FP Answers: Do we have to pay capital gains tax on long-term held shares transferred between accounts?



By holding shares until death, the estate can cover the capital gains tax bill.

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FP Answers puts your investment questions to the experts. This week our expert is Theresa Morley, a partner with Morley Chartered Accountants in Barrie, Ontario. Whatever your investment question, ask us, because FP Answers.

Q. My wife and I had two unregistered accounts with iTrade. One account included my daughter’s name on it. It was put in place long before the introduction of TFSAs and at a time when RRSPs were still in their infancy.

The two actions of the account – TC Energy Corp. and the Canadian Imperial Bank of Commerce – have been in these unregistered accounts for many years. At tax time, dividends and capital gains were always reported on my and my wife’s returns. My daughter was never involved in these stock purchases or returns on investments.

We are now over 80 years old. Recently, as part of estate planning, I transferred the shares to another non-registered iTrade account, which was only on behalf of my wife and myself. iTrade transferred both shares into the new account at today’s market value, which was well above the adjusted book value before the transfer.


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Do we have to pay capital gains tax on the difference in value between the old adjusted book value (ABV) and the new transfer price (which iTrade calls ABV for 2021)?

As stated above, the original two accounts weren’t registered, but one account included my daughter’s name. We anticipated that any capital gains tax would be paid on our estate upon death. We would appreciate any comments / observations you may have. – Bob and Gillian

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FP responses. Thanks for your question Bob and Gillian. Based on what has been explained, it appears that the account was transferred at fair market value on the day of transfer, rather than at the cost of the original stock price. When you change accounts, you are deemed to have disposed of the shares and will realize a capital gain on the disposition if the shares are worth more than what you bought them for, which appears to be the case.

The shares in your new non-registered account will now have the cost base corresponding to their value on the day of the transfer. Ultimately, this decreases the capital gain in the future, since you now have an “increased” cost base and have realized a large portion of the capital gain in the year of transfer.


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In this case, you and your wife would be responsible for paying capital gains tax on this transfer now for 2021.

As for your daughter, she did not put money into the non-registered accounts but just has her name on one of the accounts. Therefore, she would not have to pay anything because none of the initial investments for the two stocks came directly from her.

Finally, yes, the capital gains tax resulting from the two transfers / transfers of shares is due for the tax year 2021, known as the year of disposal. The option of paying this tax on capital gains from previous years upon death is now excluded. But in the future, if you both hold shares in this manner until your death, then your estate may pay the accumulated capital gains tax on the difference between that “grossed up” cost base and the amount. deemed disposition on death.


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Remember that there are some things you can do to help minimize capital gains. They include using capital losses from past years to offset future capital gains, holding your investments in registered accounts such as TFSAs and RRSPs, and holding your investments in stocks for the long term – can – be until you and your wife pass away so your estate will pay the bill.

In addition, by donating certain types of capital property (such as publicly traded stocks) to a registered charity or other qualified donee, you may be eligible for an inclusion rate of zero on any capital gain realized on such donations. You can read more about it here: Types of donations eligible for charitable donation tax credits.

If you’re interested in any of these tax strategies for reducing capital gains tax, talk to a tax accountant to better understand the details as well as all of your options.

Theresa Morley, CAP, CA, is a partner at Morley Chartered Accountants in Barrie, Ontario. She blogs onMorleyCPA.


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