Last week’s column on non-registered accounts sparked a flurry of e-mails and comment-section debate. Who needs to talk about the Kardashians when we have the OAS clawback?
One e-mail highlighted an additional wrinkle to dividend taxation and TFSAs that I neglected to mention: dividends from U.S. sources.
These are subject to a 15-per-cent withholding tax unless you hold them in certain registered accounts that offer an exemption, usually an RRSP or RRIF. Next best is a non-registered account, where you can claim an offsetting credit. A TFSA offers the worst of both worlds: You get neither the credit nor the withholding tax exemption. Investors beware!
Oh, and forget about that RRSP exemption if you’re holding U.S. stocks through a Canadian-listed ETF. Hold them directly, or through a U.S.-listed ETF.
Just to keep things interesting, U.S. investments could face a 30-per-cent withholding tax if you forget to file a U.S. W-8BEN with your brokerage. The poetically named “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individual)” is a straightforward one-page form that needs to be renewed every three years. Fortunately, any brokerage worth your time should remind you when it’s time to sign a new one.
As for foreign tax credits, the subject of another reader e-mail, take a look at your T3 or T5 slips for details on what withholding taxes you’ve paid. You can claim these as foreign tax credits on Line 40500 of your T1. As tax matters go, that’s about as straightforward as it gets!
I am ready to retire soon and have been looking on the internet for a fee-only planner. I have been doing just fine as a DIY investor, but I want advice on which assets to withdraw from, and in which order. How should I go about finding a planner?
The Financial Planning Association of Canada is a good place to start. Their website has a “members lookup” feature that lets you search by compensation models, including for hourly, flat-fee and retainer-based fee-only planners. It’s not an exhaustive list, but several planners recommended it to me as a good general resource.
Googling fee-only or advice-only planners can be challenging because there’s no guarantee that you’ll get what you’re looking for. Ontario and Quebec have protections around the title “Financial Planner,” but most provinces don’t, and “fee-only” and “advice-only” are not protected at all.
These terms are sometimes used by advisers who want to capitalize on buzzwords without fundamentally changing sales-based models. When you find a planner, make sure you understand how their fees are structured and be wary of sales pitches.
It can also help to look for designations such as CFP (Certified Financial Planner) or RFP (Registered Financial Planner), though I know capable younger planners who don’t have these.
I mentioned recently that an advice-only planner recommended Adviice as a useful platform for DIY investors. Among other things, it can help you consider strategies for retirement spending and drawing down your RRSP or RRIF as tax-efficiently as possible. It also lets you book appointments from a (relatively small) pool of advice-only planners.
I have no connection to Adviice, but was intrigued enough to sign up for an account.
I hold shares in my taxable account of a company that has gone bankrupt, leaving their value at zero. How do I claim this loss?
The most straightforward way to do this is to take advantage of subsection 50(1) of everyone’s favourite bedtime reading, the Income Tax Act.
For simplicity, I am assuming that the company was not a small business corporation, that it went bankrupt last year and that you held shares at the end of the year. If my assumptions are wrong, please stop reading immediately and run – don’t walk – to your nearest accountant.
Choosing to apply subsection 50(1) to the worthless share of a company means you’re deemed to have disposed of it at the end of the year “for proceeds equal to nil and to have reacquired it immediately after the end of the year at a cost equal to nil.”
This deemed disposition will trigger a capital loss, and reacquiring the shares at nil resets their adjusted cost base to zero. Keep in mind that you still hold the shares. If someday they were to rise in value you could be on the hook for taxes on any capital gains.
The CRA doesn’t have a specific form for this, so you’ll have to attach a letter to your return with details of your holdings, the bankruptcy and a statement that you’re making an election under subsection 50(1).
Even this straightforward example is potentially complex, and it may not apply cleanly to your situation. A professional will be able to provide more appropriate guidance and make sure your paperwork is in order.
E-mail your questions to agalbraith@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.