# Eligible Dividends



## Flickit

Question from a newbe.

How does one tell if a Canadian companies dividend is CRA "eligible"? Some seem to declare that they are eligible, others simply state that they will be treated as income. Does a company have to declare or are they eligible by being Canadian and listed on the TSX?

Don't want to pay those guy's any more then I have to.


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## stardancer

The company itself must declare itself eligible or not. See...

http://www.cra-arc.gc.ca/ebci/cjcm/srch/bscSrch?lang=en&bscSrch=eligible+dividends&Submit=Search


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## Flickit

Thanks Stardancer.

Anyone know if there is a list available that shows the companies that have declared?


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## andrewf

Most Canadian corporations issue eligible dividends. Not all of every distribution will necessarily be an eligible dividend, as some could be return of capital, or ineligible dividends. You need to check the company website. That said, in most cases, the dividend a company issues is usually eligible. Note that Income Trusts are not corporations (but they will convert in the near future).


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## Rox

Kind of late for me to input this, but I guess if it's helpful, it's better late than never,... I think the funds given out are called by very specific names by the issuing body, be it by a corporation or an income trust or a mutual fund. The issuing body may call the funds as dividends, or interests or return of capital, hence, if the give-outs are called dividends, then most likely they will enjoy the tax benefits, especially if it's coming from a public listed corporation listed in the TSX.

All public corporations will need to pay tax at the company level, and whatever earnings leftover (a portion of this would then be paid out as dividends) would have already gone through the above stage. Hence, most dividends would qualify for the tax benefit, if they are to be called dividends.


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## Eclectic12

Rox said:


> Kind of late for me to input this, but I guess if it's helpful, it's better late than never,... I think the funds given out are called by very specific names by the issuing body, be it by a corporation or an income trust or a mutual fund. The issuing body may call the funds as dividends, or interests or return of capital, hence, if the give-outs are called dividends, then most likely they will enjoy the tax benefits, especially if it's coming from a public listed corporation listed in the TSX.
> 
> All public corporations will need to pay tax at the company level, and whatever earnings leftover (a portion of this would then be paid out as dividends) would have already gone through the above stage. Hence, most dividends would qualify for the tax benefit, if they are to be called dividends.


My experience is the brokerage puts them in the account, without any notifications. If I visit the web site, in the short term - there's announcements of dividends, special dividends etc. In the long term, 
when the institutions (i.e. company, trust or whatever) gets around to it for each tax year, they'll update their website with a breakdown of how much is dividend, how much is interest, ROC etc. etc. The brokerage then sums it up across all of the investments into one or more tax forms (ex a T5).
Due to the timing, sometimes I've had four T5's.

As for all public corporations are eligible - I'm not so sure. I believe it's where the head office is incorporated. I recall back in the "doc-com" phase, complaints about a company in Vancouver, that was listed on both the TSE (now TSX) and the US exchanges. As the corporation was registered out of one of the US states, it wasn't eligible. A strange situation with less than five percent of the staff/buildings were in the US and the other ninety plus were in Vancouver and area.

I haven't checked but I think part of the "eligible" is to be incorporated in Canada, not elsewhere.

As a side note, this is probably why a lot of the trust units will have a Canada and US investor sections. The investments are cross-listed on Canada and US exchanges but the tax treatment seems to be driven by where the incorporation happened.

The bottom line is that if you want eligible dividends, do some research as a listing on an exchange does not seem to be a guarantee.


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## Rox

Eclectic12 said:


> My experience is the brokerage puts them in the account, without any notifications. If I visit the web site, in the short term - there's announcements of dividends, special dividends etc. In the long term,
> when the institutions (i.e. company, trust or whatever) gets around to it for each tax year, they'll update their website with a breakdown of how much is dividend, how much is interest, ROC etc. etc. The brokerage then sums it up across all of the investments into one or more tax forms (ex a T5).
> Due to the timing, sometimes I've had four T5's.
> 
> As for all public corporations are eligible - I'm not so sure. I believe it's where the head office is incorporated. I recall back in the "doc-com" phase, complaints about a company in Vancouver, that was listed on both the TSE (now TSX) and the US exchanges. As the corporation was registered out of one of the US states, it wasn't eligible. A strange situation with less than five percent of the staff/buildings were in the US and the other ninety plus were in Vancouver and area.
> 
> I haven't checked but I think part of the "eligible" is to be incorporated in Canada, not elsewhere.
> 
> As a side note, this is probably why a lot of the trust units will have a Canada and US investor sections. The investments are cross-listed on Canada and US exchanges but the tax treatment seems to be driven by where the incorporation happened.
> 
> The bottom line is that if you want eligible dividends, do some research as a listing on an exchange does not seem to be a guarantee.


Eclectic,... I appreciated your replies and your help for me,... you have replied in other threads where I have asked questions on too,....

Looks like it's not so simple to be able to earn dividends which qualify for the Dividend Tax Benefits (DTCs),... but for a start, what we can do is to select dividend-payers who :-

1) is called a Public Corporation, ie not a TRust, or a Mutual Fund, etc,...

Hmm,... having said that, what about a Canadian REIT ? Does it qualify automatically since, without doubt, it is giving out dividends ?

2) is incorporated in Canada.

3) has her Head Office inside Canada and not in The USA.

With the above fulfilled,... check one more time with the CCRA about the status of the dividends. Thanks again,....


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## HaroldCrump

Rox said:


> Hmm,... having said that, what about a Canadian REIT ? Does it qualify automatically since, without doubt, it is giving out dividends ?


No, all REIT distributions may not be dividends.
They often distribute RoC.


