Q&A: Wants to claim a loss

Question: I transferred 600 trust fund units valued at $5,000 to my TFSA from a non-registered account. They increased slightly in value and I sold them recently at a considerable loss from my original purchase. Can I still use this capital loss against my capital gains in the non-registered account it was transferred from when filling out my tax return? – Bryan N.

Gordon Pape answers: It sounds like you have made a classic and costly mistake, one which I warned against in my book Tax-Free Savings Accounts. Based on your question, it appears that your units were already in a loss position before you moved them to the TFSA. In that case, you lost the right to claim a capital loss when you transferred them.

With TFSAs, as with RRSPs, the rules are that when an asset is transferred into a plan from a non-registered account it is deemed to have been sold for tax purposes. Any capital gain is taxable and must be declared on your next return. But, and here is the kicker, capital losses are not recognized in this situation and cannot be claimed. You should have sold the shares instead of transferring them and deposited the proceeds in the TFSA. That would have crystallized the loss for tax purposes. There is nothing you can do now, unfortunately.