BCE Inc. has a plus-size dividend yield of 6.4 per cent these days, which puts it squarely in the sights of investors seeking tax-efficient investment income.
One such investor has a question: If he bought BCE shares on the New York Stock Exchange, would his dividends be subject to the usual 15-per-cent withholding tax applied when U.S. companies pay dividends to Canadian investors outside a registered retirement savings plan or registered retirement income fund?
Recently, I wrote a summary on taxation of dividends in registered and non-registered accounts. This reader asked for additional info about Canadian companies listed on U.S. exchanges and U.S. dividend-payers listed on the TSX. For answers, I consulted Wilmot George, a certified financial planner (CFP) and vice-president of tax, retirement and estate planning at CI Investments Inc.
Mr. George said under the Canada-U.S. tax treaty, U.S. withholding taxes would not normally apply if an investor buys shares of a Canadian company on the NYSE instead of the TSX. Would those dividends be considered eligible dividends as specified under the rules for the dividend tax credit?
“Taxable dividends from Canadian-resident corporations (regardless of exchange) are normally considered Canadian dividends,” Mr. George said in an e-mail. “Eligible dividend status (as opposed to non-eligible) is possible if the corporation declares and designates the dividend as such.” Note: Non-eligible dividends are generally paid by small businesses and get a different treatment than eligible dividends (generally paid by corporations) under the dividend tax credit.
This same reader also asked about Algonquin Power & Utilities Corp., which has a dividend yield of just less than 4 per cent and makes its quarterly cash payouts to investors in U.S. dollars. “Do I lose my preferred dividend treatment with respect to Canadian income tax because the payments are in U.S. dollars?” he asked.
Mr. George said the answer is no. U.S.-dollar dividends paid by a Canadian company listed on the TSX are considered Canadian dividends.
Finally, this reader asked whether dividends paid by U.S. companies listed on the TSX would qualify for preferential tax treatment. Mr. George said dividends from U.S.-resident corporations would normally be considered foreign dividends not eligible for the dividend tax credit.
As for converting those U.S.-dollar dividends paid by Canadian companies into Canadian dollars for reporting purposes, tax guidance provided by CI suggests using the conversion rate on the day the dividend is received.
-- Rob Carrick, personal finance columnist
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Investors should be prepared for lacklustre returns over the next several years that fall well short of what stock and bond markets have generated over the past 120 years. That’s just one of the many takeaways from the annual release this week of what is known as the bible of long-term, buy-and-hold investors: the Credit Suisse Global Investment Returns Yearbook 2021. Larry MacDonald looks at the highlights.
Nickel slumps as electric dreams are rudely disturbed
Nickel has endured its worst week in almost 10 years, with the London Metal Exchange price collapsing by 16 per cent in the space of two days to a three-month low of $15,830 per ton. Andy Home of Reuters explains what’s going on.
After weathering February storm, junk bonds count on Fed protection
Junk bonds, the only fixed-income segment still offering positive returns this year, will continue their outperformance, according to investor bets the U.S. Federal Reserve will eventually put its foot down and calm bond markets. Yoruk Bahceli of Reuters tells us more.
Value investing students pick their top stock pick of 2021
Dr. George Athanassakos’ January-February value investing MBA class at the Ivey Business School is over. As with every year, students had to find a potential value stock, value it and make a recommendation to buy or wait. With the market having more than recovered from its losses since last March, the picking was not easy. Despite that, once more his students proved that a diligent investor can always find undervalued stocks, in every market. Here’s the one they picked.
‘Meme stocks’ go mainstream: There’s now a fund for that
Interested in trading some of the stocks that have rocked Wall Street recently fuelled by social media buzz? Has the craziness of the comments talking up the so-called meme stocks on Reddit and other sites kept you away? Well, the financial industry has a new ETF just for you.
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Ask Globe Investor
Question: My husband and I recently sold a property in the United States and have about US$180,000 to invest in a non-registered account. Our preference is to not change the currency now, since our dollar is so low. Several years ago you wrote an article about Canadian companies listed on the Toronto Stock Exchange that pay dividends in U.S. dollars but are still eligible for the Canadian dividend tax credit. Could you please explain how we would go about investing in such companies and whether it makes sense to do so?
Answer: Let me clarify a couple of things. First, a low Canadian dollar is actually a benefit if you’re converting U.S. dollars back to loonies. At the Canadian dollar’s current value of about 79 US cents, your US$180,000 is worth about $227,848 (calculated as 180,000 divided by 0.79). If our currency were to rise – as it’s been doing recently – you would get fewer Canadian dollars, not more.
Second, the vast majority of shares that trade on the Toronto Stock Exchange are denominated in Canadian dollars. So even if you wanted to buy a Canadian company on the TSX that pays dividends in U.S. dollars, such as Algonquin Power & Utilities Corp. (AQN), Magna International Inc. (MG) or Brookfield Asset Management Inc. (BAM.A), you would still have to convert your U.S. dollars to Canadian dollars.
Another option – which doesn’t require currency conversion – is to purchase shares of Canadian companies in U.S. dollars on the New York Stock Exchange. Dozens of Canadian stocks are interlisted on the NYSE.
But you will have the most flexibility if you simply convert your U.S. dollars to Canadian dollars. You could do this through your bank, but if you shop around you’ll likely find a much better exchange rate.
Paul Kurucz, a consultant who advises Canadians who are moving back to Canada or repatriating funds, says a foreign exchange company is the way to go.
“People are often uncertain about how and when to repatriate funds to Canada. The use of a foreign exchange company will typically save Canadians hundreds and usually thousands of dollars,” Mr. Kurucz said.
“A client of mine sold her house in Houston and after using a foreign exchange firm at my recommendation she estimated a savings of $9,000 over what her Canadian bank quoted her net of wire transfer fees.”
Companies such as Knightsbridge Foreign Exchange, OFX and TransferWise “all do a super job,” he said.
What’s up in the days ahead
Rising bond yields have put the stock market on rocky footing, including a selloff Thursday after comments by the Fed chief failed to calm investors’ nerves. How much higher can yields go without triggering a major drop in Canadian and U.S. stocks? Tim Shufelt takes a look this weekend.
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Compiled by Globe Investor Staff