{"id":22250,"date":"2013-06-14T20:34:25","date_gmt":"2013-06-15T00:34:25","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=22250"},"modified":"2013-06-14T20:34:25","modified_gmt":"2013-06-15T00:34:25","slug":"beware-the-tax-trap-of-these-tempting-preferreds","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=22250","title":{"rendered":"Beware the tax trap of these tempting preferreds"},"content":{"rendered":"<p>  John Heinzl was kind enough to quote me in his latest piece for the Globe and Mail, <a href=\"http:\/\/www.theglobeandmail.com\/globe-investor\/investment-ideas\/beware-the-tax-trap-of-rate-reset-preferreds\/article12579958\/\">Beware the tax trap of these tempting preferreds<\/a>:<\/p>\n<blockquote><p>The banks gave themselves the option to redeem the shares on the reset date. With preferred yield spreads having contracted sharply now that the financial system has stabilized, \u201cvirtually all of them are going to be called,\u201d says preferred share expert James Hymas, president of Hymas Investment Management. Any high-quality preferred with a spread of at least three percentage points is pretty much a lock for redemption, barring another financial crisis, he says.<br \/><b>&#8230;<\/b><br \/>\u201cMost investors look only at current yield,\u201d Mr. Hymas says. But the more important number is the \u201cyield-to-call\u201d (similar to the yield-to-maturity of a bond), which also takes into account the expected capital loss or gain. In the case of RY.PR.T, the yield-to-call is about 2.3 per cent.<\/p>\n<p>There are tax implications, too. If you\u2019re investing in a non-registered account and buy a rate-reset preferred with a current yield of 6 per cent, you\u2019ll have to pay tax on the inflated dividend. Even taking into account the dividend tax credit and assuming you can use the capital loss to offset other capital gains, you could end up paying an effective tax rate of more than 30 per cent on the yield-to-call of 2.3 per cent, Mr. Hymas says.<br \/><b>&#8230;<\/b><br \/>\u201cBefore you even think about buying them, you have to do your calculations properly and account for taxes, if any,\u201d Mr. Hymas says.<\/p>\n<p>For more on preferred share yields, plus a link to an online yield calculator, read Mr. Hymas\u2019 article at <a href=\"http:\/\/goo.gl\/tjr72\">goo.gl\/tjr72<\/a><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>John Heinzl was kind enough to quote me in his latest piece for the Globe and Mail, Beware the tax trap of these tempting preferreds: The banks gave themselves the option to redeem the shares &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[],"class_list":["post-22250","post","type-post","status-publish","format-standard","hentry","category-press-clippings"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/22250","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=22250"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/22250\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=22250"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=22250"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=22250"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}