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Email this6:49 pm
December 12, 2009
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Norman1 said
Doug said
Good point, Norman. What about the withholding tax on the in-kind withdrawal? Is there a CRA election form that allows the financial institution not to withhold any taxes provided you've pledged a portion of your non-registered assets to satisfy the withholding tax remittance?
Unfortunately, there isn't. One would have to provide cash from elsewhere for the financial institution to send to CRA for any required withholding.
The preferred shares being discussed are intended to pay a 4% per annum distribution. With 55 shares, one would also have 4% x 55 = 2.20 shares worth of cash in the RRIF after a year.
A minimum withdrawal of 5.4% works out to be 5.4% x (55 + 2.20) = 3.0888 shares.
One could withdraw one share in-kind plus 2.0888 shares worth of cash (out of the 2.20 shares worth cash). There would enough cash to cover a tax withholding of up to 2.0888/3.0888 = 67.62%!
Yeah, but usually it's not that simple in that, presumably, these credit union shares would be held in a separate RRIF plan that would strictly contain the shares; no cash. If you withdraw the shares in-kind, there's no corresponding cash to withdraw. The withholding tax is usually withdrawn from the gross withdrawal amount, leaving the person with a net amount withdrawn. Mind you, I'm not sure how in-kind withdrawals work. Are you saying that for in-kind withdrawals, the FI can verify you have cash sitting in an adjacent non-registered account and remit the 10% withholding tax or whatever to the CRA?
Cheers,
Doug
6:52 pm
April 6, 2013
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Briguy said
From what I understand, the extra cash to remit to Revenue Canada for withholding tax has to be in the RRIF, not just cash lying around in some other account. …
That appears to be the case with the RRIF's now at BMO Nesbitt Burns and RBC Wealth. 
I don't know if that's required by CRA now or just a limitation of their systems. I do remember reading that one could make "arrangements" for the tax withholding that needs to be sent in.
6:53 pm
December 12, 2009
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Briguy said
From what I understand, the extra cash to remit to Revenue Canada for withholding tax has to be in the RRIF, not just cash lying around in some other account. And we don't know if the FI will allow you to cash in these 4% bonds.
Yeah, at least not likely for the first five year period, Briguy. Liquidity is an issue, at least in a RRIF with mandatory withholding taxes. 🙂
After five years, they'd probably redeem the shares for you, at least a percentage of your shares each year. In the initial period, it'd likely be if they could find a private buyer of your shares internally (perhaps a waiting list of some sort).
Credit union shares are a good option, but I'd hold them in either a TFSA (since it's interest income) or in a non-registered account and keep it simple.
Cheers,
Doug
6:56 pm
December 12, 2009
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Norman1 said
Briguy said
From what I understand, the extra cash to remit to Revenue Canada for withholding tax has to be in the RRIF, not just cash lying around in some other account. …That appears to be the case with the RRIF's now at BMO Nesbitt Burns and RBC Wealth.
I don't know if that's required by CRA now or just a limitation of their systems. I do remember reading that one could make "arrangements" for the tax withholding that needs to be sent in.
Yeah, that's how HSBC (Bank, Securities, Trust, and Investment Funds) does it as well. I don't know that it's a CRA requirement, per se. The CRA just requires, as I understand it, certain percentages to be withheld and remitted based on certain dollar amounts. Hence, if you want to pay later, you can request two x $4999.99 draws from your workplace banked vacation account instead of two x $5000.00 and be subject to the higher withholding percentage (forget what it is). It's probably just more that for the banks, it's a lot simpler to calculate the gross withdrawal amount, withhold the requisite percentage, and provide the client with the difference. 🙂
Cheers,
Doug
7:07 pm
December 12, 2009
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Loonie said
You jest, I'm sure!
Rest assured that NOBODY knows me at TD after over 30 years of business there. My anonymity is secure, even without sunglasses.
Are you revving up for your next shareholders' meeting?There used to be one woman there who did recognize me, but she was older and has since disappeared. The staff turnover is so rapid that I don't know how they could recognize me really. It must be a horrible place to work.
Sorry for the delay in replying, Loonie, but to be honest, I actually was serious (or maybe half-kidding). Although you've had reasonably good service at Meridian, I know you're not as enamoured with their bank-like rates and so I actually half expected you to say you get wonderful, highly personalized service at TDCT. It sounds like the service isn't bad or anything - it's just that TDCT's branch network is extensive and they provide a lot of hours and a conveniently located branch from you can transact your banking affairs. You may also have a grandfathered account that gives you free cheques and free TD bank drafts, too, so that's a compelling feature.