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## Rox

HaroldCrump said:


> No, all REIT distributions may not be dividends.
> They often distribute RoC.


Harold, thank you,... just to understanding better, are you saying :-

1) All REIT distributions are NOT dividends, and they distribute Return-of-Capital(ROC); OR,

2) Not all REIT distributions are dividends, for they often distribute ROC, which means some REITs could also be distributing dividends which qualify for the DTCs ?

Need to check if they're dividends or not or can we say that none are dividends ?


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## kcowan

Rox said:


> Need to check if they're dividends or not or can we say that none are dividends ?


This will become more complex when some of them change to corporations. Then they may do both ROC and DTC.


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## Cal

Wouldn't most companies websites show you the break down for the distribution and/or whether it is a distribution or dividend payment?

Personally I hold any REIT's in my TFSA, so it is a non issue for me.


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## HaroldCrump

Rox said:


> Harold, thank you,... just to understanding better, are you saying :-
> 
> 1) All REIT distributions are NOT dividends, and they distribute Return-of-Capital(ROC); OR,
> 
> 2) Not all REIT distributions are dividends, for they often distribute ROC, which means some REITs could also be distributing dividends which qualify for the DTCs ?
> 
> Need to check if they're dividends or not or can we say that none are dividends ?


Check the REIT website for the breakdown of the distribution.
Your statement from the brokerage will also show the breakdown.
For example, the breakdown of the distribution for XRE is as follows from their website:
http://ca.ishares.com/product_info/fund_history.do?ticker=XRE&year=2009

In this case, it is a mix of several types of distributions.

In general, it is better to hold these types of income trusts inside registered accounts (RRSP, TFSA, RESP) so that you don't have to worry about ACB.
In a non registered account, keep track of ACB.
It gets more complicated if you are writing off interest on an investment loan.
In that case, you'll make your life simpler by holding these inside registered accounts.


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## warp

Reading all these posts about what should be a simple tax question make me agin realize that our ENTIRE tax system is a mess.

Again I say that we need to go to some sort of "Flat Tax" system....where all income is income period.

To take into account different income sources.( eg..earned income, dividend income ,capital gain income, rental income, etc).....these different types of income could have different "inclusuion rates".

What this simply means is that only a portion of each type of income is added into taxeable income,,then ONE RATE of taxation would apply to all taxable income.
( just like as now, you pay tax on only half of your capital gains).

Also it drives me absolutely crazy that dividends are"groosed up" by 144% in 2010.( dropping a bit to 141% in 2011).

This means that $1000 of divedends = $1440 of "taxable income.
You have to figure out your taxes payable on $1440 even though you actually only received $1000 in dividends.
You will get the extra tax back with the dividend tax credit........BUT,

and this is a big BUT......many other entitlements , like the claw back on OAS, and tax payments, like the dreaded "health tax" here in Ontario, are based on your "taxable income" , which INCLUDES this grossed up amount of dividends!!
This means you are punished through having to include in taxable income MONEY YOU NEVER EAERNED OR RECEIVED!!!!

Its an absolute DISGRACE!!

By the way, our Premier McGinty, who got elected by promising not to raise taxes, and has done nothing but ever since, tried to say the new health tax was not a tax because it was a "health levy", not a tax!!
That funny because its right there on my TAX RETURNS every year!!
And of course we all have to apy it year in and year out , while his govt blows $billions!!

This is a rant...because Im sick and tired of the bullsh*t from our politicians


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## Rox

Thank you,... warp and Harold,... for the great points,... for me, how I'd play it would be,.. just keep it simple,...

1) For the incomes which can "be planned", like approved and Eligible Dividends, ie by formulae which are approved by the CRA, say grossed-up, and then a certain percentage will be taxed, which could be quite low if an individual does not have any other income (this too is dependant upon the province one is in), I will put these into Non-registered plans, but there will be some work at our end to understand the methodology of taxation, then try to submit the proper paperwork and deliberations to CRA on the tax reduction.

2) For the incomes which are taxed "wholesome", and which "cannot be planned", say dividends from foreign companies, ROCs from Income Trusts and dividends from Mutual Funds, I'd just dump them into the TFSA, max it out and keep track of the available rooms if there are withdrawals, the rest go into the Registered plans. 

And if 2) above is maxed out totally, then get a Tax Planner and see if he can propose any other proper and legal ways, otherwise, just pay to the CRA, after all, we can claim the benefits, eg CCTBs, healthcare, etc,....


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## warp

Its beyond me why a taxpayer should have to go through all this bullsh*it, as proposed in your post.


Filling out a tax form, which is a legal requirement, should be simple enough for any average taxpayer to understand and to do.

Its so onerous and complicated now, that many so called "tax prepayers" dont understand it themselves, and so do a poor job for the taxpayers using their services, and causing them to pay more in tax than they probably should.

Many studies have shown that if you call CRA and ask tax questions you will get WRONG answers, even from them, a good percentage of the time.

I have called CRA, and the person on the line was more confused than I was.

Anyway,.....to answer you, it is a goos idea to have candian eligible dividends in a taxable account, and have regular interest or foreign divs in a registered account......but NOT in a TFSA....foreign divs will have withholding taxes taaken out when paid into a TFSA, and they will be lost to you forever.

By the way ROC is ok in ataxable account as it is used to lower your cost base, which hopefully increases your capital gain, which is the best income to have tax wise.

Many high income investors have NO IDEA about the AMT.( alternative minimun tax)......this is a system dreamed up by the CRA to punish people if they have what they consider too much capital gains and dividend income.

