Yes it's true. You are deemed to have sold the stock on the day you transfer it to your TFSA. If you sell at a profit, you have a capital gain that you might have to declare depending on your personal tax situation (e.g. you may have some unapplied capital losses, etc...).
You have to sell your stock sometime, whether it's to liquidate it or transfer it to annother broker, etc... You're going to realize a capital gain (or loss) when you do this, so the fact that you happen to be transferring to a TFSA is irrelevant. Once the stock is inside your TFSA, any capital gains you realize upon selling the stock will be "tax free". However, you will NOT be able to use capital LOSSES incurred within a TFSA to offset your capital gains. Many people aren't aware of this.
The only exception to all of this is if you transfer your stocks within or between an RRSP.
You should have a chat with your financial advisor before you commit to anything.
In this regard TFSa soperate just the same as RRSPs:
- You can buy the investments inside the TFSA, or you can transfer-in existing securities (see list above) currently held in a taxable (i.e. non-registered) account without a problem. However, if at all possible you should aim to do this with ones that have a minimal capital gain/loss because (just like transferring into an RRSP) you are immediately liable for the tax on any capital gain, and you lose the ability to claim the capital loss.
- Note that if you sell the stock first in order to realize the capital loss, then don't buy it back inside the TFSA before at least 30 days have passed or you lose the ability to use the loss.
- In any case, if it's "not a good stock":
- Why not sell if anyway.
- Don't put things into your TFSA which you don't think will have a good chance of paying good interest/dividend, or growing well. You want to pass less tax, and this only happens when your investment make money inside the TFSA.