to pay tax on this money which I already paid tax on before?

    • FrugalTrader on September 2, 2016 at 6:24 pm

      Hi Mary, if you are referring to a non-registered account, then you can withdraw cash from the account without paying tax. However, if you had capital gains in the account, you will owe taxes when you file your tax return.

  31. helen dakin on February 9, 2018 at 4:36 pm

    does CRA use the ‘first in first out’ principle for determining the Cost Base for share purchases? For example, if you purchase 500 shares ABC at $50ea and 500 shares of same stock later on at $80ea, followed by selling 600 shares of ABC at $100 each, would your proceeds be computed as: 600 x $100 and your costs computed as: 500x$50 +100x$80 or $33,000 for a net gain of $27,000.
    My friend uses the average cost principle and I am doubtful of this approach.
    With their calculation, they would report proceeds of 600x$100 (60,000) less the average cost of $65 each (600x$65) or $39,000 resulting in a net gain of $21,000. Of course, my friend would have to remember that the value of remaining 400 shares would be at the ‘average’ price of $65 and any subsequent gain would have to be calculated at that base cost (which would be pretty difficult to track in my opinion).

    • Dave on May 25, 2020 at 12:01 pm

      In Canada, your friend is correct in using the average cost principle. That’s how my brokerage provides it to me for tax purposes. No protest from CRA and been doing that for many years.

Leave a Comment





This site uses Akismet to reduce spam. Learn how your comment data is processed.