In many situations, we recommend taking advantage of “in-kind” transfers because they can save taxes and commissions and provide flexibility to investors.
The term in-kind means an investment is moved exactly as is. This is opposite to a cash transfer where the investment is sold, and cash is transferred.
We are illustrating 10 different examples where an investor may be better off to transfer investments in-kind.
Example #1: Paul is looking to change financial institutions. After meeting with Paul we recommended several proposed changes to his portfolio. We noted that his best option was to open a fee-based account and transfer his existing investments in-kind. Once the investments are transferred into the new fee-based account then the proposed changes can be done. With fee-based accounts no transaction commissions are charged to restructure the portfolio.
Example #2: Elaine’s mother recently passed away. As an only child she is also the executor and sole beneficiary of her mother’s estate. Elaine likes the investments in her mother’s estate account and asked us about her options. We suggested to Elaine that she transfer the investments in-kind into her existing investment account to avoid the selling commissions.
Example #3: David recently opened a Tax Free Savings Account. He also has a non-registered investment with several different companies. We suggested he transfer up to $5,000 in equivalent value of investments in-kind from his non-registered account into his TFSA each year. He should transfer only investments that have a minimal unrealised capital gain. The transfer into the TFSA will trigger a deemed disposition for tax purposes for the portion of shares transferred in. Please note that you should not transfer investments that have an unrealized loss (it would be denied as a result of the superficial loss rules).
Example #4: Every year John gives money to his favourite charities. We suggested to John that he would save taxes if he donated some of his investments in his non-registered account in-kind to the charity instead of cash. By transferring the investment in-kind he would not be taxed on the capital gain portion of the shares transferred.
Example #5: Every February Joanne has contributed cash into her RRSP account. This year Joanne is having difficulty coming up with the cash although she had a very high-income year. We suggested to Joanne that she transfer an investment in-kind from her non-registered account into her RRSP account. This would enable Joanne to receive an RRSP contribution slip for the value of the investment transferred in (note: superficial loss rules would also apply). All future growth on this investment would be tax sheltered.
Example #6: Margaret recently turned 72 years old. She has sufficient cash flow from pensions but is required to begin pulling a minimum amount from her Registered Retirement Income Fund (RRIF) account. Margaret does not require the cash flow from the RRIF account. One strategy Margaret liked was an in-kind transfer from her RRIF account to her non-registered account. This meant that Margaret did not have to worry about having a specific investment maturing each year equal to her minimum RRIF payment. She has the flexibility to transfer all or a portion of a position. She could choose to transfer the equivalent market value of one of her investments, including bonds and common shares.
Example #7: Tim has deferred sales charge (DSC) mutual funds in his RRSP. He understands that if he sold the funds they would be subject to a fee. Prior to selling the funds we suggested he transfer in-kind the DSC mutual fund investments into his non-registered account in exchange for cash – this is often referred to as a swap. After the transfer is complete then he could sell the funds. By doing this, Tim could at least claim the loss as a result of the DSC fees once the investments are sold in the non-registered account.
Example #8: Ellen and Scott are proud parents of a two-year old girl named Eva. They have some shares in an investment account valued at approximately $5,000 that were given to Eva from her grandparents. We talked about transferring these shares into a Registered Education Savings Plan (RESP). The transfer will result in an additional $1,000 (20 per cent x $5,000) cash being credited to the RESP as a result of the Canada Education Savings Grant.
Example #9: Louise has three RRSP accounts, each of which are charged an annual administration fee. We noticed duplications in the account. We discussed to Louise that she could consolidate all three accounts into one through transfers in-kind. This will reduce her annual cost, as she will have only one annual fee (instead of three). Her individual positions will also be combined. Most importantly, the transfers in-kind enabled her consolidated RRSP account to be large enough to consider a fee-based account option with no annual administration costs.
Example #10: Norman has been investing funds in an informal in-trust account for his disabled son. We recommended Norman open up a Registered Disability Savings Plan (RDSP) for his child. By transferring investments from the informal in-trust for account in-kind into an RDSP, he will also receive government grants.