What it basically means is that if you have these "tax preverance" types of income alone, or too much of them, and you use all the tax deductions you are allowed under the tax law to use......the CRA will "RE-WRITE", your tax return for you and charge you a minimum tax, that they have decided you should pay non the less.

They get you coming or going


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## Rox

..warp,... many thanks for the geat information,...

I never knew that foreign dividends will have withholding taxes deducted from them when they are moved into the TFSA. I was always under the impression that any sort of investment income can be parked inside the TFSA, as long as there is enough room for it, and all this income will be subjected to the same treatment regardless,.. Where did you read this please ?

Yes, am aware that Canadian dividends and ROC can be kept inside a Taxable Account -> to help on the Canadian dividends, use the DTC method; and to help on the ROC, declare them together with the other income, eg capital gains from selling of shares. And yes, there will be calculations to learn-up here too.

Yes, aware of the AMT too,... can't do anything about that, goes back to the concept that the rich pay a bit more taxes,.. which, well,... it's acceptable to me,...


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## warp

ROX:

the reason taxes are withheld on your foreign dividends in a TFSA is that unlike a RRSP, LIRA RRIF etc,,,,a TFSA is NOT recognized as a "registered account" for foreign dividends.


You say you dont mind the AMT as its ok that the rich pay more taxes.
My friend the "rich" already pay huge taxes in Canada........if someone makes 10 times as much as you,,they pay 10 times, ( or more taxes than you)

When exactly do you think high earners have paid their fair share?

Do you think they are stealing the money?

Dont punish the "rich".....many are small business owners, and work like dogs, as well as having had to risk their capital to get ahead.

this whole idea of "screw the rich" is really, really getting out of hand.


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## stardancer

Rox said:


> I never knew that foreign dividends will have withholding taxes deducted from them when they are moved into the TFSA. I was always under the impression that any sort of investment income can be parked inside the TFSA, as long as there is enough room for it, and all this income will be subjected to the same treatment regardless,.. Where did you read this please ?


The reason that US withholding taxes are not taken on US dividends within an RRSP is that the two countries have negotiated that in their tax treaty.

Until they re-negotiate the tax treaty and add a TFSA to the list, US taxes will be withheld on US dividends within a TFSA, just as within a non-registered account.

You can have foreign holdings within a TFSA and Canada will treat these holdings as tax-free upon withdrawal, but Canada has no jurisdiction over what other countries do until the procedure is negotiated within a tax treaty.


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## Rox

stardancer said:


> The reason that US withholding taxes are not taken on US dividends within an RRSP is that the two countries have negotiated that in their tax treaty.
> 
> Until they re-negotiate the tax treaty and add a TFSA to the list, US taxes will be withheld on US dividends within a TFSA, just as within a non-registered account.
> 
> You can have foreign holdings within a TFSA and Canada will treat these holdings as tax-free upon withdrawal, but Canada has no jurisdiction over what other countries do until the procedure is negotiated within a tax treaty.


But even tax treaties impose taxes onto dividends earned. The percentage, as I can see, is usually 15% for many countries. What this means is the 15% is the maximum that a dividend-earner can be taxed; and there must not be any double-taxation with another taxation actvity from another country.

I am learning that the TFSA must be added into the tax treaty too, yes, I supposed so, since the TFSA is quite new, many countries would not have recognized it yet.


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## Rox

..warp,... okay, I hear your point-of-view,... I'm sure many around the world are also debating this very same thing - is it fair for all to pay the same amount of tax, or to tax based on an income scale or ladder ?


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## Eclectic12

Rox said:


> Eclectic,... I appreciated your replies and your help for me,... you have replied in other threads where I have asked questions on too,....
> 
> Looks like it's not so simple to be able to earn dividends which qualify for the Dividend Tax Benefits (DTCs),... but for a start, what we can do is to select dividend-payers who :-
> 
> 1) is called a Public Corporation, ie not a TRust, or a Mutual Fund, etc,...
> 
> Hmm,... having said that, what about a Canadian REIT ? Does it qualify automatically since, without doubt, it is giving out dividends ?
> 
> 2) is incorporated in Canada.
> 
> 3) has her Head Office inside Canada and not in The USA.
> 
> With the above fulfilled,... check one more time with the CCRA about the status of the dividends. Thanks again,....



I'm glad my replies have helped at times ... sometimes I'm sure I wasn't as clear as I could have been. Also, I learn a lot as I read this board and other sources so the more interaction, the better, IMO.

It used to be easier before the Income Trusts and some of the specialized products became popular.

As for the three items, I think that covers it. However, I'm not a tax expert and the limited time I've seached Canada Revenue Agencies web site hasn't come up with a clear definition.

At risk of confusing you - I've also had a corporation that normally has 100% of it's usual dividends as eligible send a special capital dividend. I'd have to check my records but if I recall correctly, the one time it happened was one dividend in ten years of quarterly dividends.

The big picture is that research will help you maximize the amount of eligible dividends but likely won't eliminate other types of dividends or payouts.


As for REITs, HaroldCrumpt is correct - most REITs will pay Return of Capital (RoC). REITs are said to pay "distributions" as the money paid could be any combination of eligible or ineligible dividends, RoC, foreign income, interest or others.

For example if I look at RioCan's web site, under the investor section at the tax documents, the first distribution for Jan 2009 was $0.115 per unit. Of the payout (if I haven't made any mistakes ... *grin*) :
a) $0.00067 was a capital gain
b) $0.00027 was foreign non-business income
c) $0.04145 was "other" income (labelled as investment)
d) $0.07261 was Return of Capital

Note that Return of Capital (RoC) is the original investment being paid back to you. It reduces your cost. If the cost becomes zero or negative, the RoC payments are then reported as capital gains, year by year. As well, if the cost is zero or less when the REIT is sold, 100% of the proceeds are taxable. Taxable at the most favourable tax rate but fully taxable.

