Author: Consultant

A tax court judge’s ruling that an investor who was day trading stocks in his tax-free savings account must pay tax on the income opens the door to hefty tax bills for other frequent investors.

Justice David Spiro of the Tax Court of Canada ruled that the investor was carrying on a business inside his TFSA, which had swelled from $15,000 to more than $617,000 over a three-year period. The amount of tax owed and whether interest will be added were not disclosed. The investor is appealing the decision.

A TFSA is a registered account that allows Canadians 18 and older to currently contribute $6,500 annually and earn tax-free investment income on a wide range of qualified investments, including stocks, bonds, exchange-traded funds and mutual funds. However, a TFSA holder is required to pay tax under the Income Tax Act if the income is earned from a business or from non-qualified investments in the account.

Fareed Ahamed, a licensed investment adviser and the plaintiff in the case, argued that because the Canada Revenue Agency exempts business income from day trading when it is done in a registered retirement savings plan, it should also exempt business income accumulated inside a TFSA.

However, when Parliament included that rule in the tax act governing RRSPs, TFSAs did not exist.

“Parliament could have adopted, but chose not to adopt, the same statutory approach for TFSAs as it did for RRSPs and RRIFs,” Justice Spiro wrote in his February decision. “This further shows that Parliament did not intend to exempt business income from the disposition of qualified investments held in a TFSA.”

Tim Clarke, a Vancouver tax lawyer with QED Tax Law Corp. and counsel for Mr. Ahamed, has filed an appeal. Mr. Clarke declined to comment on the case.

Mr. Ahamed’s is a test case for frequent trading in TFSAs for the Tax Court of Canada, an independent court that handles disputes related to income tax, the Goods and Services Tax and employment insurance.

He filed the case in 2015 after the CRA began auditing a number of tax-free savings accounts. Between 2009 and 2017, the agency assessed approximately $114-million in taxes from those audits, with about 10 per cent from TFSA accounts that were seen as carrying on a business – such as day trading, which can generate hefty returns through aggressive securities trading.

Mr. Ahamed was among many do-it-yourself investors who received a notice from the CRA. He opened a personal TFSA account with Canadian Western Trust Co. in 2009 and for three years deposited the then-maximum annual contribution of $5,000. By the end of 2011, the value of his TFSA had reached $617,317.24.

All the securities he purchased and sold were qualified investments, with most being non-dividend-paying and speculative in nature, according to court documents. The majority of the investments were penny stocks listed on the TSX Venture Exchange in the junior mining sector, and the shares were owned for only short periods.

By 2012, the total value of the account had dropped to $564,482.90. Mr. Ahamed sold the securities and transferred the majority of the funds out of the TFSA. The CRA reassessed his tax owing for 2009 through 2012.

The CRA has come under fire from many in the investment community for not providing clear rules about how much money can be accrued within a TFSA. In 2018, the agency told The Globe and Mail that 1,696 TFSA account holders disputed their assessments over a two-year period ending March 31 of that year.

The CRA was not able to provide an update on the current number of TFSA audits or the number of account holders who have disputed their reassessments.

Rob Carrick: Four RRSP and TFSA ideas for investors nervous about the markets

Jamie Golombek, the managing director of tax and estate planning with CIBC Private Wealth Management, says it is no longer unusual to see six-figure balances in TFSAs – and while it may be a red flag for the CRA, the average investor need not worry.

“The problem is not the balance of your account, but comes down to your activity in the account,” Mr. Golombek said in an interview. “If you have half a million dollars in your TFSA, that may be considered unusually high and may raise suspicion from the CRA on how you got there, but you have nothing to worry about unless you have been day trading.”

Currently, when determining whether a TFSA is carrying on as a business, the CRA takes eight factors into consideration, including the frequency of transactions, the period of ownership, the taxpayer’s knowledge of the securities markets and whether the taxpayer advertised that they are willing to purchase securities.

While the TFSA trust occupied Mr. Ahamed’s time, attention and labour, Mr. Clarke acknowledged, it did not meet a number of the CRA tests, he argued, and the court should have found that the TFSA did not carry on as a business.

