Q&A: Read book but still confused

Question: I’ve just finished your excellent book The Ultimate TFSA Guide and realized how little I know.

Last fall, I closed my small direct investing account. I took a $1,000 loss on Nortel and collected a stock certificate for 94 shares in Empire Company, purchased in 2003. Empire pays a small dividend. I just checked the tax receipt and see the taxable amount was $25 and the credit is $4.78. In truth, I don’t know what that means; I pass it all on to my sister, who does my taxes.

Should I put the stock certificate in my TFSA, which holds $3,000 in a savings account and direct the dividend to that account? I’ve been frozen in indecision for more than a year now. And any ideas what to do with that Nortel loss on my tax return? I hope you can help. – Jo-Anne M.

Gordon Pape answers: I’m glad you enjoyed the book. If you go back and re-read page 21, you’ll find that it says that you will trigger a taxable capital gain if you put your shares of Empire into a TFSA. You say you have owned the stock since 2003 which means you probably paid between $25 and $30 for your shares. Empire (TSX: EMP.A) was recently trading at around $50. This means you have a capital gain of around $2,000 (maybe a little more) on your 94 shares. Do you really want to pay tax on that gain just to shelter a $25 dividend that is eligible for the dividend tax credit?

Unless you are using the TFSA as an emergency fund, keeping the money in a savings account is a bad idea. With interest rates so low, you’re earning almost nothing. You should invest the money in the account more effectively rather than worrying about putting the Empire shares into it.

s for Nortel, you can claim a capital loss on your 2009 tax return, as I am sure your sister will tell you when she prepares your taxes.

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