You recently mentioned the iShares Core Dividend Growth ETF (DGRO) as a way to get exposure to U.S. dividend stocks. When holding DGRO in a tax-free savings account, is there any U.S. tax withheld?
Yes. Whether you own U.S. stocks directly or through a U.S.-listed exchange-traded fund such as DGRO, the dividends are subject to a 15-per-cent U.S. withholding tax in a TFSA. The same is true for a registered education savings plan or a non-registered account, although in the latter case you can usually claim a foreign tax credit for the amount withheld.
You can avoid U.S. withholding tax on dividends by keeping your U.S. stocks or U.S.-listed ETFs in a registered retirement savings plan, registered retirement income fund or other registered retirement account. That’s because retirement accounts are exempt from withholding tax under the Canada-U.S. tax treaty. However, if you invest in U.S. stocks through a Canadian-listed ETF or mutual fund, you will still face U.S. withholding tax regardless of the type of account in which you hold the fund.
I own Manulife Financial Corp. (MFC) shares in a non-registered account. I would like to place the Manulife shares into my self-directed RRSP as an “in kind” contribution without selling or triggering capital gains. Is this possible?
No. When you contribute shares in kind to an RRSP (or TFSA), for tax purposes you are deemed to have sold the shares at fair market value. So, if your Manulife shares have appreciated since you bought them, the transfer would trigger a capital gain.
If you transfer shares that have dropped in value, on the other hand, you cannot claim a capital loss. In that case, one option is to sell the shares, contribute the cash to your RRSP and then wait 30 days to repurchase the shares. This will get around the “superficial loss” rule and allow you to claim the loss for tax purposes.
Last year, my Canadian Real Estate Investment Trust (REF.UN) units were acquired by Choice Properties REIT (CHP.UN) for a combination of cash and Choice units. How do I report this on my tax return?
There are no immediate tax consequences for CREIT units that were exchanged for Choice units, as this portion of the deal was considered a tax-deferred rollover. Basically, the total adjusted cost base (ACB) of the new Choice units received would be the same as the total cost base of the exchanged CREIT units. You would use this ACB figure to calculate your capital gain (or loss) when you ultimately sell the Choice units.
For the cash portion of the transaction, it is more complicated. Each CREIT unit was acquired for $53.75, so your net capital gain per unit will be $53.75 minus your ACB. However, reporting the transaction on your return is a two-step process that requires entering information from a T3 and a T5008 slip. You must complete both steps or you could end up paying more tax than necessary.
The T3 will show a capital gain of $50.60 per CREIT unit (reflecting the sale of CREIT’s properties as part of the transaction). The T5008 will show proceeds of disposition of $3.15 per CREIT unit (representing the cash takeover price of $53.75 per unit less the capital gain of $50.60 already allocated on the T3).
If your ACB was, say, $40, you would report a capital loss on your return of $36.85 ($40 minus $3.15), which would offset the capital gain of $50.60 reported on the T3, for a net capital gain of $13.75. Choice provides a detailed example on its website at choicereit.ca. This is all assuming you held your CREIT units in a non-registered account, of course; in an RRSP or other registered account, there are no tax consequences from the transaction.
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