I recently did an in-kind share transfer from my non-registered account to my tax-free savings account. This transfer was below the book value of the shares so I assumed it would be a capital loss but I did not get a confirmation slip as a record. How do I account for this loss transaction?
Sorry to be the bearer of bad news, but when you own shares with an unrealized loss and transfer them in-kind to a TFSA (or any other registered account), you cannot claim the loss for tax purposes. The Canada Revenue Agency considers this a “superficial loss” because you still own the shares.
To get around the superficial loss rule, you could have sold the shares in your non-registered account first and then contributed the cash to your TFSA. After waiting the required 30 days, you could have repurchased the shares in your TFSA and still claimed a capital loss.
Alternatively, after contributing the cash to your TFSA, you could have immediately purchased a similar – but not identical – security. For example, if you sold Royal Bank and transferred the cash to your TFSA, you could have purchased a different Canadian bank – or an exchange-traded fund that holds all of the Canadian banks – without having to wait 30 days. That way, you could have claimed the loss while not missing out on any potential gains in bank stocks.
Anticipating more and more electric cars on the road, I have invested in Fortis Inc. (FTS), Capital Power Corp. (CPX) and Brookfield Renewable Corp. (BEPC). BEPC does not seem to be doing very well, however, and I am not even sure what it is compared to Brookfield Infrastructure Corp. (BIPC) or other Brookfield entities. Did I buy the wrong thing?
Brookfield Renewable has indeed had a rough ride in the past year or so. But that’s largely because its valuation had soared to unreasonable levels in the renewables rally of late 2020 and early 2021, making the stock vulnerable to a pullback.
However, the company itself – which owns a global portfolio of hydro, wind and solar generating assets – is doing just fine. In 2021, Brookfield Renewable Partners LP (BEP.UN) – the limited partnership from which BEPC was spun out in 2020 – posted normalized funds from operations of US$1.09-billion or US$1.69 per unit, up from US$882-million, or US$1.45, a year earlier. What’s more, BEP.UN and BEPC both increased their distributions by 5 per cent, extending a long string of annual increases. Since the results were released in early February, both stocks have been rallying.
One of Brookfield Renewable’s strengths is that it derived more than half of its 2021 revenue from hydroelectric power, which is a highly reliable and long-lived source of generation that requires relatively little maintenance. Moreover, hydro generation doesn’t require massive batteries to store electricity. Instead, hydro facilities use pumped storage, which involves pumping water to a reservoir at a higher elevation and, when the electricity is needed, allowing the water to flow downhill and through the turbines.
With governments and corporations around the world transitioning to green energy, Brookfield Renewable has a large pipeline of hydro, wind, solar and storage projects that should keep its cash flow and distributions growing for many years to some. So, no, I don’t think you bought the wrong thing. I just think you need to be patient.
Recently my discount broker issued a T5008 Statement of Securities Transactions showing the disposition of 311 shares of Brookfield Infrastructure Partners Exchange LP in August, 2021. The cost or book value was stated as $8,560.56 and the proceeds of disposition were $22,158.75, which means I am facing a large capital gain. However, I’m puzzled because I did not sell any shares; in August I simply exchanged the shares – which I had acquired when Brookfield Infrastructure Partners LP (BIP.UN) bought Enercare Inc. – on a one-for-one basis for shares of BIP.UN. So I fail to understand why there are any tax implications. I had a long phone call with two different people at my broker that did not clear this up. Can you shed any light?
When Brookfield Infrastructure acquired Enercare in 2018, Enercare shareholders had the option to defer capital gains tax by accepting, in lieu of cash, “Exchangeable LP Units” that are convertible into units of Brookfield Infrastructure Partners LP. Evidently, you elected this tax-free rollover option.
However, the exchangeable units were not intended to remain tax-free forever. On page 72 of the management information circular for the transaction (available on sedar.com), Enercare stated: “The disposition … of an Exchangeable LP Unit, including on a redemption or exchange of Exchangeable LP units for BIP units … will result in the realization of a capital gain (or capital loss)” by the unitholder.
So, when you swapped your exchangeable units for BIP.UN units last summer, it triggered a taxable event. If it’s any consolation, remember that only 50 per cent of capital gains are included in your income for tax purposes.
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.
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John Heinzl