What should I do with physical share certificates?
- Option 3: Contribute the shares to a TFSA or RRSP
Finally, instead of selling the shares and withdrawing the cash, your spouse can transfer the shares from his non-registered account to a tax-free savings account (TFSA) or registered retirement savings plan (RRSP). This is known as a contribution “in kind.” This is when the contribution is made by transferring securities, like stocks, bonds, mutual funds, etc., into a TFSA or RRSP, rather than contributing “in cash.” The amount will be based on the fair market value (FMV) of the shares at the time of the contribution.
For illustration purposes, let’s assume that your spouse owns 100 shares of BCE. At the time of the contribution, the shares last traded at $60 per share. In this case, the contribution will be $6,000: 100 x $60.
Remember the impact of taxes
You don’t say how long ago your spouse received his BCE share certificates. But ideally, he has the original value of the shares at the time they were gifted to him because there are taxes to consider.
If, however, he knows the date but not the original price per share, he can use a tool on the BCE website to estimate his adjusted cost base (ACB). The ACB takes into account the impact of purchases and stock splits or acquisitions on the cost of the shares over the time he’s owned the shares. (Other sources your spouse can use to look up historical prices are Yahoo Finance or Google Finance.) Taking this step to determine the ACB is important, as the Canada Revenue Agency (CRA) may ask him for evidence of the ACB he used.
Whether your spouse sells the shares or contributes them in kind to a TFSA or RRSP, the result is deemed to be a taxable disposition for tax purposes. For example: If the ACB of your spouse’s BCE shares was $30 per share, and he sold or contributed the shares at a price of $60 per share, he’d have a gain of $30 per share. On 100 shares, that would be a $3,000 gain.
As this is a capital gain, only 50% of the gain is included for tax purposes. So he’d need to pay tax on $1,500. If we assume a 30% tax rate, then he would owe $450 in taxes ($1,500 x 30%) when he files his next tax return.
In the case of BCE, a capital gain from a sale is not unexpected. However, not all discoveries of stock certificates result in a tidy profit—many companies simply go out of business and their shares become worthless.
In your spouse’s case, the discovery of the physical stock certificates may represent a welcome windfall.