I actually didn't participate in the TD shareholder meeting this year. I added that to my signature, half joking, to stress that I am a TD shareholder but have never been a customer (and don't plan to be). Their branch network is convenient, yes, but their banking products and interest rates are unattractive. Even Questwealth Portfolios robo advisor/portfolio management service essentially ties TD's lauded e-Series index mutual funds when you compare all-in management fees and fund MER. TD's WebBroker platform and TD Direct Investing consistently scores near the bottom of the "Big 5" bank-owned self-directed discount brokerages; I'd be inclined to switch to Questrade, Qtrade, Virtual Brokers, CIBC Investor's Edge, or even HSBC InvestDirect before TD Direct Investing.
Cheers,
Doug
7:35 pm
March 17, 2018
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Norman1 said
Briguy said
From what I understand, the extra cash to remit to Revenue Canada for withholding tax has to be in the RRIF, not just cash lying around in some other account. …That appears to be the case with the RRIF's now at BMO Nesbitt Burns and RBC Wealth.
I don't know if that's required by CRA now or just a limitation of their systems. I do remember reading that one could make "arrangements" for the tax withholding that needs to be sent in.
There is one way that you can withdraw more than the minimum in bonds without having cash to pay the withholding tax:
If you know you will get a tax refund, you can instruct the FI by means of a TD1 form not to remit the withholding tax, and the FI may require you to provide authorization from the CRA which you can request with a form T1213 sent in to CRA.
https://ca.rbcwealthmanagement.com/documents/695242/0/RRIF+Payments+and+Withdrawals.pdf/52105f7e-909e-4f74-a206-676b5f5b4a73
But in reality I can't see the point in withdrawing more than the minimum in kind because you won't be able to cash the bonds in even in a non registered account in the first 5 yr, and possibly only on a 10% per year basis after that. Hopefully you don't need the money beyond the 4% interest it's making. You would withdraw the 4% interest and the balance in bonds to make up your minimum withdrawal.
7:52 pm
October 21, 2013
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It's not that TD gives such great service. I believe I wrote something in the "stories" section a while back about problems trying to close an RIF there. Or maybe I posted it elsewhere.
It's more that they haven't offended me sufficiently yet, combined with the existing cheques , free seniors account, and my own inertia. Also, I'd have to change all the other accounts that link to it. Seems like a lot of bother.
I don't know much about their brokerage accounts except that they have a bad rep for transfers-out of registered plans. Takes forever sometimes. I've been told this by staff at several other FIs.
And now we know they are, for some unknown reason, difficult for Motus to link to and must be done manually.
I hear TD has some pretty good low-fee mutual funds if you like that sort of thing, and you don't need a brokerage account for them.
I think all bank shareholders should be awarded an account and be forced to use it. Just kidding, but not such a bad idea, come to think of it!
No doubt some watchdog would object.
Anyway, I get far better service at Meridian. Might move my banking there if it were convenient. Would NEVER move main banking to a solely-online FI as it's just too easy for them to blow you off.
3:43 am
March 17, 2018
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I also enjoy having my main banking account at one of the big 5. It would be very inconvenient for me to switch CRA automatic deposits, payroll automatic deposits, linkups to other banks etc if I ever did switch from Scotiabank. If I did switch main banks it would probably be to Alterna Bank or Meridian . Alterna Bank lets you do face to face transactions at Alterna Savings locations. For some reason Motus doesn't give you that privilege at Meridian branches so Motus would not be my main FI.
5:47 am
March 30, 2017
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4% treated like interest income so no dividend tax credit. Lack of liquidity and a hassle when its time to sell are the 2 reasons I dont participate in these.
Some of the big5 div yields are at similar level, and they are much better hold as long as you can stomach M2M fluctuation and dont need the principal.
Keep in mind if you already collect OAS and GIC etc, the dividend gross up on regular dividend may trigger OAS and GIC clawback etc. So one has to do the math to see the "net" return for owning dividend stocks.
6:23 am
April 6, 2013
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Briguy said
… Alterna Bank lets you do face to face transactions at Alterna Savings locations. …
That's actually not the case if one is an online-only Alterna Bank client.
We found earlier that Alterna Bank seems to have two separate pools of customers: online-only and branch, both under the same "Alterna Bank" branding.
Some of the Alterna Bank rate offers, it turned out, were only available to their branch customers. Saver-Mom found that online-only clients had to onboard anew at a branch to become a branch customer!
To this day, the Alterna Bank web site says one can order drafts through their call centre. Someone called them and was told no. I suspect that is a branch-customers only service. However, most of us are online-only clients.
In contrast, CIBC was wise enough to use a different brand (Simplii Financial) for their online-only customers. So, if one sees a CIBC offer, no Simplii Financial online-only customer would mistakenly think it would apply to them.
8:50 am
May 28, 2013
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I can't say that a preferred share at 4% looks very attractive. Many of the big banks often issue preferred shares which pay around 5% (e.g. TD series 22, RY series BM) which one can buy and sell on the TSX market.