Mr. Clarke also questioned whether the existing test should be applied in the first place. He said the investment strategy of TFSA investors differs from taxable investment strategies because the tax-free nature of the withdrawals encourages investing for sizable gains, which can include assuming more risk, trading more frequently and selling losing positions earlier.

That means the practice of applying the traditional test to TFSAs “is stacked against the taxpayer,” he argued. Mr. Clarke believes that, based on the TFSA rules, the traditional test appears to single out professional investors for adverse tax treatment.

Given the same number, frequency and riskiness of the investments, under the traditional test an experienced, professional investor could be carrying on business, whereas a less experienced investor would not. “Such a test would result in professional investors not being able to enjoy the TFSA exemption in investing after tax capital. This cannot be Parliament’s intent,” Mr. Clarke said.

He argued the court should craft a new test recognizing that TFSA investors are obliged to follow a set of restrictions that do not apply to taxable investors.

China began a second day of drills around Taiwan on Sunday as the island’s defence ministry reported multiple air force sorties and said it was monitoring the movement of China’s missile forces, as the United States said it was watching too.

China, which claims democratically governed Taiwan as its own territory, began three days of military exercises around the island on Saturday, the day after Taiwan President Tsai Ing-wen returned from a brief visit to the United States.

While a security source told Reuters most of Saturday’s activities ended by sundown, Taiwan’s defense ministry said they had resumed on Sunday and the island’s military had spotted multiple aircraft including Su-30 and J-11 fighters, as well as ships.

“Regarding the movements of the Chinese communists’ Rocket Force, the nation’s military also has a close grasp through the joint intelligence, surveillance and reconnaissance system, and air defense forces remain on high alert,” the ministry said.

The People’s Liberation Army’s Rocket Force is in charge of China’s land-based missile system.

Last August, following a visit to Taipei by then U.S. House Speaker Nancy Pelosi, China staged war games around Taiwan including firing missiles into waters close to the island, though it has yet to announce similar drills this time.

While in Los Angeles last week, on what was officially billed a transit on her way back from Central America, Tsai met the speaker of the U.S. House of Representatives, Kevin McCarthy, despite Beijing’s warnings against it.

The de facto U.S. embassy in Taiwan said on Sunday that the United States was monitoring China’s drills around Taiwan closely and is “comfortable and confident” it has sufficient resources and capabilities regionally to ensure peace and stability.

U.S. channels of communication with China remain open and the United States had consistently urged restraint and no change to the status quo, said a spokesperson for the American Institute in Taiwan, which serves as an embassy in the absence of formal diplomatic ties.

China begins 2nd day of military drills; U.S., Taiwan monitoring missiles (cnbc.com)

JOHN HEINZL

SPECIAL TO THE GLOBE AND MAIL

PUBLISHED APRIL 7, 2023

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As Warren Buffett famously said, one of the secrets to investing success is “to be fearful when others are greedy and to be greedy only when others are fearful.”

Well, judging by the recent declines in Canadian bank stocks, many investors are fearful that the turmoil affecting some U.S. and European banks will soon spill over into Canada. So, in keeping with Mr. Buffett’s philosophy, today I’m going to indulge my greedy side.

I’ve decided to increase my holdings of three of the four Canadian banks in my model Yield Hog Dividend Growth Portfolio. Specifically, I’ve added five shares of Royal Bank of Canada RY-T +0.17%increase, five shares of Toronto-Dominion Bank TD-T +0.30%increase, and 10 shares of Canadian Imperial Bank of Commerce CM-T +0.37%increase. I didn’t add to my Bank of Montreal BMO-T +0.02%increase position because it was already the highest-weighted bank in the portfolio.

These purchases were executed at Monday’s closing prices and consumed $1,645.30 of the model dividend portfolio’s “cash” balance. The model portfolio uses virtual money, but I also own all of these banks personally. (View my latest model portfolio update online at tgam.ca/dividendportfolio.)

