September 2021 Newsletter

Should you transfer shares that you already own to your RRSP?

The prospect can be attractive. The shares you transfer are considered a contribution to your RRSP. If you have unused RRSP contribution room, you can thus get a substantial tax deduction for shares that you already own. If you have not been making maximum RRSP contributions, you may have substantial accumulated contribution room. (Unused contribution room can be carried forward indefinitely since 1991.)

However, there are a number of problems and pitfalls that you should be aware of (most of these concerns also apply to a RRIF, TFSA, RESP or RDSP):

1. Contribute — don’t swap!

You can contribute shares to your RRSP, subject to the further points made below. But do not swap shares for other shares, securities or money that is in your RRSP!

Some taxpayers were finding ways to manipulate their income for tax purposes by swapping volatile securities in and out of their RRSPs (such as by picking the day’s low price for the transfer, so that gains accrued tax-free in the RRSP). The Department of Finance cracked down on this in 2011, and introduced rules that severely penalize taxpayers for swapping assets into their RRSPs for cash or other assets. Any income or gain earned in the RRSP on such assets will be 100% confiscated.

So make sure you are contributing to the RRSP, not exchanging the shares for something the RRSP already owns.

2. Do the shares qualify?

Shares in corporations listed on Canadian stock exchanges are no problem. For shares in private companies or foreign corporations, however, you must ensure that they qualify as RRSP “qualified investments”. Some do, but the rules are complex and must be checked carefully by a professional.

The rules for private corporations generally require that you and your family members not own 10% or more of the shares of any class of the corporation, and that it uses substantially all of its assets in an active business carried on in Canada. The rules for foreign corporations generally require them to be listed on specific stock exchanges (including all the major U.S. exchanges, as well as specific exchanges in 29 other countries).

3. Capital gain on transfer

When you transfer shares to your RRSP, you are considered to have sold them at their fair market value for tax purposes. If the market value is higher than your cost base, you will have a capital gain.

One-half of the capital gain will be included in your income and subject to tax (except to the extent you have unused capital losses from the same year or carried over from other years). You will have to consider this cost when measuring the value of the RRSP contribution.


You have shares in a public company that you purchased in 2013 for $2,000. They are now worth $10,000. You have $10,000 of unused RRSP contribution room. Your income is high enough that you are in a 50% tax bracket (combined federal/ provincial tax).

If you transfer the shares to your RRSP, you will have a $10,000 deduction, worth $5,000 on your 2021 tax return.

However, you will also have an $8,000 capital gain, since you will be deemed to have sold the shares for $10,000. One-half of this gain, or $4,000, will be included in your income. In your 50% bracket, that will cost you $2,000.

The result is that you still benefit from the transfer, but your net tax saving will be $3,000 rather than $5,000. (If you donate the shares to charity instead, you will not pay tax on the capital gain so your tax savings will be about $5,000, though they will vary by province.)

4. No capital loss on transfer

As noted above, when you transfer shares to your RRSP, you are considered to have sold them at their fair market value for tax purposes. However, if this value is less than the cost of the shares to you, you cannot claim a capital loss. Clause 40(2)(g)(iv)(B) of the Income Tax Act specifically prohibits claiming a capital loss on shares that you transfer to your (or your spouse’s) RRSP.

It is hard to quantify the cost to you of not being able to claim the capital loss, because it depends on various other factors. Capital losses normally can be used only against capital gains (including in future years, or from the past 3 years). If you have other capital gains to use up, the capital loss can be quite valuable. In such a case, you should definitely consider selling the shares on the market for a capital loss, and then transferring the cash to your RRSP. (Don’t have the RRSP buy back the same shares within 30 days, or your capital loss will be denied as a “superficial loss”.)

5. Cost of withdrawing the funds

Don’t forget that any funds in your RRSP are taxed when you take them out (such as after you turn 71 and the RRSP is converted to a RRIF, which requires a certain percentage to be withdrawn each year). The transfer of shares gives you a deferral of tax which can be very valuable, especially because of tax-free compounding within the RRSP. However, when you want access to the funds, you will have to pay the tax. The financial institution will withhold a percentage of the amount you withdraw, as prepayment against the tax you will owe on it.

If you are transferring shares to your RRSP, be sure you are awarem of these costs if you may need the funds back soon. As well, if you do take them out soon, you will have effectively wasted the contribution room for future years.

6. No dividend tax credit or advantageous capital gains treatment

Both dividends and capital gains are given special tax relief when you get them personally. For dividends from Canadian corporations, you get the dividend tax credit, which approximately offsets the tax paid by the corporation on the income that it had to earn to pay you the dividend. The result is that the top tax rate on dividends is typically in the range of 30-45% rather than about 50% (the details depend on your province of residence as well as your level of taxable income and the kind of dividend). Capital gains, as noted above, are only half taxed, so the top rate is typically about 25-27%.

If you put shares into your RRSP, both of these advantages are lost. Any dividends or capital gains simply result in the RRSP having more cash. The RRSP pays no tax. However, when you withdraw the funds from the RRSP (or later from your RRIF), you will be fully taxed on the withdrawal, with no credit for the fact that part of the funds withdrawn were received as dividends or capital gains.

As long as you leave the funds in your RRSP for many years, these disadvantages can be outweighed by other advantages, such as the up-front tax deduction and the tax-free compounding within the RRSP, as well as the fact that you may be in a lower tax bracket when you eventually withdraw the funds on retirement. However, you may wish to calculate the tradeoff, based on how long you expect to leave the shares in the RRSP and the expected rate of return.


Transferring shares to your RRSP can be an excellent way of obtaining a current tax deduction if you have unused contribution room. However, it is not always beneficial. Do not overlook the pitfalls and costs that may apply.

Last modified on September 10, 2021 12:00 am
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