# HSE Stock Dividend Tax



## peterk (May 16, 2010)

I am having a brain fart. What does this mean?



> 8. What is the tax treatment on a stock dividend?
> 
> Shareholders resident in Canada who receive a stock dividend generally pay capital gains tax when they sell their shares, rather than paying tax as if they had received a dividend equal to the value of the stock dividend shares they receive. While a stock dividend is still considered to be a dividend for Canadian income tax purposes, the amount included in the shareholder's income is the amount by which the stated capital of Husky's outstanding common shares is increased (which will be a nominal amount). This nominal amount is also the cost of the share received. Shareholders who are resident in other jurisdictions are advised to seek their own tax advice.


http://www.huskyenergy.com/investorrelations/dividendfaq.asp

So "generally pay capital gains tax when they sell their shares" means that there are no requirements to pay tax on the stock "dividend" until shares are sold? Do I add the issued shares to my ACB at a price of $0.00?

I am confused what "While a stock dividend is still considered to be a dividend for Canadian income tax purposes, the amount included in the shareholder's income is the amount by which the stated capital of Husky's outstanding common shares is increased (which will be a nominal amount). This nominal amount is also the cost of the share received." means.


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## Eclectic12 (Oct 20, 2010)

It seems to be saying there will be a small amount of CG to pay in the tax year the stock dividend was received but that the bulk of the CG will come when the received shares are sold.

So if the "nominal amount" is $1, which is the cost. Then in the tax year the stock dividend is received, one would report a CG of $1 per share. Yesterday's close is $15.65 ... if it were sold, this would mean a CG of $15.65 - cost - sell commission. This may work out to something like $15.65 - $1 - $10 = $4.65 CG.

Notice that the dividend CG is smaller than the "when sold" CG.


This is "dividend share picture" to illustrate the note ... not the true picture.



Once the stock dividend is received, the $1 cost shares are going to be lumped in with whatever the cost of the already held shares. The net effect is that ACB per share is going to drop.

As well, it is not likely one would sell just one stock dividend share so that the sell commission is likely spread across many more shares. 


Cheers


*PS*

Perhaps someone who has gone through this can confirm as I haven't received one and am basing this on the quoted note.


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## 0xCC (Jan 5, 2012)

I'm also a little confused (and a HSE shareholder so I am interested in this discussion).

Let's work through an example. Say someone has 100 shares of HSE and they bought them for $20 each so the current ACB is $2000 (I will ignore commissions to keep things simple). HSE pays a $0.30 "stock dividend" which is $30 on those 100 shares. Let's say that HSE is trading at $15 now so that $30 stock dividend equals exactly 2 shares.

So is the $30 defined as a cash dividend and are taxes owed on that $30 as a dividend in the tax year they are received and then the $30 added to the ACB of the originally purchased shares?

Looking more closely at the quote from peterk above there is this line:


> While a stock dividend is still considered to be a dividend for Canadian income tax purposes, the amount included in the shareholder's income is the amount by which the stated capital of Husky's outstanding common shares is increased (which will be a nominal amount).


I _think_ this means that there is some accounting that will have be to calculated by Husky to determine exactly how much of the "stock dividend" will be reported to the CRA as a cash dividend for income tax purposes. The "nominal amount" part implies that the cash dividend part (although Husky won't actually give any cash to shareholders) will be a low percentage of the stock dividend. So any part of stock dividend that is declared as a cash dividend will be added to the ACB of the shares and the other part of the dividend will lower the per-share ACB of the original holdings.

In my example above if Husky's accounting department calculated that the additional shares increased the stated capital of outstanding shares by 5% that would mean that $1.50 of the $30 "stock dividend" would be considered a dividend for income tax purposes and the "total cost of shares" would be reduced by $1.50 so the ACB would be $1998.50 for the 102 shares now owned, or $19.59/share. I think. Maybe.

I'm glad I hold this in a TFSA


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## peterk (May 16, 2010)

0xCC said:


> I think. Maybe.


Glad to know it wasn't just me who thought that the website description was not super clear. I was worried I was getting stupid...



