Deposit shares in TFSA before capital gain that exceeds contribution limit

Question

I find myself in an interesting position right now. I bought into a private placement and my escrow will be ending in a couple weeks. The kicker is that, if I were to deposit the shares into my TFSA (Tax Free Savings Account) at the current market price of the position, I would be over contributing. However, I have a question based on a hypothetical situation.

1. Let us say that the price of a share were to drop enough before the escrow ends so that I could fit the entire position into my TFSA without over contributing, and then the stock price surged so that the capital in my TFSA exceeds the limit, would this be considered by the CRA (Canada Revenue Agency) to be an over contribution? Or would I rightly be able to keep that capital in my TFSA without concern?

2. What if, after the escrow ends and the capital in my TFSA exceeds the contribution limit, I were to then liquidate some of those shares in my TFSA?

Anyways, since my net profit will not be more than 5 or 6 figures, I chose to simply deposit the certificate into my margin account. Considering that, I have one more question.

3. Do I pay capital gains only once the shares are liquidated? In other words, if I were to move as many shares to my TFSA as possible without exceeding my overall contribution limit after the escrow ends and before the shares are liquidated, would I have to pay capital gains tax on the remaining shares in my margin account? Or can I transfer them over and cash them out incrementally to avoid capital gains tax?

Answer 1

1. No. If there is no over-contribution when the shares enter your account, there will be no over-contribution if the shares increase in value. You may keep your capital in your TFSA regardless of the value it takes. Likewise, if you had reached your contribution limit for this year and your shares in your TFSA lose all their value, you are not given new contribution room to compensate for your loss. You must wait until next year to contribute again.
2. The TFSA contribution limit is just that, a limit on contributions. The Canadian Revenue Agency is interested in what enters and leaves the TFSA, not the value of what's inside (unless it's in the hundreds of thousands of dollars, at which point they will scrutinise your TFSA for what entered and left it to make sure you did not break any contribution rule).
3. You cannot use your TFSA to avoid paying capital gains that were made outside your TFSA. Suppose you bought 1 share of X for 1000$ some time ago and that it is now worth 10,000$. Suppose you have 10,000$ free space in your TFSA. Putting this share in your TFSA will make you liable to paying capital gain taxes immediately even if you do not sell that share.