I'll stop for now as you probably need to work through this information.


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## Eclectic12

kcowan said:


> This will become more complex when some of them change to corporations. Then they may do both ROC and DTC.


Hmmm ... I thought it would become simpler. 

For example, Pengrowth Trust Units have announced they are converting to a corporation and dividends. Under the investor section, RoC is listed for every year up until 2008 and 2009. I'm thinking that the plan going forward is to avoid paying RoC.

I'm aware of mutual funds, split shares, limited partnerships and trusts (be they REITs or Income) paying RoC but not corporations.

So I'm expecting the RoC to disappear from those trust units that have converted.

As for DTC - can you explain what this is? Maybe I haven't had enough coffee but I'm drawing a blank on this one.


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## Eclectic12

warp said:


> Its beyond me why a taxpayer should have to go through all this bullsh*it, as proposed in your post.
> 
> Filling out a tax form, which is a legal requirement, should be simple enough for any average taxpayer to understand and to do.
> 
> [ ... ]
> 
> By the way ROC is ok in ataxable account as it is used to lower your cost base, which hopefully increases your capital gain, which is the best income to have tax wise.
> 
> [ ... ]
> 
> They get you coming or going



Oh, I find the tax form easy. It's only as I've gotten into fancier investments by design or having them forced on me that the calculations have be come a pain.

Then too, I'd like to know who started using Adjusted Cost Base as per share versus the ACB on schdule 3, which is ACB times number of shares sold.

As for RoC, the issue I notice is that most people aren't aware they need to subtract it from the ACB per unit and what to do if the ACB per unit hits zero.


Then too - I wonder how much of the calcuations are coming from companies selling finanical tracking software that will auto-magically calculate all of this for the investor.


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## Rox

Eclectic12 said:


> I'm glad my replies have helped at times ... sometimes I'm sure I wasn't as clear as I could have been. Also, I learn a lot as I read this board and other sources so the more interaction, the better, IMO.
> 
> It used to be easier before the Income Trusts and some of the specialized products became popular.
> 
> As for the three items, I think that covers it. However, I'm not a tax expert and the limited time I've seached Canada Revenue Agencies web site hasn't come up with a clear definition.
> 
> At risk of confusing you - I've also had a corporation that normally has 100% of it's usual dividends as eligible send a special capital dividend. I'd have to check my records but if I recall correctly, the one time it happened was one dividend in ten years of quarterly dividends.
> 
> The big picture is that research will help you maximize the amount of eligible dividends but likely won't eliminate other types of dividends or payouts.
> 
> 
> As for REITs, HaroldCrumpt is correct - most REITs will pay Return of Capital (RoC). REITs are said to pay "distributions" as the money paid could be any combination of eligible or ineligible dividends, RoC, foreign income, interest or others.
> 
> For example if I look at RioCan's web site, under the investor section at the tax documents, the first distribution for Jan 2009 was $0.115 per unit. Of the payout (if I haven't made any mistakes ... *grin*) :
> a) $0.00067 was a capital gain
> b) $0.00027 was foreign non-business income
> c) $0.04145 was "other" income (labelled as investment)
> d) $0.07261 was Return of Capital
> 
> Note that Return of Capital (RoC) is the original investment being paid back to you. It reduces your cost. If the cost becomes zero or negative, the RoC payments are then reported as capital gains, year by year. As well, if the cost is zero or less when the REIT is sold, 100% of the proceeds are taxable. Taxable at the most favourable tax rate but fully taxable.
> 
> I'll stop for now as you probably need to work through this information.


Eclectic, thank you, great example there, breaking-down the components of the Riocan distribution for January 2009. 

Different components taxed differently,.. huh ? It'll be a mess to report into the declaration forms,...


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## Eclectic12

Rox said:


> Eclectic, thank you, great example there, breaking-down the components of the Riocan distribution for January 2009.
> 
> Different components taxed differently,.. huh ? It'll be a mess to report into the declaration forms,...


Note that I picked off the Jan 2009 distribution as I didn't like the "for 2009, #% is income" that was listed. I believe there was also totals across each category. So it does not necessarily come down to calculating each distribution.

As for the reporting - the Trust reports to the broker and as the broker gets batches of this info in, they are lumped together onto tax forms. I think the most I've received in a single tax year was five tax forms.

The "mess" IMHO is:

a) making sure all the trusts have reported. If one reports late, after the tax
return is filed, then an adjustment has to be filed. The broker usually helps
by notification that reports are outstanding - but everyone makes mistakes
at times.

b) reconciling the batches of broker produced summary to the tax form 
the totals are listed on for say, three trusts. As mentioned, the 
broker does this in a series of rounds - so there may be some time spent
matching summary A for trusts #1 and #2 to the proper tax forms.

c) the ROC calculations to adjust the ACB. If this were a regular stock, I'm 
calculating ACB when I've made transactions (either buy or sell). Where
three years pass without a transaction, no calculations are required.
Trusts require the ROC and ACB calcs each year (or close enough to know
if the ROC payment has become a capital gain to report that tax year).

Note that my broker (and likely no broker) helps with the RoC and ACB calcs.

So as I've mentioned before, I'm moving as much as I can of my trusts to either an RRSP or TFSA. There are two benefits - one is stopping the calculations and the second is an income stream to be able to take advantage of any buying opportunities where the contribution limit has been reached.