0xCC said:


> I'm glad I hold this in a TFSA


I'm out! Sold from registered and bought in TFSA. Took Dollarama out of TFSA and into registered. I ain't dealing with this all-stock-but-partially-cash-for-tax-purposes-but-only-a-small-amount-dividend shenanigans...


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## 0xCC (Jan 5, 2012)

peterk said:


> I'm out! Sold from registered and bought in TFSA. Took Dollarama out of TFSA and into registered. I ain't dealing with this all-stock-but-partially-cash-for-tax-purposes-but-only-a-small-amount-dividend shenanigans...


You may have been able to do some capital loss harvesting there... I have a hard time seeing HSE making a significant move up in the next 30 days.


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## peterk (May 16, 2010)

No worries, I just bought it yesterday! I was exuberant to buy but TFSA was full so I went unregistered. Then I realized I wasn't sure how this whole weird new dividend structure worked and went searching for my answer. Now I've incurred an $8 capital Loss. :biggrin: :stupid:

Edit: capital Loss


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## 0xCC (Jan 5, 2012)

Well if you had a gain, then there isn't a way to optimize that at all. You have to realize the gain on a sale or a transfer to a registered account so no way to dodge the tax man there.


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## Spudd (Oct 11, 2011)

My reading of it is that they will determine how much the new shares are worth. That amount will be taxable this year as a dividend, and it will also be your ACB, so when you sell them, the CG will be whatever you sell them for minus this nominal amount communicated by Husky.


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## Eclectic12 (Oct 20, 2010)

The link says:


> Stock dividend shares will be satisfied by the issuance of a fraction of a common share, which fraction will be determined by dividing the dollar amount of the dividend by the volume weighted average trading price per share of Husky's common shares on the Toronto Stock Exchange (TSX).
> 
> The volume weighted average trading price will be calculated by dividing the total value by *the total volume of common shares traded over the five trading day period immediately prior to the payment date of the stock dividend on the common shares.*



I suspect this will be similar to a DRIP that has a discount so that one can't look at the trading value on the day of the transaction ... one has to look at the line item that documents the transaction price (or maybe the web site).

Once it is all figured out and published ... it should be relatively simple but I don't believe looking at the trading prices on the exchange is going to help much.


Cheers


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## Eclectic12 (Oct 20, 2010)

0xCC said:


> peterk said:
> 
> 
> > ... I'm out! Sold from registered and bought in TFSA ...
> ...


Maybe I am missing something ... but doesn't selling for a loss in a taxable account followed by buying the in the TFSA *the same stock* trigger the superficial loss rules?

http://www.canadiancapitalist.com/in-kind-contributions-and-superficial-loss-rules/


If so, the only way I can see that the CL could eventually be used is if Husky is re-bought in the taxable account in the future, where the CL is added to the ACB.


Cheers


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## 0xCC (Jan 5, 2012)

Right, which is why I said peterk "may *have* been able to do some capital loss harvesting" (i.e. past tense). He would have had to wait 30 days to re-purchase in the TFSA in order to avoid the superficial loss rules.


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## Eclectic12 (Oct 20, 2010)

Opps ... missed the past tense ... sorry.


Cheers


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## peterk (May 16, 2010)

But of course I actually I had a small capital Loss, as explained up thread. 

edit: Capital LOSS


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## Eclectic12 (Oct 20, 2010)

Miss number 2 ... :biggrin:


Cheers


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## peterk (May 16, 2010)

No worries. You da man Eclectic!


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## 0xCC (Jan 5, 2012)

Eclectic12 said:


> Opps ... missed the past tense ... sorry.
> 
> 
> Cheers


Given the volume and depth of your posts I think that you have a pretty low percentage of errors. At least the occasional small miss proves you are human.


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## Eclectic12 (Oct 20, 2010)

That's where the proof reading at times catches the miss before the "Post Reply" ... otherwise I'd be proving to be human a lot more often. :biggrin:

Then too, when rushed ... I have a habit of posting and then when returning to the thread, it becomes clear that a detail was posted later. :eek2:


*peterk:* Congrats on having the small CG while making the stock dividend payout stuff an academic discussion instead of a "need to know".



