Untangling a taxing dividend reinvestment plan dilemma

I sold my Telus Corp. shares from a non-registered account in mid-December for proceeds of about $50,000, realizing a loss of $5,000. My goal was to use the capital loss for tax purposes, which meant I had wait 30 days before repurchasing Telus shares to avoid a superficial loss. However, I made an error by not discontinuing the dividend reinvestment plan. As a result, a couple of weeks later, the dividend was paid out and I acquired about $1,000 worth of new Telus shares with the cash. What does this do to any capital loss I can claim with the Canada Revenue Agency?

This is more of an inconvenience than anything, as I’ll explain, but it does illustrate one of the drawbacks of a dividend reinvestment plan. If you’re planning to sell a stock, it’s always preferable to discontinue the DRIP in advance so you don’t end up with a small number of residual shares.

The good news is that you’ll still be able to claim most of the loss for tax purposes.

I’ll keep the following explanation as simple as possible by using some nice, round numbers that mirror your situation. I’ll also ignore trading commissions.

To start, let’s assume you originally purchased 2,500 Telus T-T shares at $22 each, for a total cost of $55,000. We’ll further assume that you sold the shares on Dec. 18 at a price of $20 each, for total proceeds of $50,000. This would result in a realized loss of $5,000.

Now, because you sold after Telus’s dividend record date of Dec. 11, you would have received roughly $1,000 of dividends on Jan. 2, which was Telus’s payment date. And because your shares were enrolled in a DRIP, the cash would have purchased about 50 Telus shares.

The CRA’s superficial-loss rules are designed to prevent people from selling a security and immediately buying it back for the sole purpose of triggering a capital loss. The rules stipulate that, to claim a loss for tax purposes, you must wait at least 30 days before repurchasing the same security. The restriction extends to your spouse or a company controlled by you or your spouse and also applies to purchases in the 30 days prior to the sale.

But, in your case, it wouldn’t be fair for the CRA to deny your entire capital loss, right? After all, you sold 2,500 shares and subsequently purchased only 50 shares.

Using the CRA’s formula, the portion of the loss that would be denied is calculated as the total loss ($5,000), multiplied by the number of shares purchased in the 30 days both before and after the sale (50), divided by the number of shares sold (2,500). That works out to a grand total of $100 that you cannot claim as a loss.

The remaining capital loss of $4,900 must be used to offset any capital gains recorded in the same year as the sale. Any capital losses left over can be carried back up to three years, or forward indefinitely, to offset capital gains in other years.

As for that $100, it’s still useful to you. You can add it to the adjusted cost of the 50 shares purchased via the DRIP, which will lower your capital gain, or increase your capital loss, when you eventually sell them.

After rising from less than $10 a share in mid-2023 to more than $32 this past October, Bird Construction Inc.’s shares have declined more than 20 per cent, despite the company’s strong project inventory, growing dividend and low payout ratio. Also, most analysts have buy recommendations on the company. In the face of all the positives, why the sudden decline in the stock price?

It’s not just Bird Construction BDT-T. Shares of fellow construction company Aecon Group Inc. ARE-T have also pulled back after a strong run. Some analysts have speculated that the pending resignation of Prime Minister Justin Trudeau could be a factor, as it may signal lower spending on infrastructure projects. But not everyone shares that view.

“We prefer to chalk up the pullback in both stocks to profit taking,” Raymond James analysts said in a note this week.

Support for infrastructure investment spans party lines, Raymond James noted. What’s more, both companies have “robust backlogs [that] should stand them in good stead through our forecast horizon” that extends until the end of 2026.

Despite the stock‘s recent pullback, Bird Construction still has a bright future, the brokerage said.

Thanks to mergers and acquisitions, “the firm is now a force in Canada’s two largest civil construction markets, Ontario and British Columbia, and well positioned to further penetrate the gargantuan airport, railway, roadway, mining and resources sectors” as well as “technically complex jobs such as data centres.”

The company left its price target unchanged at $35, which reflects an EV/EBITDA ratio (enterprise value to earnings before interest, taxes, depreciation and amortization) of 6.5 times. While that’s higher than Bird Contruction’s 10-year average EV/EBITDA of 6 times, “we argue this modest premium is justified by the unprecedented visibility that Bird’s 2025-2027 strategic plan currently offers,” the brokerage said.

Bird Construction, whose shares yield about 3.2 per cent, closed Friday at $26.13 on the Toronto Stock Exchange.

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.