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## kcowan

Eclectic12 said:


> So I'm expecting the RoC to disappear from those trust units that have converted.
> 
> As for DTC - can you explain what this is? Maybe I haven't had enough coffee but I'm drawing a blank on this one.


Yes upon reflection, corporations do not do RoC. DTC is Dividend Tax Credit where $1 becomes $1.40 for tax purposes. BTW this is uniquely unfair to seniors but fortunately the degree of unfairness is getting less.


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## Eclectic12

kcowan said:


> Yes upon reflection, corporations do not do RoC. DTC is Dividend Tax Credit where $1 becomes $1.40 for tax purposes. BTW this is uniquely unfair to seniors but fortunately the degree of unfairness is getting less.


I knew DTC was familiar ... thanks.

Though this does remind me to check out what a corporation's "capital dividend" is. It's been rare so I haven't run into it often.


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## Rox

Eclectic12 said:


> Note that I picked off the Jan 2009 distribution as I didn't like the "for 2009, #% is income" that was listed. I believe there was also totals across each category. So it does not necessarily come down to calculating each distribution.
> 
> As for the reporting - the Trust reports to the broker and as the broker gets batches of this info in, they are lumped together onto tax forms. I think the most I've received in a single tax year was five tax forms.
> 
> The "mess" IMHO is:
> 
> a) making sure all the trusts have reported. If one reports late, after the tax
> return is filed, then an adjustment has to be filed. The broker usually helps
> by notification that reports are outstanding - but everyone makes mistakes
> at times.
> 
> b) reconciling the batches of broker produced summary to the tax form
> the totals are listed on for say, three trusts. As mentioned, the
> broker does this in a series of rounds - so there may be some time spent
> matching summary A for trusts #1 and #2 to the proper tax forms.
> 
> c) the ROC calculations to adjust the ACB. If this were a regular stock, I'm
> calculating ACB when I've made transactions (either buy or sell). Where
> three years pass without a transaction, no calculations are required.
> Trusts require the ROC and ACB calcs each year (or close enough to know
> if the ROC payment has become a capital gain to report that tax year).
> 
> Note that my broker (and likely no broker) helps with the RoC and ACB calcs.
> 
> So as I've mentioned before, I'm moving as much as I can of my trusts to either an RRSP or TFSA. There are two benefits - one is stopping the calculations and the second is an income stream to be able to take advantage of any buying opportunities where the contribution limit has been reached.


Hmm,... I supposed we must always keep our address updated at the broker's database, otherwise, if he is not able to send us our transactions, then we can't count and do the declarations.

Well, the trusts are soon gone, but last count, I saw in an article that 8 trusts will maintain their statuses, so if we invested in any of these 8, then the above dih-dah-doos will have to be done every year at, around Feb and March, I supposed...

Since the corporations will be there eventually and we invest in them, then we just go with the dividend payout calculations only, thank God,... no RoC for the corporations....


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## Eclectic12

Rox said:


> Hmm,... I supposed we must always keep our address updated at the broker's database, otherwise, if he is not able to send us our transactions, then we can't count and do the declarations.
> 
> Well, the trusts are soon gone, but last count, I saw in an article that 8 trusts will maintain their statuses, so if we invested in any of these 8, then the above dih-dah-doos will have to be done every year at, around Feb and March, I supposed...
> 
> Since the corporations will be there eventually and we invest in them, then we just go with the dividend payout calculations only, thank God,... no RoC for the corporations....


Keeping the address up to date helps - though now that I'm signed up for the electronic forms, the address is crucial only for investment instructions, not the tax forms.

Only 8? Or maybe I should be asking the time frame. I did see some noting that they weren't in a hurry to convert as they figured they had a couple of years worth of tax pools to mean the tax changes wouldn't hit them right away. 

As for need to do the calculations - that's only in non-registered accounts *grin*.


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## Rox

"Only 8? Or maybe I should be asking the time frame. I did see some noting that they weren't in a hurry to convert as they figured they had a couple of years worth of tax pools to mean the tax changes wouldn't hit them right away."

Where did you read about these companies not being in a hurry to convert ? I read everywhere that everybody who intends to convert must do so by coming-Jan, unless those who do not intend to convert at all, and who have chosen to remain as Income Trusts, can stay back.

There were also papers done on which corporations that would not drop the distribution payout by 30% after they have moved over, ie they are maintaining the payout.


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## Square Root

kcowan said:


> Yes upon reflection, corporations do not do RoC. DTC is Dividend Tax Credit where $1 becomes $1.40 for tax purposes. BTW this is uniquely unfair to seniors but fortunately the degree of unfairness is getting less.


$1.45 in Alberta I believe. I guess each province different?


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## Eclectic12

Rox said:


> "Only 8? Or maybe I should be asking the time frame. I did see some noting that they weren't in a hurry to convert as they figured they had a couple of years worth of tax pools to mean the tax changes wouldn't hit them right away."
> 
> Where did you read about these companies not being in a hurry to convert ? I read everywhere that everybody who intends to convert must do so by coming-Jan, unless those who do not intend to convert at all, and who have chosen to remain as Income Trusts, can stay back.
> 
> There were also papers done on which corporations that would not drop the distribution payout by 30% after they have moved over, ie they are maintaining the payout.


Here is the URL to the announcement in 2006 from Canada Revenue Agencies web site: 
http://www.fin.gc.ca/n06/06-061-eng.asp

Note that it indicates the taxes for trusts are changing - there is mention of putting trusts on the same tax footing but no requirement to convert nor deadlines for a conversion.