Cheers


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## peterk (May 16, 2010)

Eclectic12 said:


> *peterk:* Congrats on having the small CG while making the stock dividend payout stuff an academic discussion instead of a "need to know".
> 
> Cheers


Well, I briefly owned it in unregistered, realized I "needed to know", got an answer that was not particularly to my liking, and remedied the situation by moving HSE out into TFSA.  Problem solved!

I think I'll just stick to regular dividend CDN equities in my unregistered account until absolutely necessary to allocate other assets to it.


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## Eclectic12 (Oct 20, 2010)

I've used TFSA "in-kind" transfers to get rid of REITs paying too much of their cash classed as regular income.

Once I'd made sure of the bookkeeping & info required ... I have been partial to REITs paying 80%+ of their cash as RoC in a taxable account with eligible dividends coming in second. Though the first priority is whether the company plus it's prospects.


Cheers


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## peterk (May 16, 2010)

Eclectic12 said:


> Maybe I am missing something ... but doesn't selling for a loss in a taxable account followed by buying the in the TFSA *the same stock* trigger the superficial loss rules?
> 
> http://www.canadiancapitalist.com/in-kind-contributions-and-superficial-loss-rules/
> 
> ...


Oh man. I was not paying attention to you guys when I was reading this...

Of course what I did did just run afoul of the Superficial loss rule.. I should've realized that. :stupid: This also throws a wrench into my ACB tracking sheet (I'm using the Canadian Capitalist excel sheet).

Luckily it was only $10, and it was a full position closed and re-opened in registered, so this problem is done and gone.

I'll have to make sure I don't screw this up again in the future. Geez, my very first week investing in an unregistered account and I've already made several mistakes!

I've now put together a spreadsheet sorted by tax-yield and other considerations to decide how to go forward with allocating stocks to the unregistered account vs not. And I'll have to make sure not to screw up on the Superficial loss rule again. Man, what if I have a _partial_ position superficial loss? I think that would make my CC ACB tracking sheet explode, along with my head!

Oh the joys of investing in a taxable account...


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## 0xCC (Jan 5, 2012)

If you had capital gains, you don't have anything to worry about. You would have had to pay the taxes no matter how you did it.

If you had a superficial loss in the stock that you transferred out of your TFSA (i.e. when you put it in your TFSA you had a superficial loss, if you bought it inside your TFSA then you don't have anything tot worry about, your ACB is the value when the stock came out of the TFSA) then you have some calculations to do.


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## Eclectic12 (Oct 20, 2010)

peterk said:


> ... what I did did just run afoul of the Superficial loss rule ...


I'm not following ... unless you are using this situation to work out the details of the superficial loss rules.

A small CG makes the superficial loss rules irrelevant.




peterk said:


> ... I'll have to make sure not to screw up on the Superficial loss rule again.


*shrug* ... you didn't so the main lesson appears to me to be to verify if the same stock is held in a registered account before selling for a CL. If not, all is good. If so, then some planning is required.




peterk said:


> ... it was only $10, and it was a full position closed and re-opened in registered, so this problem is done and gone ... what if I have a _partial_ position superficial loss?


IMO ... selling the whole position in the taxable account *is* the issue, unless one plans on re-buying in the taxable account at some point.

Where it is a partial sell, the CL can't be claimed in the usual manner but since there is still stock held, the way I read it ... the CL gets added to the ACB for the few remaining shares. Once the registered shares have been sold for 30+, then one can sell the remaining few shares to harvest the CL. The net effect is that the CL is the same, it is mainly the timing that is changing. The CL will vary a bit (second sell commission adds to costs, FMV when the last bit is sold may add to or reduce the overall CL).

Where *everything* is sold ... the CL is in limbo. Unless one re-buys so that the CL can be added to the ACB, the CL is useless.


I see this as important to keep in mind for when something is diving where one does not expect it recover so that preserving what little one can get is the priority. In this case, sell 100% of the shares in registered accounts and 95% or so of what's in the taxable account (keep whatever one thinks it will be easy to sell later).