9:42 am
March 17, 2018
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Norman1 said
Briguy said
… Alterna Bank lets you do face to face transactions at Alterna Savings locations. …That's actually not the case if one is an online-only Alterna Bank client.
We found earlier that Alterna Bank seems to have two separate pools of customers: online-only and branch, both under the same "Alterna Bank" branding.
Some of the Alterna Bank rate offers, it turned out, were only available to their branch customers. Saver-Mom found that online-only clients had to onboard anew at a branch to become a branch customer!
To this day, the Alterna Bank web site says one can order drafts through their call centre. Someone called them and was told no. I suspect that is a branch-customers only service. However, most of us are online-only clients.
In contrast, CIBC was wise enough to use a different brand (Simplii Financial) for their online-only customers. So, if one sees a CIBC offer, no Simplii Financial online-only customer would mistakenly think it would apply to them.
Thanks for pointing that out !! The website for Alterna Bank is misleading, it says:
Still prefer a smiling face? We get that! Stop by one of our branches.
Alterna Bank also operates in Gatineau, Quebec and 31 branch locations across Ontario through Alterna Savings*. Whether you stop by for daily banking transactions or advice on loans and mortgages, a knowledgeable Alterna representative will always be delighted to serve you.
I phoned Alterna Bank up today and asked them if I could go to Alterna Savings for a certified cheque. They said no, Alterna Bank has chequing accounts, but do not offer certified cheques. So there is no way Alterna Bank can become my primary bank.
10:40 am
September 11, 2013
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rhvic, you're comparing apples and oranges. As we've noted, despite Alterna's wording these are not really the same type of vehicle as big bank preferred shares, and that their (discretionary) "dividends" are in fact interest income for tax purposes.
12:41 pm
December 12, 2009
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Bill said
rhvic, you're comparing apples and oranges. As we've noted, despite Alterna's wording these are not really the same type of vehicle as big bank preferred shares, and that their (discretionary) "dividends" are in fact interest income for tax purposes.
Agreed, Bill. Also, Alterna Savings' preferred shares, despite being taxed as "interest income" due to the above-noted reasons (thanks Norman for reminding us), are redeemable after the initial five-year period at par value. Bank preferred shares are only redeemable at par value if the issuer redeems them. Otherwise, they trade on the listed stock exchanges. Similarly, common shares are subject to market value adjustments.
Over the long-term, I'd own Canadian bank common shares, but I only buy them when trading at or at a discount to their Book Value and below ~9.5 P/E.
Regarding Norman's and Briguy's comments above re: in-branch access to Alterna Bank accounts, I'm still not convinced that designated Alterna Bank branches don't have access to Alterna Bank customer profiles. I think the experience Saver-Mom and possibly others experienced had to do with a few factors, namely that Alterna Savings staff cannot access electronic only Alterna Bank chequing and savings accounts. As well, there could be a training and knowledge gap on the part of Alterna Savings staff thinking they need to set up a separate Alterna Bank customer profile for an Alterna Bank client when, in fact, they could open a branch-based Alterna Bank account type under the same profile in order to facilitate in-branch access. Then, the Alterna Bank customer could make electronic transfers between branch-based and electronic accounts.
Nevertheless, the confusion around Alterna Bank account types persists and I think a lot of it are messaging and staff training issues that could be easily resolved.
I actually like the Alterna Bank name, though, but my wish would be they change the legal name from CS Alterna Bank to Alterna Bank. This could be done administratively (i.e., non-Gazetted) with OSFI. And, in reading Alterna Savings' corporate history, I now what the 'CS' likely stands for - 'Civil Service' - from its initial founding as a credit union by and for Ottawa civil servants.
Cheers,
Doug
3:58 pm
April 6, 2013
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Briguy said
Thanks for pointing that out !! The website for Alterna Bank is misleading, it says:
Still prefer a smiling face? We get that! Stop by one of our branches.
Alterna Bank also operates in Gatineau, Quebec and 31 branch locations across Ontario through Alterna Savings*. Whether you stop by for daily banking transactions or advice on loans and mortgages, a knowledgeable Alterna representative will always be delighted to serve you.
Yes, parts of their web site are highly misleading to those not familiar with their two segregated pools of customers. I think this is what they really mean:
Still prefer a smiling face? We get that! Stop by one of our branches [and onboard as a bricks-and-mortar Alterna Bank client (instead of an online-only client)].
Alterna Bank also operates in Gatineau, Quebec and 31 branch locations across Ontario through Alterna Savings*. Whether you stop by for daily banking transactions or advice on loans and mortgages, a knowledgeable Alterna representative will always be delighted to serve you [our bricks-and-mortar Alterna Bank clients].
Briguy said
I phoned Alterna Bank up today and asked them if I could go to Alterna Savings for a certified cheque. They said no, Alterna Bank has chequing accounts, but do not offer certified cheques. So there is no way Alterna Bank can become my primary bank.
