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Let’s look at some more money questions readers have sent me.
Q – I am considering using an in-kind transfer to move funds from a non-registered Canadian investment account to my TFSA account. I currently have $17,800 contribution room in my TFSA. I am semi-retired and otherwise I’m not able to use all the available TFSA contribution room.
I understand that if I transfer non-registered shares and ETFs to my TFSA, Canada Revenue considers it a deemed disposition. None of the investments in my non-registered account are in a loss position, so I understand I will have to pay 50% capital gains on the amount I have earned from these investments (which will be about $1,200). I also understand that once the funds have been transferred into my TFSA, any further increase in value will not attract capital gains tax. This is my rationale for transferring the funds to my TFSA.
My questions are as follows:
A – Your rationale is correct, and I suggest you go ahead with your plan. As to timing, the sooner the better. The markets are on the rise right now, and the coming interest rate cuts should be a stimulus for more gains. To the extent that happens before you make the change, your capital gains will increase and so will your tax bill.
Your income does make a difference in the tax you will be assessed. The rule is that 50% of your gains are taxable at your marginal rate. So, the higher your income, the higher your rate.
Capital losses can be used to offset capital gains, but you say you don’t have any. Once the money is in the TFSA, gains and losses have no tax impact.
Q – I’m curious as to why Canadian Banc (TSX: BK) shares with a NAV of $19.75 are selling for $10 to $11, while paying a monthly dividend of around $0.13. They invest in the big six Canadian banks, so should be very secure investments. They use covered calls to raise the dividend over what banks are paying. If their shares were valued at the NAV of $19.75, the dividend would be about 8% which seems about right, given the banks are paying out dividends in the 4%-5% range. Many thanks for any insight you can provide. – Kerry G., Smithers, BC
A – Canadian Banc is one of several companies offering split shares based on bank stocks. Premium Income Corp. (TSX: PIC.A) is another. All operate in much the same way, with an issue of preferred shares that offer guaranteed dividends and an A share issue that offers capital gains plus any dividends remaining after the preferreds have been paid.
All the A split shares that I looked at have NAVs (net asset value) that are far higher than the trading price. This may be due to the high volatility in these shares. In January 2022, BK was trading at $15.16 a share. As I write it is at $10.73, down almost 30%. The 14.4%, based on the latest distribution, may look attractive. But the total payout over that period did not cover the capital loss, leaving investors with negative total return.
Of course, other time frames will produce different results. Buying now, while the shares are cheap, may be a winning strategy. Just be aware of the risk.
If you have a money question you’d like answered, send it to gordonpape@hotmail.com and write Fund Library Question on the subject line. I can’t guarantee a personal response but I’ll answer as many questions as possible in this space.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
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Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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