TFSA, stocks, and taxation - a tricky question

Hey!

Quick question about TFSAs. So I know that based on the 2009 changes to the TFSA, you can't contribute more to a TFSA per year than is allowed for that year even if you make 'withdrawals' that year (there's lots of information about this rule on the net).

BUT... what is a 'withdrawal'? Here's a scenario: Let's say you have $10000 worth of contribution room in 2010 and you put it all in a questrade TFSA (or any generic online trading TFSA) and invest it all in stock A. That same year, the stock value goes up so your stock are now worth $15000. You decide to sell the stocks because you expect it to drop and buy $15000 worth of shares in stock B (all in 2010).

So here's the question... does this constitute an over contribution? Is a withdrawal from your TFSA classified as (a) the actual selling of the stock OR (b) withdrawing cash from the amount. If it's the former, then my scenerio results in an over contribution. If it's the latter, then i haven't over contributed... and I can buy and sell shares within a TFSA in a single year without over contributing.

Tried to find the answer to this question and couldn't find it. Really appreciate your help! 


No it doesn't constitute as an over contribution.

b) Doesn't matter what you do in the account, what matters is what you transfer into the account and what you transfer out of it. Buying/selling stocks in a TFSA doesn't put money in or take money out of the account.

To clarify, a withdrawal would be considered as a transfer of cash or a security out of a tfsa to a non-tfsa.

when can you contribute to this year's tfsa???

Hi,

I was wondering if you can start contributing another 5000 into your tfsa account since its a new year.


thanks 

jan 1st, 5000 is added to your contribution room.

Espp & tfsa

I'm not sure if this is possible but is there anyway of creating TFSA to take advantage of ESPP through work. This and RRSP are main source of saving money. Because grant price is lot lower I have made large income through just the difference between grant price & stock price. I believe I have made this past year about $7-8K through this method and I believe that during tax season I will have pay marginal tax on that amount.

So is there anything I can do to take advantage of this? I still haven't sold and plan on selling shortly (unless there is tax advantage to not doing it). I continue to invest in ESPP, so is there anything I can do in the future to lower my taxes, even if it is not through TFSA?

A lot of companies offer their ESPP to go directly into an RRSP, but I don't believe many have gotten on board with TFSA yet. Regardless, you'd still be taxed at your MTR on the company's contributions, the benefit of the TFSA is that you would only have one number on your T4PS as there would be no tax on dividends. Depending on how the ESPP is set up there's probably some way you can transfer stock into a brokerage TFSA. Otherwise, sell and then repurchase in a TFSA.

All that being said, if this is a Canadian dividend paying company, the TFSA probably isn't the best location for the stock anyway, as capital gains and dividends are very tax efficient.

Over contributed to stock-based TFSA, what happens?

Hello all, so I misread my tax statement and thought that was my contribution room for the year from that pt forward, and not from the beginning of 2010. So I over contributed a little bit (under 1K, not a huge amount).

I know that the amount you over contribute is taxed for x number of months remaining in the year. Because I moved it into my TD waterhouse TFSA, and bought stocks with the money, I was just wondering how they calculated the tax I owe. Do they merely tax the amount you over-contributed, or do they tax gains also?

TIA

They only tax the amount of the over-contribution. If you move the over contributed money out of the TFSA now you will only be taxed 1% of the amount over the limit (if it were $1000 over, then we're talking $10).

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Any gains directly as a result of the over contribution are removed because it becomes 100% taxable.  if such amount if withdrawn it is not added back into the contribution room next year.