I transferred some shares to my tax-free savings account from my non-registered account at a loss. When I add this transaction to my tax software, it processes this as an allowable loss. However, as you know, I am not allowed to claim the loss because I still own the security. The transaction is noted on the T5008 Statement of Securities Transactions that my broker sent me. My question is: Do I have to report this transaction, given I’m not going to claim the loss? If so, is there a special form I fill out?
First, some background.
When you transfer shares, mutual fund units or other property at a loss from a non-registered account to a TFSA (or registered retirement account), the loss is deemed to be nil. So, as you stated, you can’t claim the loss for tax purposes.
“That’s why we often recommend first selling the stock or mutual fund with the accrued capital loss in the non-registered account, and then transferring the cash realized upon the sale into the TFSA as a contribution,” Jamie Golombek, managing director and head of tax and estate planning with CIBC Private Wealth, said in an e-mail.
If you intend to repurchase the stock or fund that you sold, you would need to wait at least 30 days before doing so. Otherwise, the “superficial loss” rule will apply, and you will not be able to claim the loss, Mr. Golombek said.
As for reporting the transaction, you have a couple of options.
“The first is to simply ignore the capital loss and not report it all on your return since it’s deemed to be nil anyway under the Income Tax Act. This may involve removing the T5008 info that was downloaded,” he said.
Alternatively, you could keep the downloaded information showing the proceeds of disposition on the Schedule 3 – Capital Gains or Losses, but then manually change the adjusted cost base so it matches the fair market value on the Schedule 3. This will cancel out the loss.
“This will show the CRA that the capital loss is being reported, but is being properly denied. You could notate that in the description of the shares on Schedule 3,” he said.
You should be fine with either approach since you are not claiming the denied loss, he said.
Is there such a thing as a “superficial gain”? In other words, if I sell a stock that has appreciated in value, contribute the cash to a registered account and then repurchase the same shares, do I still have to report a capital gain?
Yes, you do. Capital gains taxes apply whenever you sell shares with an unrealized gain in a non-registered account, regardless of whether you repurchase the shares or not. Similarly, capital gains taxes apply if you transfer shares with a gain to a registered account. For tax purposes, such a transfer is the same as if you’d sold the shares. So, no, there is no such thing as a “superficial gain.”
I read your article on Plaza Retail Real Estate Investment Trust (PLZ.UN) last week. Is the payout ratio of 123 per cent sustainable?
As I’ve said before, investors should never rely on financial data – whether it’s a company’s payout ratio or some other metric – pulled from a third-party website. These numbers are typically crunched by a machine and lack important context. Sometimes, they’re just flat-out wrong.
In Plaza’s case, The Globe and Mail website does indeed list the REIT’s payout ratio as 123 per cent. But the website provides no explanation as to how this number was calculated, although I suspect it measures the payout as a percentage of net income.
However, that’s typically not how real estate companies calculate their payout ratios. Instead, REITs generally measure the distribution payout as a percentage of funds from operations (FFO) or adjusted funds from operations (AFFO). FFO and AFFO are both cash flow measures that strip out non-cash items, such as depreciation and amortization, that don’t affect the company’s performance or its ability to pay distributions.
The management discussion and analysis for Plaza’s 2024 results (which you can find on the REIT’s website) defines FFO as “an industry standard widely used for measuring operating performance and is exclusive of unrealized changes in the fair value of investment properties, deferred income taxes and gains or losses on property dispositions.”
AFFO is derived from FFO, but AFFO is a more stringent measure because it includes maintenance capital and other expenditures “that must be made to preserve the existing rental stream,” Plaza’s MD&A says.
REITs can’t just let their buildings fall into disrepair. They have to replace flooring, repaint the walls and fix broken appliances, for example. These are all costs of doing business. That’s why, when I’m evaluating a REIT’s payout ratio, I primarily look at AFFO.
In Plaza’s case, the REIT generated AFFO of 28.6 cents a unit in 2024, and over the entire year its monthly distributions totalled 28 cents. So its payout ratio was about 98 per cent (28/28.6). That’s still on the high side, but it’s a lot better than 123 per cent.
The good news is that Plaza’s payout ratio will likely come down over time. That’s because analysts expect that Plaza’s AFFO will rise over the next several years, driven by rent increases, occupancy growth and the completion of development projects.
Pammi Bir, an analyst with RBC Dominion Securities, is forecasting AFFO per unit of 33 cents in 2025 and 35 cents in 2026, which would bring the payout ratio down to about 85 per cent and 80 per cent, respectively.
So, not only is Plaza’s distribution sustainable, but if these trends continue the REIT could eventually resume distribution increases, some analysts say. The last time Plaza hiked its payout was in 2018.
While I wouldn’t hold my breath for an increase anytime soon, investors get “paid to wait” with an attractive – and secure – yield of about 7.4 per cent.
Disclosure: the author owns units of PLZ.UN
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.