We can't hold that against Alterna Bank or Alterna Savings. In Important changes and updates effective September 1, 2017, CIBC discontinued certified cheques for their personal accounts:
Certified Cheques
Effective September 1, 2017, the certified cheque service will no longer be available for cheques drawn on personal accounts.
CIBC’s convenient payment solutions make sending money a breeze.
Prefer to send money online? Simply use your mobile device or log into CIBC Online Banking® to send money quickly and securely. To send money within Canada, use Interac e-Transfer. To send money globally, use CIBC Global Money TransferTM. Plus, bank drafts and money orders are available at any CIBC Banking Centre.
Visit cibc.com for more information.
RBC Royal Bank did the same awhile back too. Personal account holders now have to request a money order or bank draft instead.
5:50 pm
April 6, 2013
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Doug said
…Regarding Norman's and Briguy's comments above re: in-branch access to Alterna Bank accounts, I'm still not convinced that designated Alterna Bank branches don't have access to Alterna Bank customer profiles. … As well, there could be a training and knowledge gap on the part of Alterna Savings staff thinking they need to set up a separate Alterna Bank customer profile for an Alterna Bank client when, in fact, they could open a branch-based Alterna Bank account type under the same profile in order to facilitate in-branch access. Then, the Alterna Bank customer could make electronic transfers between branch-based and electronic accounts.
…
The e-mail Alterna Bank had sent Loonie clearly says that is not the case. They have digital bank clients and regular bank clients, each with separate account "portfolios":
Email 21/11/2016: “The ‘Good life Package’ is not something that is available for Digital Banking Clients. The only Chequing account available for our digital bank account clients is the e-Chequing account. Yes there is a charge for ordering cheques on the e-Chequing account the charge is currently $43.93 for a book of 50 cheques. The Good life Chequing package is only offered for non-Digital bank clients. If you were to come into the branch and open up a new Alterna Bank account, you would be able to have a Good life package however it would be under a completely different account portfolio and would not be joint with your Digital Bank account, this is because the Digital bank clients and regular Alterna Bank client accounts operate very differently based product offerings and service available to them.
We recommend you open up the e-Chequing account since the Good life Chequing account cannot be linked to your digital portfolio and you would have to come into the branch to open up an all new Alterna Bank account.”
CIBC has the same structure, except CIBC brands their digital bank products as "Simplii Financial" products.
7:35 pm
February 16, 2019
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If I recall correctly the bank was originally established years ago to enable CS Coop (now Alterna) members in Quebec access to services that as a CU could only be offered in Ontario. Later they used it for going nationwide as a virtual bank -I believe the first CU to do that. Via the me to me application Alterna Bank customers can transfer money back and forth to Alterna Savings. In a recent visit to an Alterna Savings branch I was able to easily transfer some rrsp monies from the bank to the credit union.
7:12 pm
July 6, 2019
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Bill said
rhvic, you're comparing apples and oranges. As we've noted, despite Alterna's wording these are not really the same type of vehicle as big bank preferred shares, and that their (discretionary) "dividends" are in fact interest income for tax purposes.
That is correct, Bill. I recently subscribed to Alterna's investment shares and received their prospectus. Currently, the offering is over 60 % subscribed ($30.7 million) - so it seems to be going well for Alterna. According to the offering statement, the first offer tranche was just for a handful of days and had a closing date of May 31. So, the 60% subscription occurred in just less than 1.5 months.
8:14 am
December 12, 2009
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gic portfolio said
That is correct, Bill. I recently subscribed to Alterna's investment shares and received their prospectus. Currently, the offering is over 60 % subscribed ($30.7 million) - so it seems to be going well for Alterna. According to the offering statement, the first offer tranche was just for a handful of days and had a closing date of May 31. So, the 60% subscription occurred in just less than 1.5 months.
Interesting data points, gic portfolio! Love seeing how quickly these offerings fill up. 
Not as quickly as the typical 4-5 business days that a Big 5 bank's preferred share offering can fill order for $250 million (or more), with all their investment banking utility and such, but still impressive since it's all organically generated by their website and branch network. 🙂
Cheers,
Doug
8:57 am
September 7, 2018
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Doug said
Not as quickly as the typical 4-5 business days that a Big 5 bank's preferred share offering can fill order for $250 million (or more), with all their investment banking utility and such, but still impressive since it's all organically generated by their website and branch network. 🙂
That is so true - I recently tried to buy the new preferred issues for TD Bank @5.50% dividend and a good reset - and a fairly large issue too - sold out completely in about 3 hours. I (as well as many others obviously) figured preferred shares were now a bargain - and 5.50% for a major bank was a great rate with low risk, as interest rates seem to be either dropping more or bottoming.
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