Here are several recent updates with the same message. Note particularly the last one which explicitly lists an an option - staying as a trust:
http://www.equicomgroup.com/docs/09-EQ-Regulatory_Pulse-November-V2.pdf
http://www.osler.com/NewsResources/Details.aspx?id=1509
http://www.stikeman.com/en/pdf/IncomeTrust.pdf

The bottom line is that the conversion seems to be driven by advantages to the trust of being a corporation, now that the tax benefits and high unit valuations of being a trust are about to be removed.

As for the "must convert" - all the sources I've seen say the new taxes come into effect on Jan 2011. It is up to the individual trust to decide what to do and should they decide to convert, when they think they can get the paperwork/shareholder approvals in place.

According to this summary for the US investor, Provident seems to be staying as a trust into 2001 and PenGrowth is aiming to convert *in* 2011. Tax pools are mentioned for several - though the target conversion dates aren't mentioned.
http://web.streetauthority.com/m/hy-intl/j/ehna08/04-issue-do.asp?TC=HN0434


Can you send me the links to the papers on which are doing what? The US investor aimed one about is the only one so far that I've found that is listing several units in the same report.

In summary, the links I'm finding highlight a deadline of when the new tax structure comes into effect. None so far have mentioned a deadline to convert or being forced to convert - so I look forward to any links you can forward.


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## Rox

Eclectic12 said:


> Here is the URL to the announcement in 2006 from Canada Revenue Agencies web site:
> http://www.fin.gc.ca/n06/06-061-eng.asp
> 
> Note that it indicates the taxes for trusts are changing - there is mention of putting trusts on the same tax footing but no requirement to convert nor deadlines for a conversion.
> 
> Here are several recent updates with the same message. Note particularly the last one which explicitly lists an an option - staying as a trust:
> http://www.equicomgroup.com/docs/09-EQ-Regulatory_Pulse-November-V2.pdf
> http://www.osler.com/NewsResources/Details.aspx?id=1509
> http://www.stikeman.com/en/pdf/IncomeTrust.pdf
> 
> The bottom line is that the conversion seems to be driven by advantages to the trust of being a corporation, now that the tax benefits and high unit valuations of being a trust are about to be removed.
> 
> As for the "must convert" - all the sources I've seen say the new taxes come into effect on Jan 2011. It is up to the individual trust to decide what to do and should they decide to convert, when they think they can get the paperwork/shareholder approvals in place.
> 
> According to this summary for the US investor, Provident seems to be staying as a trust into 2001 and PenGrowth is aiming to convert *in* 2011. Tax pools are mentioned for several - though the target conversion dates aren't mentioned.
> http://web.streetauthority.com/m/hy-intl/j/ehna08/04-issue-do.asp?TC=HN0434
> 
> 
> Can you send me the links to the papers on which are doing what? The US investor aimed one about is the only one so far that I've found that is listing several units in the same report.
> 
> In summary, the links I'm finding highlight a deadline of when the new tax structure comes into effect. None so far have mentioned a deadline to convert or being forced to convert - so I look forward to any links you can forward.


Eclectic,... thank you for the detailed explanations.

I have been searching around and reading here and there, I have zoomed down on two articles that basically talked about trusts which are converting, and at the same time, which WOULD BE KEEPING their distributions steady (as compared to the time before they converted) and not dropping the dividend by 33% as to what many are doing because of the new tax regime.

http://www.theglobeandmail.com/glob...-high-yield-corporation/article1609877/page1/

In the above list, there are 18 corporations/trusts (if they have not converted yet), provided by independant firm : IncomeResearch.ca

http://www.theglobeandmail.com/glob...trusts-for-sustainable-income/article1612792/

In the above immediate listing, there are 13 energy corps/trusts, provided by Peters & Co. Ltd.. Somehow, I just think that if there is any company which can sustain a relatively good dividend payout, it would be the energy-related ones, hence my focus here.

Furthermore, trusts actually started from an energy-related company and her origins came about because of the need to distribute a high amount of cash generated from operations. 

Both reports were published at around the same time in the middle of this year, I believed that was the time when the conversion starts to run its final lap for those who are converting. By now, it would be too late to start before the new taxes start to hammer in.

A further anaysis at my end : ONLY two trusts seem to appear in both listings, namely Inter Pipeline and Keyera Facilities. 

As of now, I would wager my money on these two till my due dili work ascertains otherwise,....


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## kcowan

Square Root said:


> $1.45 in Alberta I believe. I guess each province different?


I recall the inclusion rate was 1.44 in 2009 and 1.41 in 2010. They are intent on eliminating it as they reduce corporate taxes.


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## Eclectic12

Rox said:


> Eclectic,... thank you for the detailed explanations.
> 
> I have been searching around and reading here and there, I have zoomed down on two articles that basically talked about trusts which are converting, and at the same time, which WOULD BE KEEPING their distributions steady (as compared to the time before they converted) and not dropping the dividend by 33% as to what many are doing because of the new tax regime.
> 
> http://www.theglobeandmail.com/glob...-high-yield-corporation/article1609877/page1/
> 
> In the above list, there are 18 corporations/trusts (if they have not converted yet), provided by independant firm : IncomeResearch.ca
> 
> http://www.theglobeandmail.com/glob...trusts-for-sustainable-income/article1612792/
> 
> [ ... ]
> 
> Furthermore, trusts actually started from an energy-related company and her origins came about because of the need to distribute a high amount of cash generated from operations.
> 
> Both reports were published at around the same time in the middle of this year, I believed that was the time when the conversion starts to run its final lap for those who are converting. By now, it would be too late to start before the new taxes start to hammer in.
> 
> [....]