After thirty one days or so ... sell the remaining 5% in the taxable account to harvest the CL. The key here is one is not forced to re-buy a diving stock in order to preserve the CL.




peterk said:


> ... I think that would make my CC ACB tracking sheet explode, along with my head!


The main trick is to be aware to know when to do it.


Cheers


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## peterk (May 16, 2010)

I bought in taxable, sold the whole position at a loss, then rebought the whole position immediately in TFSA. Do I actually have to report my superficial loss if I don't get to deduct the loss?? It's superficial...


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## peterk (May 16, 2010)

^ Eclectic, I had a small CL not a small CG.


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## 0xCC (Jan 5, 2012)

I think you have to report it just to prove you didn't have a gain. You might also get to "use" it if you happen to transfer the stock out of your TFSA, you might be able to use the previous superficial loss to increase the ACB of the holding outside the TFSA. I am not 100% sure about that point though.


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## Spudd (Oct 11, 2011)

You mentioned upthread twice that you had a CG. Were you mistaken? 

In the past when I transferred stuff into TFSA at a loss I just left it off my taxes because I figured it was irrelevant. I'm no accountant though.


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## peterk (May 16, 2010)

Damnit. Yes Spudd I meant loss. Sorry folk, no wonder I confused everyone. Good lord I botched this thread up big time!


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## Eclectic12 (Oct 20, 2010)

peterk said:


> I bought in taxable, sold the whole position at a loss, then rebought the whole position immediately in TFSA. Do I actually have to report my superficial loss if I don't get to deduct the loss?? It's superficial...


I find it easier to have documentation ... should questions come up years later. So I'd put a line item, with a note saying it's a superficial loss. Then if there are any questions, it's all documented.


I've had CRA add a line item to the NOA for a CL I hadn't bothered to report as I had enough of a CL to cover the CG. I figured I'd just amend the tax return when I had more time to finish the CL calculation. CRA set it to $0 for that stock in the short term. The only place I can figure out they knew about it was the taxable account annual trading summary.




0xCC said:


> I think you have to report it just to prove you didn't have a gain. You might also get to "use" it if you happen to transfer the stock out of your TFSA, you might be able to use the previous superficial loss to increase the ACB of the holding outside the TFSA. I am not 100% sure about that point though.


I also expect that a "transfer-in-kind" to withdraw from the TFSA would function the same as buying more stock, where one can add the superficial loss to the ACB.




peterk said:


> Damnit. Yes Spudd I meant loss. Sorry folk, no wonder I confused everyone. Good lord I botched this thread up big time!


< I guess my two mis-reads are fading away ... >

< Did I say that out loud?>


Cheers


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## peterk (May 16, 2010)

Eclectic12 said:


> < I guess my two mis-reads are fading away ... >
> 
> < Did I say that out loud?>
> 
> Cheers


Oof. Very sorry again. That was some bad proofreading on my part. I didn't mean to waste your guys' time with all this sidetracked mis-information. I'll be more careful next time


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## Eclectic12 (Oct 20, 2010)

No worries ... it proves we are all human ... LOL.


Cheers


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## Eclectic12 (Oct 20, 2010)

peterk said:


> I bought in taxable, sold the whole position at a loss ...


The good news is that you are now aware of the superficial loss rules and likely will work to avoid triggering them.

The second bit of good news is that since it is a small CL ... should you forget about it or decide the steps needed - the CL will be lost but since it's cut in half anyway, it sounds like it is not significant.


Cheers


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## peterk (May 16, 2010)

Just to put the final nail in the coffin in case anyone was wondering whether I was an idiot or not. I _did indeed_ have a CAPITAL GAIN, as I first described in this thread, and you guys helpfully advised me on that.

I then somehow convinced myself that I actually had a capital loss instead, and that what I had previously discussed was incorrect.

Well, I just happened to go check my spreadsheet again today, and it is indeed a small capital gain that I was talking about right from the very beginning...

So, in conclusion, idiot.

:stupid::hopelessness::cower:


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## Spudd (Oct 11, 2011)

LOL, we all have off days.


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