How to Record Share Exchange with acash payment for fractional shares (National Bank acquires CWB)
National Bank of Canada ("NA") acquired Canadian Western Bank ("CWB") with 0.45 NA shares for each CWB Share, closing on February 3, 2025. To the extent that this would have created fractional NA shares, National Bank made a cash payment in lieu of not issuing those fractional shares. How do I record this?
I thought that maybe I should record the cash payment as a return of capital and then record a Corporate Acquisition (share for share) for the whole number of shares exchanges and received.
For example, if I owned 115 CWB shares, then 115 CWB *.45 = 51.75 NA Shares. Should I record the cash payment lieu payment made for the 0.75 shares as a return of capital and then use the Corporate Acquisition (share for share) function to show that the 115 CWB shares were exchanged for 51 NA Shares?
Is this the correct way to record the transaction?
Best Answers
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Well, then we agree that there is no tax implication reason for tracking ACB in a TFSA or RRSP.
I have a different view on the utility of historical information for the purpose of analyzing rate of return. To the extent that I consider that information, I find it more helpful to use tools like Morningstar (there are several other options) to make whatever comparison is relevant and of interest at the time. Hence, I don't insist on penny precision in tracking ACB in non-taxable accounts. If the historical returns on my Quicken reports is not perfectly precise, I'm not fussed by that. I'm more interested in figuring out where the puck is going. Knowing where the puck came from doesn't tell me where it's going.
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Further to my point… this is complex and time intensive to achieve precision for the purpose of considering historical returns for the purpose of forward looking investment decisions.
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Answers
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Use CorpAcq for the purchase (DON"T do any other "remove") and then sell the fractional share.
Q user since February, 1990. DOS Version 4
Now running Quicken Windows Subscription, Business & Personal
Retired "Certified Information Systems Auditor" & Bank Audit VP1 -
Thanks for your comment.
I found the following in the Circular put out by CWB which highlights that there are 2 ways for Canadian tax purposes to deal with the fractional share cash in lieu payment:
"Pursuant to the CRA’s current administrative practice, a Resident Holder who receives cash not exceeding $200 in lieu of a fractional NBC Share will have the option of recognizing the capital gain (or capital loss) arising on the disposition of the fractional NBC Share or alternatively of reducing the adjusted cost base of the NBC Shares acquired by the amount of cash so received. A Resident Holder who receives cash greater than $200 in lieu of a fractional NBC Share must report the capital gain (or capital loss) arising on the disposition of the fractional Exchangeable Share."
Presuming the above quote is correct, it seems that if a shareholder wants to use Quicken to populate their tax return and intends to claim the payment as a sale and thereby report a capital gain (or loss), they should, as you suggest, (1)use CorpAcq first and then (2) post the fractional share as a sale.
However, if the shareholder wants to adjust their cost base, it would seem better to (1) use CorpAcq first, then (2) use Return of Capital for the cash in lieu payment, followed by (3) Remove the Fractional share.
I would appreciate your further comment on my analysis.
PS - In my case I want to reduce the cost base so that future reporting will be accurate. This is because my shares are held in a TFSA.
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It sounds like your how-to for the two options is correct — you can either sell the fractional share to match and replace the cash-in-lieu received or remove the fractional share and use a RtrnCap to reduce the basis and replace the cash-in-lieu received. Either approach should leave the 51 remaining shares at the same basis and be accurate for future reporting.
I am not knowledgeable about the workings of the Canadian TFSA, but I would be surprised if the sale of the fractional share within the TFSA account would be a taxable event.
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A Canadian TFSA is a tax free savings account, so the gains from securities held within this account are not taxable. Offhand, the only reason that comes to mind for being concerned with cost basis in a TFSA account is if you planned to transfer the shares out of the account in-kind at some point in the future. As long as the shares are sold within the account and cash is transferred out, there is no taxable event. …unless I'm missing something here, in which case, I'm interested in learning!
I am curious why the OP is concerned with tracking cost basis in a TFSA.
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If you do not track costs properly, you do get accurate reports on returns. I track returns both by account and by whole portfolio (i.e. Investment, RRSP, TFSA etc.) and compare investment decisions in the past before making investment decisions for the future. It is also useful for deciding which investments which investments should be in which account (i.e. Investment, RRSP, or TFSA etc.).
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Well, then we agree that there is no tax implication reason for tracking ACB in a TFSA or RRSP.
I have a different view on the utility of historical information for the purpose of analyzing rate of return. To the extent that I consider that information, I find it more helpful to use tools like Morningstar (there are several other options) to make whatever comparison is relevant and of interest at the time. Hence, I don't insist on penny precision in tracking ACB in non-taxable accounts. If the historical returns on my Quicken reports is not perfectly precise, I'm not fussed by that. I'm more interested in figuring out where the puck is going. Knowing where the puck came from doesn't tell me where it's going.
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Thanks for your thoughts and insights.
While I agree tools like Morningstar are great for analysis of one stock, I also like to generate reports for the whole portfolio on a monthly basis and review them. Using Quicken I can do that in under 5 minutes. Using Morningstar it can take several hours or more to gather each report and put it into a summary sheet. While Morningstar gives more info, I prefer to use Quicken for a quick and accurate summary report.
Also, I like to use the same criteria and methods of recording for all accounts, whether they be Investment, RRSP, RESP, TFSA or FHSA.
Thanks once again,
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Agreed… I use Quicken in the exact same way as you. I'm just not fussed about pinpoint precision where it isn't technically required. This is an acquired, learned behaviour… my natural personality is to be precise about everything. With time, I've come to accept that insisting on precision in some areas comes at the expense of not having time left for other more valuable things.
As an aside, I am extremely frustrated with the current bug in Quicken's asset allocation tool - where it doesn't handle the the custom asset classes correctly. Managing asset allocation is absolutely one of the main reasons I use Quicken and it is presently not performing that function correctly. I see that some work has been done on fixing this issue in the USA version of Quicken. Hopefully, they get it fully sorted out in the USA version soon and then carry the fix over to the Canadian version. Having to do my asset allocation rebalancing calculations across multiple portfolios and accounts is a major hindrance for me.
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I'd like to retract my prior statement:
Either approach should leave the 51 remaining shares at the same basis and be accurate for future reporting.
The two methods will not leave the same basis for remaining 51 shares. The 'Sell fractional share' approach will leave the 51 remaining shares with 51 / 51.75 (about 98.5%) of the basis of the original CWB shares (assuming one lot acquired).
A Remove / RtrnCap sequence - the Remove action would remove that 1.5% of the original basis, and then the RtrnCap would lessen the basis of the remaining 51 shares by that cash-in-lieu amount received.
A RtrnCap / Remove sequence would reduce the original CWB basis by the cash-in-lieu amount and then drop the basis to 98.5% of that number. That sequence applies the cash-in-lieu reduction to the 51.75 shares which is inconsistent with my reading of the portion quoted by Scouter_Don earlier.
It becomes a touch more complicated if there are multiple lots of CWB to begin as to what shares are removed or sold. All in all, it seems most appropriate to monitor what the FI does and mirror that result as best can be done.
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Further to my point… this is complex and time intensive to achieve precision for the purpose of considering historical returns for the purpose of forward looking investment decisions.
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