I’m buying banks on the dip for several reasons. First, our big banks are well-capitalized and enjoy oligopoly power in Canada, with dominant positions in deposit-taking, lending, investment banking, insurance and wealth management.

Unlike in the United States, where a small number of mid-sized banks failed when customers (many with deposits in excess of insured limits) lost confidence and rushed to take their money out, in Canada the odds of a similar bank run are remote.

“While deposits were flowing out of the U.S. banking system, even prior to the run on Silicon Valley Bank (SVB), deposits in Canada have shown steady growth. Also, the dominant market position of the big banks in Canada provides each with relative deposit stability,” Paul Holden, an analyst with CIBC Capital Markets, said in a recent note.

What’s more, SVB and fellow U.S. casualty Signature Bank – which had close relationships with the tech and crypto industries, respectively – experienced tremendous deposit growth during the pandemic. That made them vulnerable to withdrawals when those industries stumbled and the U.S. Federal Reserve began to hike interest rates aggressively.

By contrast, the U.S. subsidiaries of Canadian banks “did not experience near the same level of deposit growth and therefore are not as susceptible to a withdrawal of excess saving,” Mr. Holden said.

Another reason I’m adding to my bank positions is that the stocks have attractive valuations. The sector trades at an average multiple of about nine times’ estimated fiscal 2023 earnings, which is roughly a 13-per-cent discount compared with the second quarter of 2019, Scott Chan, an analyst with Canaccord Genuity, said in a recent note to clients. As a result, the dividend yield, which moves in the opposite direction to the price, has risen to an average of about 5 per cent. And that’s before an expected round of dividend increases when the banks report second-quarter results in May.

“For Q2 … we continue to anticipate slight dividend increases across all banks (except TD) with group average growth of about 3 per cent,” Mr. Chan said. (TD typically raises its dividend once a year when it announces fourth-quarter results, whereas other banks have been hiking their dividends semi-annually.)

That’s not to say the outlook for banks is entirely rosy.

With the economy slowing, consumers grappling with inflation and higher interest rates, and sectors such as housing and commercial real estate (especially offices) feeling the pinch, there are some clouds on the horizon.

Moreover, banks are dealing with their own internal issues. For TD, in particular, turmoil in the U.S. regional banking sector and regulatory delays are creating doubts about its proposed US$13.4-billion acquisition of U.S. lender First Horizon Corp. Shares of the Memphis-based bank, which has about 400 branches in the U.S. Southeast, are trading at a 29-per-cent discount to TD’s initial offering price of US$25 a share.

First Horizon’s lagging share price indicates that investors believe TD will attempt to negotiate a lower price or walk away from the deal entirely. The silver lining is that either of these outcomes would likely give TD’s share price a boost, given that investors are nervous about TD increasing its already significant U.S. exposure at a time when some U.S. regional banks are struggling.

Despite the short-term risks, I’m confident that Canadian banks will continue to do what they do best: post billions of dollars in profits every quarter and raise their dividends steadily. That’s why I’m listening to my greedy side while bank stocks are held back by fear.

State oil giant Saudi Aramco will supply full crude contract volumes loading in May to several North Asian buyers despite its pledge to cut output by 500,000 barrels per day, several sources with knowledge of the matter said on Monday.

This comes after the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, surprised markets last week by announcing an extra output cut of 1.16 million barrels per day (bpd) from May for the rest of the year.

Saudi Aramco’s monthly allocation was being keenly watched by investors as an indicator of whether planned output cuts could tighten supplies in Asia, the world’s biggest crude import market.

People are wondering whether the additional voluntary cut will actually affect supply, or whether it is designed just to shore up oil prices, said a source at an Asian refiner who declined to be named as he is not authorized to speak to media.

The OPEC+ announcement caused Brent and U.S. West Texas Intermediate crude futures to jump 6 per cent last week, returning to levels last seen in November.

Last week, Saudi Aramco also surprised the market by raising prices for the flagship Arab Light crude it sells to Asia for a third month in May. It also increased the prices of other oil grades to Asian clients amid expectations of tighter market supply.