No problem on the detailed explanations - sometimes I wonder it's too much detail and I'm losing people. So it's good to have feedback. 

Thanks for the articles - I've done a quick scan through and the info seems to be consistent with the articles I've posted.

I'm not so sure about trusts starting with energy companies. Certainly they were the leaders in conversions from corporation but I can recall REITs being available long before energy or restaurants or phone companies jumped in.

I'm also doubtful of the "need to distribute cash". My understanding is that the high payouts came from the trust structure, not the type of business. Part of the requirements of being a trust is that most of the cash from business has to be passed onto the unit holder. A regular corporation decides what to keep and what to payout with dividends - if anything, without restrictions. This is why the recommendation was to be extra careful with a trust as it has limited options in a weather a downturn or the more common oil/gas situation where the money making asset is being depleted. 

In several cases where I had stock in an energy company which later converted to a trust, management clearly stated in their explanation to get shareholder votes for the conversion that this would "unlock value". In other words, the trust units traded at a much higher unit price, with a much higher price to earnings (P/E). The corporation shares traded at $16 and a P/E of 12, after conversion the trust unit jumped to $38 and a P/E of 28. Comparable corporations who didn't convert were still at a level similar to the $16.

Once other companies noticed, a lot of other conversions were announced. Some examples included A&W restaurants, lumber companies and the one that seemed to prompt the government to change the tax laws, Bell Canada.


Finally, in regards to the "final lap for conversion", I really wish I'd saved the news releases from the two trusts that were saying that based on the billions in tax pools, they would look at conversion in mid to late 2012. After finding those, I'm viewing the conversions as a wave - most before or up to Jan 2011 and stragglers after.


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## warp

personally I believe in a "flat tax"

its simpler, farier, much much more transparent and efficient.

it would also eliminate all those lawyers whose only job it is, is to find "loopholes" to get around existing leagl taxes, especially at the corporate level.
this is totally unproductive.

After an initial "personale exemption" of lets say $20K...everyone pays the same rate...lets say 15% as an example.
So someone making 10 times as much as me, pays 10 times as much tax as me.

That seems fair......and very easy to administer.....tax forms would be easily understandable, and maybe ONE PAGE LONG!!!

Of course there would need to be tweaking, and further exemptions based on age , disability, etc etc,,,but its a simple system anyone would eb able to understand.

Lastly I would make the penalties for evasion so severe, that taxpayers would decide its not worth the effort, and would just pay the 15%.

We all reralize taxes have to be paid.....we need many govt services,,,, but govt has grown way out of proportion to their nedds and watse money by the BILLIONS, like drunken sailors..( my apology to druken sailors , who at least get somehting back for the money they blow..unlike govt)

Also, lest you think I speak from self service...I am not a high earning taxpayer, but my eyes are open to the screwing they take.


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## Rox

Eclectic12 said:


> No problem on the detailed explanations - sometimes I wonder it's too much detail and I'm losing people. So it's good to have feedback.
> 
> Thanks for the articles - I've done a quick scan through and the info seems to be consistent with the articles I've posted.
> 
> I'm not so sure about trusts starting with energy companies. Certainly they were the leaders in conversions from corporation but I can recall REITs being available long before energy or restaurants or phone companies jumped in.
> 
> I'm also doubtful of the "need to distribute cash". My understanding is that the high payouts came from the trust structure, not the type of business. Part of the requirements of being a trust is that most of the cash from business has to be passed onto the unit holder. A regular corporation decides what to keep and what to payout with dividends - if anything, without restrictions. This is why the recommendation was to be extra careful with a trust as it has limited options in a weather a downturn or the more common oil/gas situation where the money making asset is being depleted.
> 
> In several cases where I had stock in an energy company which later converted to a trust, management clearly stated in their explanation to get shareholder votes for the conversion that this would "unlock value". In other words, the trust units traded at a much higher unit price, with a much higher price to earnings (P/E). The corporation shares traded at $16 and a P/E of 12, after conversion the trust unit jumped to $38 and a P/E of 28. Comparable corporations who didn't convert were still at a level similar to the $16.
> 
> Once other companies noticed, a lot of other conversions were announced. Some examples included A&W restaurants, lumber companies and the one that seemed to prompt the government to change the tax laws, Bell Canada.
> 
> 
> Finally, in regards to the "final lap for conversion", I really wish I'd saved the news releases from the two trusts that were saying that based on the billions in tax pools, they would look at conversion in mid to late 2012. After finding those, I'm viewing the conversions as a wave - most before or up to Jan 2011 and stragglers after.


The trusts started with an energy company, I finally found the article :-

http://www.theglobeandmail.com/globe-investor/a-short-history-of-income-trusts/article1778879/

I believed after the above event, many corposrations saw this as a great way to pay lesser tax, hence, everybody started spinning-off their own trust bodies, and corporations started to join the bandwagon, as you posted above, and their stock prices grew along with the 'percepted' valuations.

A further development would be the Ninister of Finance, Mr Jim Flaherty saw lots of leakages, and decided to stop the conversions,.. and even indirectly asked the trusts to convert back by imposition of Federal Taxes again onto the trusts.

Pursuant to your last paragraph, are you saying Inter Pipeline (IPL) and Keyera have not converted yet, and might only be doing so by 2012 ?

What do you think of the companies (ex-trusts or not,..) in the two lists from my articles ? Do you think they would be able to continue giving out the high dividends ? Sustainable ?


