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Class A Bonus Share
January 2, 2020
1:31 am
amidat
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Hello, I've noticed that a new account was created in my account summary on Jan 1 called Class A Bonus Share. Does anyone have any information on this account?
Is the dividend taxable?
How do you access the balance in the account?
Is the balance in the account similar to the Membership Share?
Thanks.

January 2, 2020
5:50 am
Loonie
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It's kind of complicated, and they don't explain it very well on your statement. I'm still somewhat confused about it myself even after talking to them.

But there is something somewhere on the website that attempts to explain it.

I believe it's a kind of profit sharing which is divvied up at the end of the year.
Yes, it's taxable as interest income, and my understanding is that you can't access it right away. You have to wait at least 2 years to access a portion of it, and the scale goes up to seven years, I think, before you can get it all. In the meanwhile, they do pay a small amount of interest on it. Fortunately, it's a very small amount of money and you won't likely miss it.

I'm just going on what I remember. Someone else may have more details.

January 2, 2020
7:47 am
Retiredfa
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January 2, 2020
8:02 am
amidat
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Thanks for the replies.
Seems like u have to pay tax in the year in which you receive the interest eventhough you don't initially have full access to the interest.
Oh well it is what it is.

January 2, 2020
5:41 pm
Norman1
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The profit sharing sounds more like bonus interest or rebated interest, with strings attached.

Would be better if they instead paid a little more interest on deposits and charged a little less interest on the loans. But, then DUCA would not get to retain those "shared profits" tax free with the members on the hook for the taxes on those profits. sf-surprised

January 2, 2020
7:33 pm
Loonie
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This is what I was told in emails from Scott Taylor, Financial Services Officer at DuCA, in Feb 2019. I think this is about as clear as it's going to get:

"Class A Bonus Shares is a profit sharing account at DUCA that rewards members for having the business with DUCA. We currently pay 2% shares on any interest you earn or pay through investments or loans with DUCA. Last year you earned $XXX in interest from your Earn More Savings accounts. You should receive a T5 slip for your taxes for this amount. In addition to that interest we paid 2% of (the interest earned) which equals $XX. This is deposited into the Class A Shares account. Since it was paid to your account on Jan 1, 2019, it is considered interest income for 2019. This amount will be included in the T5 slip you receive next year.

The shares while in the account also on interest. The amount is determined on a year by year basis based on the profits of DUCA. In the past few years the shares have earned 2% interest while in the account.

Class A Bonus Shares cannot be redeemed in the year of issue. They can be redeemed in subsequent years as follows:

50% of face value in year 2
60% of face value in year 3
70% of face value in year 4
80% of face value in year 5
90% of face value in year 6
100% of face value in year 7 and beyond."

I think they don't do it the way Norman would like because they wait first to see how well they did in the year rather than over-commit themselves.  

DUCA wins the prize for proliferating accounts!sf-surprised

January 2, 2020
7:35 pm
Norman1
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They can wait and see as they do now. On January 1, add it to one's GIC balance or subtract it from one's mortgage balance.

No-one is going to mind if one bought a five-year GIC at 2.25% and gets 2.295% instead for some of those five years.

January 2, 2020
7:37 pm
Loonie
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They can't do that, Norman, because they are not paying the same rate on the Class A Shares as they are on the GICs etc., and they are trying to treat everyone equally according to what interest they paid/earned.

January 4, 2020
9:02 am
Norman1
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That's never been an issue elsewhere. What people do with their dividends is their own business and not the dividend payer's.

If the member has a mortgage with them, then it is in the member's interest to put the dividend towards their mortgage at the next prepayment date and not have the dividend stuck somewhere for years earning just 2%.

The banks don't treat their shareholders like that. If I want, I can send my BMO dividends to the dividend reinvestment plan and have the money reinvested in shares. I can also send the dividends instead to a bank account and use the dividends to pay off a BMO MasterCard, saving the 18% per annum interest.

January 4, 2020
8:39 pm
Loonie
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Huh?
My comment was about how the money is distributed by the CU in the first place, not how people use them.
CU dividends aren't really the same kind of thing as bank dividends. I think we've established that.
Banks have a completely different structure. I'm not going to get into all the details of the differences because it would be endless, and you know them as well as the next person.

January 4, 2020
9:29 pm
Oscar
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Norman1 said
The profit sharing sounds more like bonus interest or rebated interest, with strings attached.

Would be better if they instead paid a little more interest on deposits and charged a little less interest on the loans. But, then DUCA would not get to retain those "shared profits" tax free with the members on the hook for the taxes on those profits. sf-surprised  

Sounds about right. But it's still great value for that $1 share that I have with them.
When I am looking to renew a GIC I don't even think about this bonus interest . I have always considered it somewhat as a marketing gimmick so it feels like a bonus when I see it adding up a little every year
And it may be a contributing factor in their ability to keep their 3% savings promo going for about 10 months.
I wish Meridian would take advantage of me in the same manner.sf-wink

January 4, 2020
10:05 pm
Loonie
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Oscar makes some good points.
No bank offered me 3% for 10 months in a HISA in 2019. I certainly don't begrudge DUCA retaining a teeny bit for a few years. TD doesn't give me a penny to compensate for their much lower deposit rates when they have a good year.

Let's be clear. We're not talking about 4-5% dividends that banks pay to external shareholders from the profits they earn from customers, or even about CU investment shares.
My dividend for 2019 was 0.77% of earned interest, paid out Jan 2/20. You couldn't do much more than buy a decent lunch, maybe a cheaper lunch for two, with it. Profits appear to be down, but that seems to be common in the banking sector at this time.

Not all CUs have decided to do profit sharing at all. Meridian doesn't. Talka does.

January 5, 2020
6:58 am
Bud
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Duca pays the best non-share dividend

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