Asia’s oil demand had been expected to weaken in the second quarter as several refiners in Asia, namely Sinopec , South Korea’s third largest refiner and Aramco affiliate S-Oil Corp, Japan’s Fuji Oil and Idemitsu Kosan are shutting a combined 1.15 million bpd of crude distillation capacity in May.

Still, some investors are bullish about a recovery in China’s oil demand and expect global oil markets to tighten in the second half this year and push prices towards $100 a barrel.

Meanwhile, the Abu Dhabi National Oil Company (ADNOC), a state-owned oil giant from the United Arab Emirates, has informed at least three buyers in Asia that it will supply full contractual volumes of crude in June, trade sources said.

The UAE plans to cut 144,000 bpd from May as part of the OPEC+ cuts.

The Bank of Canada is expected to hold interest rates steady on Wednesday, weighing the resilience of the Canadian economy against stress in the global banking system as it waits for inflation to recede.

The bank has been in a holding pattern since early March, when it kept its benchmark lending rate stable at 4.5 per cent after eight consecutive increases. That made it the first major central bank to halt its rate-hike campaign.

Since then, the bank has received conflicting economic signals. The Canadian economy is holding up better than expected in early 2023, recent data show, largely defying efforts by the central bank to dampen consumer spending and push up unemployment.

At the same time, banking-sector turmoil in the United States and Europe over the past month has raised concerns about financial stability and dimmed the economic-growth outlook, with nervous banks expected to pull back on lending.

Governor Tiff Macklem has said the decision to pause rate hikes is “conditional,” and that the bank may move again if it sees an “accumulation of evidence” that inflation is not subsiding. But private-sector analysts see little chance that Mr. Macklem and his team would restart monetary-policy tightening this week, and rate cuts are off the table until inflation falls further.

The annual rate of Consumer Price Index (CPI) inflation stood at 5.2 per cent in February, down from a peak of 8.1 per cent last June, but still more than twice the central bank’s 2-per-cent target.

Central-bank economists expect CPI inflation to fall to around 3 per cent by the middle of the year. The bank will publish an updated quarterly forecast for inflation and economic growth on Wednesday.

“At this point, there is simply just not enough evidence for the BoC’s communications to tilt more dovish or hawkish, especially in the context of the recent round of financial instability,” Royal Bank of Canada rate strategists Jason Daw and Simon Deeley wrote in a note to clients.

“This will leave the market dissecting any small nuances to judge where policy is headed.”

Interest-rate increases work with a lag, curbing consumer spending as homeowners renew their mortgages at higher rates and businesses cut back on hiring. The Bank of Canada is forecasting near-zero economic growth through the first half of 2023. Most Bay Street analysts expect Canada will enter a mild recession this year.

So far, however, the economy is proving remarkably robust. After stalling in the fourth quarter, real gross domestic product rose 0.5 per cent in January from the previous month, and preliminary estimates suggest it grew a further 0.3 per cent in February. Canadian employers keep hiring workers, adding another 35,000 positions in March while the unemployment rate remains near a record low.

Bank of Canada officials have argued that unemployment will need to rise to get inflation back down to 2 per cent, and they have said that wages are growing too quickly without an accompanying increase in labour productivity.

“In this topsy-turvy world, good news for the economy isn’t really what we’re looking for,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, wrote in a note to clients.

“If the slowdown that central banks are aiming at fails to materialize, that could force yet more rate hikes, and risk a harder landing.”

The Bank of Canada’s quarterly business and consumer surveys, published last week, did contain some hints that the economy is approaching a turning point. Business sentiment continues to worsen and companies are expecting slower sales in the coming year. Consumers reported dialing back spending plans.

By pausing its monetary-policy tightening last month, the Bank of Canada managed to avoid some of the tough decisions that other central banks faced after the collapse of Silicon Valley Bank and two other regional banks, as well as the emergency sale of Credit Suisse to UBS Group.

