It’s been a while since I looked at the Q&A inbox, so let’s see what readers are asking about in the era of the coronavirus.
Q – I am having great difficulty finding where I can put about $10,000 in a bond to support the green economy. I can find no simple, clear statement on the Ontario green bond website or any other in Canada as to who to contact or what the process is. It appears at this time that these bonds in Canada are not available to individuals to purchase. Is this true? Is it the same in the U.S.? Must I look to Europe? – Mark M.
A – I put the question to John Cook, CEO of Greenchip Financial. Here is his reply.
“Right now, there is no retail option. I’m working on it with Mackenzie Financial, but I don’t think it’s imminent. Global supply is growing but, that said, new issues are often oversubscribed by institutional investors and liquidity is poor. Retail investors could always buy renewable developer bonds like Brookfield Renewable, Boralex, or Algonquin, but I would not recommend this as they can be very illiquid.”
Q - Can I transfer “in kind” part of the units in a mutual fund from a RRIF to a TFSA of an equivalent withdrawal amount from the RRIF? - Vithal C.
A – No. Transfers from a RRIF or an RRSP to a TFSA are not permitted. The reason is simple. Any RRSP/RRIF withdrawals are taxable, whether received as cash or securities (in kind). Withdrawals from a TFSA are tax free. If it were legal, everyone would be doing it and the government would lose billions of tax dollars.
Q - I’ve noticed that there are many corporate bonds yielding more than 5 per cent yet selling for less than $100 (which I assume would be the payout if held to maturity). Do you see these as a reasonably safe investment, or should I avoid at all costs? – Terry J.
A – Be very cautious. Credit-worthiness is the No. 1 consideration in assessing a bond right now, not yield. Any bond rated below investment grade (BBB) should be considered higher risk. And keep in mind, the market is evolving quickly. Some investment grade bonds have recently been demoted to junk status, including Ford Motor Co. issues.
Q – On March 25, the Federal Government advised that that RRIF minimum withdrawals could be reduced by 25 per cent for 2020. I receive minimum monthly payments from a RRIF and a LIF administered by a major bank’s brokerage. I called them to find out the procedure to take advantage of this 25 per cent reduction. They didn’t have a clue as to what to do and admitted they had lots of inquiries, but the management had not given them any direction. This is totally unacceptable. Can you advise what the procedure should be? – Bill M.
A – You’re right, it is unacceptable. The procedure should be simple: you call your broker or plan administrator and tell him/her you want to take advantage of this relief and to adjust your RRIF and LIF payments accordingly. It should not be more complex than that. All I can suggest is that you contact the brokerage manager and make your displeasure known. A simple memo from the top should be all it takes.
Sitting in cash
Q - When our bond fund, XBB, dropped 7 per cent on one day in March, my wife and I decided to liquidate our portfolio, ending up down 7.5 per cent year-to-date. Yes, I know the truism “don’t sell at a time like this," but I guess our risk tolerance has taken a big drop, considering our ages (me-78, her-68). We also think that market lows are still to come (how can they not?). So, what would you recommend we do with $1.65 million dollars in the meantime? - C.L.W., Kamloops BC
A – Clearly, you are extremely risk-averse so you’re probably best just to keep the money in cash. But make sure your cash is protected. The Canada Deposit Insurance Corporation covers deposits up to $100,000, but that is per person, per institution. Also, separate types of accounts have their own protection.
So, for example, in a single financial institution you can have protection up to $100,000 for each of your personal account, your wife’s account, a joint account, RRSP or RRIFs for each of you (provided the money is in cash), a $100,000 GIC for each of you, and more.
I suggest you arrange for a meeting with your banker to review the CDIC options and to readjust your investments to maximize your protection. Given the amount involved, you’ll probably have to use two or three banks to get full coverage.
Investing TFSA in U.S. stocks
Q - I am new to investing. Until recently, I only invested in mutual funds. Now that I am retired I have decided to do some direct investing through my TFSA.
At the moment, my TFSA is invested in Canadian mutual funds. I would like to expand my TFSA investments into U.S. income securities. Are there any tax implications from investing in U.S. securities within my TFSA? – Roger R.
A – Yes there are. Any dividends from a U.S. company will be subject to a 15-per-cent withholding tax. This is because the U.S. does not recognize TFSAs as “retirement accounts”. Dividends paid to RRSPs and RRIFs are not subject to this tax.
This is especially frustrating because there is no way to recover that money. Since it is paid into a registered plan, you cannot use the foreign tax credit when you file your tax return. That money is simply gone. So, in this case, Tax-Free Savings Accounts are not tax-free.
When Canada and the U.S. get around to renegotiating the tax treaty, this might change. But for the foreseeable future, it’s the rule. You’d be better off earning your dividend income from Canadian companies.
If you have a financial question, send it to me at firstname.lastname@example.org and write Globe Question on the subject line. I can’t guarantee a personal response but I’ll answer as many questions as possible in this space.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.