I am thinking about buying shares of a Canadian bank now that prices have fallen. Is there any bank that looks especially attractive to you right now?
If you don’t already have exposure to Canadian banks, this may be a good time to take the plunge. Share prices have plunged more than 20 per cent, on average, over the past 18 months, and dividend yields – which move in the opposite direction – now average about 5.5 per cent for the Big Five.
For what it’s worth, analysts are especially fond of Toronto-Dominion Bank TD-T, which has 11 buy recommendations, followed by Bank of Montreal BMO-T with 10 and Royal Bank of Canada RY-T with eight. Canadian Imperial Bank of Commerce CM-T and Bank of Nova Scotia BNS-T are well down the list, with two and one, respectively.
If your primary consideration is dividend yield, the two laggards may still be worth a look. CIBC and Scotiabank both yield in the neighbourhood of 6.5 per cent, befitting their higher risk profiles. There’s a school of thought that buying the least loved banks is the way to go, as they presumably have a greater chance of rebounding. However, history has shown that this is a not a slam dunk. Moreover, with the economy potentially heading into a downturn and banks raising their provisions for bad loans in their latest earnings results, there’s an argument for accepting a lower yield in exchange for owning one of the higher-quality banks.
All of that said, predicting how individual bank stocks will perform is a mug’s game. Rather than putting your money on a single horse, you might be better off spreading your bets around by buying an exchange-traded fund that provides broad exposure to the sector. One example is the BMO Equal Weight Banks Index ETF ZEB-T, which owns all of the major banks in roughly equal proportions and charges a reasonable management-expense ratio of 0.28 per cent. Especially if you don’t have any bank exposure already, an ETF will give you diversification to help control your risk.
My partner and I are transferring, in-kind, a series of non-registered investments – specifically, common shares of various Canadian and U.S. dividend-paying companies – from the transfer agents Computershare and TSX Trust to our non-registered joint trading account at a Canadian discount brokerage. The registrations on all of the accounts are identical. Is it safe to assume that the stocks are not considered sold and we are therefore not required to report any capital gains on our tax returns?
I asked Jamie Golombek, managing director and head of tax and estate planning with CIBC Private Wealth, to weigh in on this question and two others from the same reader.
“For tax purposes, moving an asset from one non-registered account to another should not trigger a taxable event, since there is no change in beneficial ownership and the shares are not being transferred to a registered account,” Mr. Golombek said. However, he said it’s best to check with the transfer agent to make sure it doesn’t mistakenly report a disposition on a transfer out to the receiving discount brokerage.
We also recently transferred shares of several dividend-paying companies that we held in trust for our children since they were very young. Their respective names, as well as ours, as trustees, were on the registration of the accounts with the transfer agents. As the trustees, we always paid the tax on the dividends. Given that our children are now over the age of majority, the new registrations have their names only. Are the shares now deemed to have been sold and therefore subject to capital gains tax? If so, who would be liable for the capital gains?
“This question is more complicated as the tax implications of the transfer will differ depending on who the original beneficial owner of the investment was,” Mr. Golombek said.
If the investments were being held by the parents in a trust for the children, or otherwise beneficially owned by the children with the parents managing the investments as agents for the children, there should not be a deemed disposition for tax purposes when the investments are transferred into the accounts in the children’s names, Mr. Golombek said. In such situations no capital gain should be realized at the time of the transfer.
“For example, if the parents gifted the funds to the trust or to the children, the income would be attributed back to the parents and included in their income, as seems to be the case with this reader. But the children could still be the beneficial owners of the investments,” he said.
If, on the other hand, the investments were beneficially owned by the parents, with a plan to transfer the investments to the children when they became adults, then there would likely be a deemed disposition for tax purposes when the investments are transferred out of the parents’ accounts to the kids’ own accounts. However, that does not appear to be the case here. As such, capital gains would only come into play when the children eventually sell their shares or otherwise trigger a deemed disposition, he said.
Our children plan to use shares that they will be holding in a non-registered account at a Canadian discount brokerage to contribute to their first home savings account (FHSA) over the next five years. If they are transferring the shares in-kind, are they subject to capital gains on the appreciation of these assets given that they would be transferring the holdings from a non-registered to a registered account?
“A transfer in-kind from a non-registered account to any registered account, such as a registered retirement savings plan, tax-free savings account or even the new FHSA, would be considered a deemed disposition,” Mr. Golombek said. This could trigger capital gains if the assets have appreciated in value. However, if there was an accrued loss on the investment being transferred, that loss would be denied for tax purposes on an in-kind contribution.
Disclosure: The author owns BMO, BNS, RY and TD personally and in his model Yield Hog Dividend Growth Portfolio. View the portfolio online at tgam.ca/dividendportfolio.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
John Heinzl