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Your questions keep coming, so let’s go through the inbox and deal with some today.

Tax treatment of HHL.U

Q – Harvest Healthcare Leaders has units that trade in U.S. dollars on the TSX. For tax purposes, is the income considered foreign income or Canadian? For example, can donations to registered charities in the U.S. be deducted against the income from HHL.U? – Michael K.

A - Only a small amount (9.26 per cent) of the income from this ETF was classified as foreign income in 2022, according to the Harvest Funds website. Most of the distributions (about 94 per cent) are treated as return of capital. So, you won’t get much help here for U.S. charitable contributions. – G.P.

RESP for grandchild

Q - If you had a six-year-old grandchild, and wanted to set up a RESP with maximum yearly contributions, what would you put in the account? If you had already set up such a RESP which is now worth $28,000, what investments would you choose? – Glenys P.

A – My reply is the same in both cases: high-quality, dividend paying stocks. The reason is that during the early years of a RESP, the emphasis should be on growth. A six-year-old is at least 12 years away from starting college, so there’s a long time frame with which to work. As the child starts approaching college age, the plan should become more conservative to preserve assets and ensure a sudden market crash doesn’t wipe away years of gains.

At six years old, stocks like Canadian-National Railway Co. (CNR-T), Royal Bank of Canada (RY-T), Fortis Inc. (FTS-T), Enbridge Inc. (ENB-T), Brookfield Corp. (BN-T), and Telus Corp. (T-T) would all be suitable. You could also use equity mutual funds or ETFs, but I prefer direct stock ownership.

As the time to enter school approaches, start selling the stocks and put the profits into GICs or a high-interest savings account to ensure the money is not at risk. – G.P.

GAAP vs. non-GAAP

Q – Can you explain the difference between GAAP and non-GAAP? I keep seeing those terms in financial reports, but I don’t know what they mean. – Arnold M.

A - GAAP is the acronym for Generally Accepted Accounting Principles. These are standards that publicly traded companies must follow when preparing their financial statements. GAAP ensures the statements are accurate and comparable between different companies.

Non-GAAP refers to financial measures that are not prepared in accordance with GAAP. These are often used by companies to supplement their GAAP financial statements to provide additional information to investors and analysts. Non-GAAP measures can include metrics such as adjusted earnings, EBITDA (earnings before interest, taxes, depreciation, and amortization), and free cash flow. Non-GAAP measures can exclude certain expenses or revenues that a company deems to be non-recurring or not representative of its ongoing operations.

The use of non-GAAP measures can make it difficult for investors to compare financial statements between companies, as company A may use different measures and calculations than company B for specific entries. Payout ratios are a classic example. – G.P.

Buying mutual funds

Q - The cost of buying a mutual fund from a company is not clear. I understand the MER a fund company such as Fidelity charges but what do the company and advisor that sells the funds charge? This piles up over a 20-year period. It costs a lot more than just buying individual stocks, would you agree? – Dallas W., Reston MB

A - The MER includes all charges from the company including management fees, trading costs, etc. It’s an annual charge and, yes, it can add up to a lot over time.

The advisor may be compensated in one of several ways. These include salary and commissions. Or, if you have a fee-based account, a small percentage of your total assets (typically 1-2 per cent) is paid annually for the advisor’s services. Ask the advisor how he/she is compensated and what the cost would be to you.

Are mutual funds more expensive than individual stocks? It depends. If you have a fee-based account with a broker, you’re paying an annual cost for it. This covers all trading activities and enables you to purchase less costly F-series funds.

If you don’t have a fee-based account and you trade a lot, commissions will add up, even if you use a discount broker. That could make the cost of investing in stocks more expensive than mutual funds, but it all depends on your level of activity. If you just buy and hold, stocks are cheaper.

You need to look closely at your investment activities and decide which approach is most cost-effective in your case. – G.P.

A death in the family

Q - My husband and I both have investment accounts in RRIFs and LIFs. We are wondering what happens when one of us dies. Do the accounts just get transferred to the living person? Or are they collapsed, with the proceeds taxed as income and then transferred to the surviving spouse? – Kathie S.

A - It depends on whether the surviving spouse is named as the successor annuitant or the beneficiary of the deceased’s plan. If the surviving spouse is the successor annuitant, the RRIF/LIF continues on with the survivor as the new annuitant. The minimum payments stay the same. No taxes apply on this transfer.

If the surviving spouse is the designated beneficiary, the RRIF/LIF is collapsed at death and converted to cash. This money can then be transferred on a rollover basis to the survivor’s registered plan. Minimum payments will be based on the survivor’s age. There is no tax on the rollover. That comes when the last survivor passes.

Avoid naming the estate as the beneficiary. That would trigger a collapse of the RRIF at death and the assets would be taxable. – G.P.

Meme stocks

Q - In a recent article, there were reference to meme stocks. I don’t have a clue what that term means. What is a meme stock? – Jane R.

A – A meme stock is one that becomes popular with retail investors through social media. They become the topic of on-line discussion groups, who sometimes use their collective buying power to purchase shares in a company to drive up the price. The results can be astounding. On Jan. 27, 2020, shares in GameStop (GME-N) reached a high of US$86.88, up 134 per cent from the day before. The company wasn’t worth anything like that, either from a financial or business perspective. Needless to say, the inflated price didn’t last long. Investors took profits and the shares plunged. By year-end, they were down to US$4.82.

We still see periodic social media activity around GameStop and other meme stocks. GME traded as high as US$49.85 in 2022. As I write, it’s at US$23.98. I don’t recommend GME or any other meme stock but some young investors love playing them, as if they were video games. The U.S. Securities and Exchange Commission has investigated but took no action, beyond issuing a report. – G.P.

If you have a money question, send it to and write Globe Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to

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