Hubert / Sunova Common & Surplus Share Payout | Page 2 | Hubert Financial | Discussion forum

https://www.sunovacu.ca/wp-content/uploads/2018/05/DividendHistory2018.pdf You do have to keep your account in active status all year to get the payouts... It can affect multiple years etc..

Where did you hear this? Odd I've never seen this announced..

Hi Yatti420. I was on secure chat yesterday about a maturing GIC and asked the question. The person said the decision was made several years ago, which corresponds with my not receiving any further after 2014.

I've received a dividend payment every May or June since I joined in 2011 or 2012. I can confirm it's averaged about 5% (some years only 4-4.5%, at the lowest). I re-read Yatti's original post and was reminded that the dividend payout is based on your previous year-end share balance, so it's not prorated based on your share balance throughout that previous year?

At any rate, next time, I've really got to increase my share balance...I don't think the surplus shares (from dividends) accrue dividends, though?

Cheers,
Doug

Denise Milani said

Tax implications

Any dividends paid to you on your common or surplus shares are taxable as interest income in the year they are paid. If your total interest and dividend income is more than $50, we will issue a T5 to be filed with your tax return. You must also report amounts below $50 on your income tax return.

Doesn’t a dividend get special entry on income tax times one and a half? But above says as interest income. Since I no longer have dividends I can’t be bothered with the extra entry and the inflation of income.....not that It would be more than $50 x 1.5.

So:
Is it a dividend?
Or interest?
…

It's taxed as interest.

Eligible dividends and other-than-eligible dividends have that federal 38% and 16% grossed-up you refer to.

An eligible dividend can only be paid from earnings that remain after regular corporate taxes have been paid on them. Other-than-eligible dividends can only be paid from earnings that remain after the lower small business corporate taxes have been paid on them.

Credit unions don't usually pay regular corporate taxes or small business corporate taxes. Consequently, they are not able pay an eligible dividend or an other-than-eligible dividend.

It looks like the dividends from credit union shares are a portion of the interest the credit union charges on its loans.

Doug said
…I re-read Yatti's original post and was reminded that the dividend payout is based on your previous year-end share balance, so it's not prorated based on your share balance throughout that previous year?

At any rate, next time, I've really got to increase my share balance...I don't think the surplus shares (from dividends) accrue dividends, though?

Yes, it is based on previous year-end share balance.

Yes, dividends were paid on surplus shares, not necessarily at the same rate as dividends on the common shares.

Perhaps it's the same issue at DUCA?
Rec'd "Class A Share Dividend" on Jan 1 and don't know what to make of it, how to access it, etc. I've never rec'd anything like this before Would rather not have this complication for such a relatively small amount!

Norman1 said

An eligible dividend can only be paid from earnings that remain after regular corporate taxes have been paid on them. Other-than-eligible dividends can only be paid from earnings that remain after the lower small business corporate taxes have been paid on them.

Credit unions don't usually pay regular corporate taxes or small business corporate taxes. Consequently, they are not able pay an eligible dividend or an other-than-eligible dividend.

It looks like the dividends from credit union shares are a portion of the interest the credit union charges on its loans.  

Thanks, Norman. Didn't realize it was likely because they don't pay corporate income taxes. Interestingly, they fought (and won!) the Liberals' (or I think it was the Liberals?) plan to tax credit unions' earnings an additional income tax. If they hadn't won, perhaps their dividends would've then been eligible or other-than-eligible dividends (any idea what constitutes a corporation designating the two types of dividends, or is it at their discretion?) going forward. 🙂

Also, that makes sense re: their loans income because these shares represent partial capital used to fund those or bolster their capital adequacy levels. Unlike GICs, the shares aren't guaranteed by DGCM, but they serve the same purpose.

Cheers,
Doug

Loonie said
Perhaps it's the same issue at DUCA?
Rec'd "Class A Share Dividend" on Jan 1 and don't know what to make of it, how to access it, etc. I've never rec'd anything like this before Would rather not have this complication for such a relatively small amount!  

A share dividend serves the same purpose as a stock split except it reduces the corporation's retained earnings. TD did this a number of years ago, which had the same purpose as splitting shares 2-for-1. If it was a "share dividend," no T5 will likely be issued as there's been no "income" to tax (you were "paid" in extra equity). There may be a capital gain when you sell, so you'll have to adjust your ACB, but since it's a CU share, that's unlikely since the shares are redeemed at par value. Granted, though, you've increased the collective "par value," but unless it (the difference) was over $50 when you sell your shares, it wouldn't be reported to the CRA so I wouldn't bother (same reason why, although technically you probably should, you logistically and practically don't need to report interest income under $50 from a specific issuer).

Cheers,
Doug

Doug said

A share dividend serves the same purpose as a stock split except it reduces the corporation's retained earnings. TD did this a number of years ago, which had the same purpose as splitting shares 2-for-1. If it was a "share dividend," no T5 will likely be issued as there's been no "income" to tax (you were "paid" in extra equity). …

Share dividends done to split shares are $0 dividends. Those have no T5 because the shares are declared to be $0. Those increase number of shares owned with a $0 increase the ACB.

The share dividends usually done by credit unions are shares in-lieu of cash dividends. Instead of paying $2 in cash, for example, one is given 0.4 new shares. That $2 will need to be reported as income by the credit union member.

Companies usually don't pay a dividend in shares because it looks suspicious. It looks like the company actually needs the cash. But, company wants to pretend it doesn't by declaring a dividend and then not allow the shareholder to have the cash.