The bank runs – caused in part by losses tied to rising interest rates – sparked fears of broader financial contagion. This put central banks in a delicate position: Should they keep raising rates to combat high inflation? Or should they hold off tightening to prevent further strain in the financial system?

The U.S. Federal Reserve, European Central Bank and Bank of England all pressed ahead with interest-rate increases last month, although they dialed back their inflation-fighting rhetoric.

After announcing a quarter-point increase on March 22 , Fed chair Jerome Powell suggested that U.S. interest rates may not need to go as high as previously anticipated because banking turmoil would likely lead to a contraction in lending, acting as a substitute for additional monetary-policy tightening.

Fears of a broadening financial crisis have subsided in recent weeks, but markets are still pricing in a lower peak for the Fed’s rate-hike campaign than previously expected, as well as several rate cuts before the end of the year.

Interest-rate swaps, which capture market expectations about monetary-policy decisions, are pricing in two quarter-point rate cuts by the Bank of Canada by the end of of 2023, according to Refinitiv data.

Nutrien (TSX:NTR) – Stock Price, News & Analysis – Simply Wall St

Simply Wall St

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Nutrien (TSE:NTR). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Nutrien

Nutrien’s Improving Profits

Over the last three years, Nutrien has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn’t particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Nutrien’s EPS grew from US$5.53 to US$15.36, over the previous 12 months. It’s a rarity to see 177% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. Nutrien shareholders can take confidence from the fact that EBIT margins are up from 18% to 27%, and revenue is growing. That’s great to see, on both counts.

The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Should You Be Adding Nutrien (TSE:NTR) To Your Watchlist Today? (yahoo.com)

 Nutrien CEO Ken Seitz says Canada is poised to play a big role in global food production as climate change makes farming more difficult and the world’s food supply chain is rendered fragile by political and economic uncertainty.

Seitz made the remarks in Toronto at an event hosted by the Economic Club of Canada.

He says climate change is redrawing the map of global food production and Canada has an opportunity to be a key player in addressing food insecurity.

Nutrien is the world’s third-largest producer of nitrogen, and the largest producer of potash, two of the three main plant nutrients used in commercial fertilizer.

The Saskatoon-based potash and fertilizer company has six potash mines in Saskatchewan with more than 20 million tonnes of capacity, as well as two large phosphate mines in the U.S.

In 2021, Nutrien began piloting a new project aimed at helping farmers reduce greenhouse gas emissions, trap and store carbon and measure improvements, as well as facilitating the purchase and sale of carbon credits.

This report by The Canadian Press was first published April 5, 2023.

A team of South Korean spies and American private investigators quietly gathered at the South Korean intelligence service in January, just days after North Korea fired three ballistic missiles into the sea.

For months, they’d been tracking $100 million stolen from a California cryptocurrency firm named Harmony, waiting for North Korean hackers to move the stolen crypto into accounts that could eventually be converted to dollars or Chinese yuan, hard currency that could fund the country’s illegal missile program.

When the moment came, the spies and sleuths — working out of a government office in a city, Pangyo, known as South Korea’s Silicon Valley — would have only a few minutes to help seize the money before it could be laundered to safety through a series of accounts and rendered untouchable.

Finally, in late January, the hackers moved a fraction of their loot to a cryptocurrency account pegged to the dollar, temporarily relinquishing control of it. The spies and investigators pounced, flagging the transaction to US law enforcement officials standing by to freeze the money.

The team in Pangyo helped seize a little more than $1 million that day. Though analysts tell CNN that most of the stolen $100 million remains out of reach in cryptocurrency and other assets controlled by North Korea, it was the type of seizure that the US and its allies will need to prevent big paydays for Pyongyang.

The sting operation, described to CNN by private investigators at Chainalysis, a New York-based blockchain-tracking firm, and confirmed by the South Korean National Intelligence Service, offers a rare window into the murky world of cryptocurrency espionage — and the burgeoning effort to shut down what has become a multibillion-dollar business for North Korea’s authoritarian regime.

https://www.cnn.com/2023/04/09/politics/north-korean-crypto-hackers-crackdown/index.html