Canadian Money Forum banner
1 - 8 of 8 Posts

·
Registered
Joined
·
11,215 Posts
The first thing is that the last I checked, basically all brokerages have a synthetic DRIP for all accounts (i.e. taxable, TFSA & RRSP). CanadianShareOwner is the only exception I am aware of.

The synthetic DRIP means that only full shares will be bought, with any remainder staying as small amounts of cash. A company run DRIP administered by a transfer agent such as ComputerShare or ShareOwner will allow partial shares so that all the dividend is rolled into shares.


For step #2 ... if there's no stock yet, you can take your time researching which brokerage offers the TFSA features, commission fee schedule and a synthetic DRIP for the companies you are interested in.


Secondly ... if the plan is to make use of a broker TFSA, there is no need to transfer shares - one can just buy enough shares in the broker TFSA, call in and ask for the DRIP. As long as the company in question is on the broker's list and the dividends paid are large enough to buy one or more shares, everything is setup.

The upside to what the link is suggesting is that the company DRIP will maximise how quickly the dividends buy stock and the SPP will allow more shares to be bought commission free.

The down sides are that:

a) AFAICT, there aren't any TFSA full DRIPs so that there will be taxes to pay. Yearly there will be taxes on the dividends and when there is enough to request a transfer to the TFSA, there will a capital gain or loss to calculate. When transferring to a registered account, a CL is not allowed due to the superficial loss rules - so one usually does not want to be in that situation. Where there is a CG, one has to pay the taxes (or have a CL to offset the owed CG).

b) There could be fees to pay for the transfer. There may be a fee to pay to the transfer agent (ex. ComputerShare) and then there could be a second fee to pay to the broker. This is because the share certificates cost employee time to generate, send and deposit. A transfer of a large amount and several accounts can usually have the transfer fees negotiated to be waived ... but for this situation, it is not likely which means there will be a series of charges.


I suspect that when all the costs are considered, it might be more cost effective to look for an index based MF that has a low MER, contribute cash to the TFSA to buy the MF (avoiding paying any taxes as after-tax cash is being contributed to the TFSA) and then when the amounts get big enough, sell some of the MF to buy the stock and enroll in the synthetic DRIP.

If there's a lot of shares already in the taxable company DRIP ... it might be worth the transfer but one will have to stay under the TFSA contribution limit.

Cheers

PS

The advantage to sticking with just the TFSA is that the yearly taxes as well as the CG tax when the transfer to the TFSA occurs is going to reduce what you have compared to doing everything in the TFSA.
 

·
Registered
Joined
·
11,215 Posts
I should add that step #2 really is walking into a brokerage/financial institution of your choice (or filling out the forms online) to open the TFSA. It is similar to what one did to open a bank account ... only the costs/privileges/investment choices will be different.

As I say ... if there aren't any shares in a company DRIP yet ... there is no rush for this.

Steps 3 & 4 are accumulating shares and deciding when the share amounts are enough to make it worth transferring that number of share to the TFSA. Remember to include any transfer fees in the calculations.

Step 5 is the request to notify the broker to get the shares.

Step 6 is what has to be figured out in order to fill out the tax return for the year of the transfer to the TFSA properly on schedule 3 "Capital Gains (or Losses) for year 201x", part 3 "Publicly traded shares, mutual fund units ... ".

Step 7 is making sure the broker knows that the shares now in the TFSA should be enrolled in the synthetic DRIP.

Step 8 is to repeat the process where it makes sense. As I say, with brokerages offering $9.99 commissions and some offering low cost index MFs that do not have any commissions to buy/sell - I would want to be careful that the taxes as well as the transfer fees make it more expensive than it is worth.



Cheers
 

·
Registered
Joined
·
158 Posts
Discussion Starter · #4 ·
Great info thanks. Just to clarify I have roughly 5k in DRIPs (BMO, BNS,ENB, and RIOCan REIT). Not a lot really. Do you think it would be worth it to put into a TFSA given all the hassels and fees? I'm continuing to buy at $250/month straight from Computershare. The reason for doing so was to save on commissions as I'm I'm just a beginner. Should i open an ishares account at Scotiabank and buy more stock to put in a TFSA and max out my TFSA limit first? (I have lots of room) Are the tax benefits worth paying the commissions on?

Regards,
 

·
Registered
Joined
·
4,209 Posts
So you are currently the registered owner and have these shares set up to DRIP with Computershare?

It sounds like it may not be worth it if you only have $5k in 3 stocks and a REIT. For example, BMO pays 78cents/qtr/share. If you own 100 shares (today that would cost $7625.) they would pay you a qtrly div of $78. That would buy you 1 share at today's price of $76.25. The balance of $78-76.25=1.75 will go into cash in the TSFA. If you own anything less than 98 shares at these prices the dividend will not be sufficient to DRIP even 1 share and it will all go into cash.
 

·
Registered
Joined
·
11,215 Posts
My gut feel is that since all of the DRIP is going into shares (i.e. pay taxes once on the dividends for that year and then capital gains when the shares are sold) ... I wouldn't think it would be worth it.

However, without knowing what (if anything) Computershare is going to charge and what (if anything) the receiving brokerage will charge ... it is hard to tell the numbers.

The Scotia iShares (assuming it is available as a TFSA) looks good as it seems to have no commissions. I've want to check the fine print, that the ETFs cover what you want and that there aren't any restrictions that might affect you (minimum buy amount, holding period or other things).

If you don't plan on selling anytime soon, questrade's free buy and pay a commission to sell might provide a larger choice range.
http://www.questrade.com/trading/services/free_etf


For the tax benefits ... the trade off is that eligible dividends will lose the benefit of the dividend tax credit (DTC) when held in the TFSA. But since a large chunk of gains is usually from the share price, having that tax free in the TFSA makes sense in the long run.

Some prefer to put higher taxed investments such as GICs, bonds in a registered account but these won't grow much at the moment.


As for the commissions, the idea is to grow the amount so that one can have an economy of scale when buying. So if there isn't enough to buy the individual stock where one wants to benefit from equity growth, an index MF or ETF that does not have a buy/sell (or even if the buy is the only free part) ... this will allow growth as well as having equities. It just won't be as "one company" specific as say buying more BMO shares through Computershare.


Cheers
 

·
Registered
Joined
·
5,604 Posts
Great info thanks. Just to clarify I have roughly 5k in DRIPs (BMO, BNS,ENB, and RIOCan REIT). Not a lot really. Do you think it would be worth it to put into a TFSA given all the hassels and fees? I'm continuing to buy at $250/month straight from Computershare. The reason for doing so was to save on commissions as I'm I'm just a beginner. Should i open an ishares account at Scotiabank and buy more stock to put in a TFSA and max out my TFSA limit first? (I have lots of room) Are the tax benefits worth paying the commissions on?

Regards,
Personally, I stopped my full DRIPs with stock transfer agents once I had enough shares to DRIP synthetically (with brokerage).

Like you, I saved on commissions using the cost of a stamp as my commission to buy more shares. Once you have enough shares to DRIP one full share, inside RRSP or TFSA (or non-registered if you wish) then I think it makes sense to move shares from transfer agent to brokerage; you can do more with the cash leftover as well:
http://www.myownadvisor.ca/closing-your-drips-and-spps-transferring-your-shares-to-your-brokerage/

There are no real tax benefits on paying commissions; commissions are bad :)
 
1 - 8 of 8 Posts
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top