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investor clinic

I’ll get to today’s questions in a moment. First, allow me to share an update from a reader whom I featured in a recent column about the frequent mistakes banks make with registered education savings plans.

If you missed that column, here’s a quick recap. After exhausting his daughter’s RESP to fund her education, the reader received a letter from the Canada Revenue Agency stating that his daughter had withdrawn $7,521 in Canada Education Savings Grants. That’s $321 more than the $7,200 CESG maximum per beneficiary, and the CRA wanted the extra money back.

I suggested this must have been the bank’s fault, because in an individual RESP it’s not possible to accumulate more than $7,200 in CESG. So the bank had apparently misclassified a portion of the daughter’s withdrawals as CESG, pushing her over the limit.

Now for the good news.

“Just thought you might be interested to hear that I finally reached a resolution on this with the bank,” the reader told me. “After escalating with the branch manager and subsequently with the bank’s customer care representatives, TD finally agreed to pay me out for the amount owing to the CRA as a ‘gesture of goodwill,’ but would not acknowledge that they were at fault for any of the questionable calculations or reporting on their side.”

I call that a win. As this reader’s story illustrates, if you suspect your financial institution has made an error, it’s important to go through the proper channels to resolve your complaint. Keep all of your records, and escalate your complaint if you don’t receive a satisfactory answer.

Now, on to some new questions.

When I screen for exchange-traded funds, I often find ETFs that are composed of several other ETFs. Do I have to pay the management expense ratios on all the underlying funds, in addition to the fund I am investing in directly? If so, that would exert an additional drag on performance.

No, you do not pay two layers of management fees and expenses. You pay only the management expense ratio of the fund you purchase. For example, as Vanguard Canada explains: “For any fund which invests in underlying Vanguard fund(s), there shall be no duplication of management fees chargeable in connection with the Vanguard fund and its investment in the Vanguard fund(s).” The same is true for other ETF providers.

What do you do if you disagree with how your discount broker has reported income for tax purposes? Presumably the broker submits the numbers to the Canada Revenue Agency, which considers them correct, even if they are wrong. An example: Summit Industrial Income Real Estate Investment Trust was acquired by Dream Industrial REIT and the Government of Singapore Investment Corp. earlier this year. In my account transaction history, the gain is shown as “trust income.” But it is clearly a capital gain. The difference between the tax treatments is huge. I asked my discount broker about how the transaction is recorded, and they said they report what is provided to them by the company. I have contacted the company’s investor relations twice, but no answer. I want to get this sorted out before tax reporting time. Now what?

You may be jumping the gun a bit here.

The purchase price of $23.50 for your Summit units consists of redemption proceeds of $7.15 and a special distribution of $16.35. The special distribution, in turn, is estimated to consist of capital gains of $14.30 and ordinary income of $2.05, according to a note on Summit’s website.

However, the precise breakdown of the special distribution could still change. The exact amount of capital gains (half of which are taxable) and ordinary income (which is taxed at your marginal rate) will be included on your 2023 T3 tax slip, which should arrive early next April.

When you receive your T3, check the numbers. You might find that they are in line with the estimates from Summit and that there is no problem.

However, if they are not in the same ballpark and you suspect a mistake was made, contact your broker. You can file an amended T3 with the CRA, if necessary. Just be sure that you can back up all of your calculations should the CRA ask for an explanation.

Separately, you will also have to calculate and report your own capital gain or loss from tendering your units. To do this, subtract the adjusted cost base of your units from the $7.15 redemption proceeds. If you get a negative number, this would indicate a capital loss (which will help to offset the capital gains in the special distribution). A positive number would indicate a capital gain.

You may want to speak to a tax adviser to ensure you report the numbers correctly

When I use the “Dividend” view on the Watchlist, there is a column labelled “5-YR GRW.” What does it mean?

This is the stock’s annualized dividend growth rate over the past five years. For example, the utility Fortis Inc. (FTS) paid dividends totalling $2.17 a share in 2022, its most recent complete fiscal year. Five years earlier, in 2017, it paid $1.625 a share. This represents total growth of about 33.54 per cent, or about 5.95 per cent on a compound annual basis, as the Watchlist indicates. A word of caution: The Watchlist doesn’t always get these numbers right, so be sure to check them against the company’s own dividend data.

E-mail your questions to I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

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