I was alarmed to see that my Loblaw Cos. Ltd. (L) shares took a steep dive on Nov. 2, but I am even more confused as to why the drop doesn’t show up on GlobeInvestor.com charts. What caused the decline and why doesn’t your website show it?
Loblaw did indeed suffer a big tumble on Nov. 2 – it fell 20.1 per cent. But let me assure you that you didn’t actually lose any money in the process.
To understand what happened here, let’s back up to September, when the grocery chain announced that it would spin out its interest in Choice Properties Real Estate Investment Trust (CHP.UN). Under the complex transaction, Loblaw parent George Weston Ltd. (WN) acquired Loblaw’s 61.6-per-cent stake in Choice REIT. In return, Loblaw minority shareholders received 0.135 of a George Weston share for each Loblaw share as compensation – a swap that was economically neutral for Loblaw investors.
So why did Loblaw’s shares fall? Well, the spinout was completed on Nov. 1, which meant that an investor buying Loblaw stock after that date was not entitled to receive any George Weston shares. As a result, on Nov. 2, Loblaw’s share price fell by $13.10, which, not coincidentally, was very close to the market value of 0.135 of a George Weston share at the time.
A Loblaw shareholder who held the stock through the spinoff closing date, however, was entitled to receive the 0.135 of a George Weston share. So, although the price of Loblaw dropped, the investor would have been made whole by receiving George Weston shares.
The way data providers depicted the price action in Loblaw’s stock only added to the confusion.
The reason the drop doesn’t show up on GlobeInvestor’s charts is that the data provider retroactively adjusted Loblaw’s stock price prior to Nov. 2 to effectively remove the value of 0.135 of a George Weston share. Presumably, the rationale for smoothing out the chart in this way is that the spinoff did not create or destroy any value for Loblaw shareholders, so it could be misleading to depict a large drop in the share price.
GlobeInvestor wasn’t the only website to adjust the data this way. Stock charts on Bloomberg also don’t show the big decline in Loblaw’s share price, while on Yahoo Finance – depending on the type of chart you create – some charts show the drop and others don’t. The TMX website does show the drop, both on its stock charts and in Loblaw’s price history data.
Where all of the charts agree is that Loblaw’s shares have rallied strongly in recent days, which ought to provide comfort to all Loblaw investors – not just those who were confused by the spinout.
I’d like to trigger capital loss for tax purposes on a Canadian index exchange-traded fund that I own. Can I immediately purchase another Canadian index ETF without triggering the superficial loss rule and having the loss denied, or do I have to wait 30 days?
With the S&P/TSX composite index down about 6 per cent year to date, this is a question that’s probably on a lot of investors’ minds.
According to the Canada Revenue Agency, a superficial loss occurs when you sell a capital property for a loss and then you (or your spouse or company controlled by you or your spouse) buys “the same or identical property … during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale.”
So, it’s clear that you couldn’t, for example, sell 100 shares of Bank of Montreal and then immediately repurchase 100 shares of Bank of Montreal. In that case, the loss would be denied for tax purposes. Nor could you sell an ETF that invests in the S&P/TSX composite index – such as the iShares Core S&P/TSX Capped Composite Index ETF (XIC) – and immediately buy another ETF that holds the same index – such as the BMO S&P/TSX Capped Composite Index ETF (ZCN). These are effectively identical properties in the eyes of the CRA.
Now for the good news. You could sell a Canadian ETF that invests in one index and immediately replace it with another ETF that invests in a similar, but not identical index, and still claim the loss. If you are selling XIC or ZCN, for example, you could purchase the Vanguard FTSE Canada All Cap Index ETF (VCN), which invests – as the name implies – in the FTSE Canada All Cap Index. Because the S&P/TSX composite and FTSE Canada indexes hold many of the same stocks and are highly correlated, you will remain invested in the broad Canadian market but will still be able to claim a capital loss.
E-mail your questions to firstname.lastname@example.org.