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## Rox

Been reading up some old articles - again found another on the development of the trusts, and another listing of companies that would most probably still perform well after the conversion. This article dates back to Oct, 2009.

http://www.theglobeandmail.com/glob...y/income-trusts-with-a-future/article1336409/


The listing at the end of this article rated Keyera again as a strong Buy. Some consistencies in the entities inside this article with the others in the other two listings I posted yesterday.

The share prices have risen too for the "consistent entities", hence, a good sign of their truely good qualities, perhaps ?? I am looking for consistencies and performance,...


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## Rox

Eclectic,.. if you are still following this thread, I have found some further news :-

1) Keyera is converting by this December :-

http://www.tradingmarkets.com/news/...-to-approve-corporate-conversion-1310021.html

2) Capital Power Income LP is not converting till 2013,... it is a partnership, hence something to do with accumulated taxes :-

2. How will the income trust tax changes in 2011 affect Capital Power Income L.P.?
In October 2006, the Government of Canada (Government) announced the "Tax Fairness Plan" which included new tax rules for specified investment flow-through (SIFT) entities, commonly known as income trusts. The new rules, which were enacted in June 2007, tax certain income of a SIFT in substantially the same way it would be taxed if the SIFT were a corporation. Capital Power Income L.P. (the Partnership) is classified as a SIFT under these new rules. In broad terms, these measures, when implemented, would result in the application of a tax to the Partnership similar to that on corporations and would treat a portion of cash distributions received by unitholders similar to taxable dividends for tax purposes.

Trusts and partnerships that meet the SIFT definition and that existed on October 31, 2006 are exempt from this tax until 2011, as long as they do not grow in excess of specific guidelines set out by the Government. During the four-year period prior to 2011, trusts and partnerships would be able to issue equity, subject to annual limits, to finance growth in an amount not to exceed the October 31, 2006 value of its equity market capitalization. The Partnership expects that it can issue up to $1.7 billion of new equity before 2011 without accelerating the date that it becomes subject to the SIFT legislation.

The Partnership has optimized its capital structure to defer impact of cash taxes on income. At the end of 2009, tax losses and undepreciated capital costs, totaling approximately $1.2 billion, are available to the Partnership to deduct against future taxable income. Based on its existing portfolio of assets, the earliest expected cash tax payments on income in Canada and the United States is 2015 or 2016. Any acquisitions or developments may extend the dates out further. In addition, the Partnership generates cash flows from both Canada and the U.S. and only the cash flows generated in Canada would be subject to the SIFT tax. Approximately 54% of the Partnership's 2009 operating margin (excluding fair value changes on foreign exchange and natural gas contracts) are generated from the U.S. and is exempt from the SIFT tax, but subject to current U.S. taxation.

Unlike trusts, partnerships can utilize existing tax rules that would enable the Partnership to convert to a corporation on a tax deferred basis. Furthermore, additional changes were proposed by the Government in July 2008 to facilitate the conversion of income trusts to corporations, which the Partnership should be able to implement as long as it can meet the requirements, *including that it must be wound up before 2013*. 

fyi,... Can't find any related ann't by IPL Fund, though,...


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## Eclectic12

@ Rox:

Re: Trusts started with energy companies as per Globe and Mail Link

Hmmm ... not what I heard but I guess you learn something new everyday.
I certainly wasn't paying attention in 1985!


Re: Corporations saw this as a great way to pay less tax, many converted
and their stock prices grew along with the 'percepted' valuations.

I'm not sure paying less tax on it's own would have been enough. Don't forget there was a lot of lawyer's fees, sweeping changes to the business processes/computer systems, getting the shareholders to approve the change etc. - all of which cost money. So IMHO, the increased valuations and larger P/Es were also key advantages. Certainly the materials I was sent as shareholder stressed them, in the "let's convert" sales pitches.


Re: Mr Jim Flaherty saw lots of leakages, and decided to stop the 
conversions,.. and even indirectly asked the trusts to convert back 
by imposition of Federal Taxes again onto the trusts.

I don't think he asked as I suspect he and the bureaucrats were smart enough to figure out the taxes were a way to have their cake and eat it too. He could have simply legislated that "as of date x, if you don't qualify - you have to convert". But since he knew that he'd already be taking flak for reversing the government's position, he removed the benefits.

Now if any of the trusts moan about the conversion costs - and there are costs as mentioned above, he can point out that he has not dictated that a trust convert back. He's changing the playing field, which happens to give strong reasons for the non-qualifying trusts to convert.

Re: Pursuant to your last paragraph, are you saying Inter Pipeline (IPL) 
and Keyera have not converted yet, and might only be doing so by 2012?

No. 

I'm saying that when I did some checking, I found two other trusts with press releases saying that their target conversion was 2012, so that they could use up their tax pools. The two you mention were in the posts but I was not referring to them.


Re: What do I think about the trusts in the list? Are their payouts 
sustainable?

I have no idea. I've got my hands full with the ones I already have.

My thinking would be to look for ones that commentators commented on how they cut their distributions more than expected as part of the 2009 crash. 

If their management team is good, their balance sheet is good but their distribution was cut more than expected - this may be smart planning by management. I can easily see where smart management could use the crash to cut the distribution down to where they know they can support it as a corporation. After all, when you've already been hit by the crash, if you are fast enough - few will notice.


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## Rox

Eclectic,... thank you for your detailed replies. 

Just on your first reply : I think many of those expenses that you mentioned are just at the initial stage. Just pay one time at the onset and then the corp can continue to enjoy the benefits for many years to come,... but they did not anticipate that the Gov't would pull the rug out from underneath their feet so quickly.

Other replies - okay,.. especially on the last one - think I'll watch out for those companies that you mentioned too.

Thanks again,.....


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