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Discussion Starter · #1 · (Edited)
How is a BMO ETF holder supposed to track the ACB?

iShares puts out a tax characteristics document each year (in PDF format) that lets me read the return of capital and reinvested distributions. It's very easy from this to track the ACB number. And of course it's evidence I can keep for future CRA disputes.

I thought that BMO released a similar document, the "bmo etf tax parameters" like this one from 2014
https://www.bmo.com/assets/gam/docs/bmo_etf_tax_parameters_cash_flow_advisor_etf_eng.pdf

Where on earth is the 2015 document? How can it be August 2016 and they haven't posted one for 2015 yet?

I also read something about finding this information in a spreadsheet from CDS Innovations, but that was obscure to locate, and it contains macros (which I can't open on my Linux system). Why the hell is it so hard to find this vital information that everyone needs for ACB tracking? It absolutely should be in PDF format, so you can easily view and print it for your files.

You'd think their marketing department would know this is important. I'm thinking of advising that my parents shift nearly 100K into a BMO ETF, but unless I get confident that I can track the ACB easily, I'm not going to do it. I need simple documentation that's easily locatable, that is released in a timely format every year, and I don't want to rely on a third party to do it. (The brokerage already tracks ACB and I need to be able to independently calculate it myself).
 

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How is a BMO ETF holder supposed to track the ACB?

iShares puts out a tax characteristics document each year (in PDF format) that lets me read the return of capital and reinvested distributions. It's very easy from this to track the ACB number. And of course it's evidence I can keep for future CRA disputes.

I thought that BMO released a similar document, the "bmo etf tax parameters" like this one from 2014
https://www.bmo.com/assets/gam/docs/bmo_etf_tax_parameters_cash_flow_advisor_etf_eng.pdf

Where on earth is the 2015 document? How can it be August 2016 and they haven't posted one for 2015 yet?

I also read something about finding this information in a spreadsheet from CDS Innovations, but that was obscure to locate, and it contains macros (which I can't open on my Linux system). Why the hell is it so hard to find this vital information that everyone needs for ACB tracking? It absolutely should be in PDF format, so you can easily view and print it for your files.

You'd think their marketing department would know this is important. I'm thinking of advising that my parents shift nearly 100K into a BMO ETF, but unless I get confident that I can track the ACB easily, I'm not going to do it. I need simple documentation that's easily locatable, that is released in a timely format every year, and I don't want to rely on a third party to do it. (The brokerage already tracks ACB and I need to be able to independently calculate it myself).
According to BMO's site, they issue you a T3, which you then would use to correct your ACB at the end of the year.
 

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On CDS Innovations you can view the data on Linux without macros. You just need to unhide the hidden sheet. In LibreOffice right click the Macros sheet tab --> Show.
 

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Discussion Starter · #4 ·
According to BMO's site, they issue you a T3, which you then would use to correct your ACB at the end of the year.
I don't think the T3 provides enough info, since it lumps everything together. To properly calculate ACB you need that document that shows ROC & reinvested amounts broken down month-by-month. Imagine you place a trade at a certain month... I've tried dissecting this info from T3's before and it just isn't clear enough. You don't get that time granularity you need to properly do the ACB calculation.
 

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Discussion Starter · #5 ·
On CDS Innovations you can view the data on Linux without macros. You just need to unhide the hidden sheet. In LibreOffice right click the Macros sheet tab --> Show.
Thanks, that worked with LibreOffice... awesome! This is the 2015 month-by-month that I was looking for. Do they post these in a timely fashion so you can actually see this before you file your 2015 tax return?

The spreadsheets are a bit funky; I see that distribution breakdowns are by %. Handling this stuff is ridiculous. Look at the bizarre process you have to go through to interpret this information correctly, described in this Canadian Couch Potato article:
http://canadiancouchpotato.com/2014/04/07/tax-tips-for-bmo-etf-investors/

Does the ETF industry seriously expect us to do this? This really makes me question whether it's worth investing with ETFs. One can not reasonably expect an investor to properly interpret these documents to track ACB.
 

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Discussion Starter · #6 ·
An insightful comment in that Canadian Couch Potato article is: It’s kind of ironic that we Couch Potato investors are looking for a “simple” approach to investing and we are rewarded with this kind of complexity.

I'm dismayed by this too. There is nothing simple about tracking ACB in non-registered accounts and I think that applies to both ETFs and mutual funds. And heaven forbid you get audited and must show CRA your evidence... ridiculous!
 

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You can get a premium membership to adjustedcostbase.ca and then import the tax information from CDS Innovations in one click to track your ACB. It's $39 per year, which is kinda pricey, but I decided it was worth it to save all the effort.
 

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I made a mistake while calculating ACB for ZPR at the beginning of this year as BMO reports the breakdown in percentage. I sent an email to Justin Bender and here is his response -

"BMO reports the breakdown in percentage amount, so 7.70480 us actually 7.70480%.

For example, in order to determine the ROC dollar amount per unit for the January 2016 distribution of ZPR, multiply the Total Cash Distribution ($) Per Unit of 0.04800 by 7.70480%, or

0.04800 × 0.077048 = 0.0036983 ROC per unit

Hope this helps!"
 

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The CDS sheets are updated as soon as the info’s reported by the funds. Tends to be the week leading up to the T3/T5 filing due dates (end of Feb/end of March).

I’m with you that it’s a pain to track ACB. I’m sure there are many who don’t adjust their ACB at all. There’s a box for the amount resulting in cost base adjustment on your T3 (box 42), but brokerages (at least mine) only seem to put the RoC there. It’d be nice if they included the non-cash distributions.

Also for the breakdowns by %/$ on CDS be sure to check the calculation method (box G15) before using the numbers as it varies by fund.
 

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I don't think the T3 provides enough info, since it lumps everything together. To properly calculate ACB you need that document that shows ROC & reinvested amounts broken down month-by-month. Imagine you place a trade at a certain month... I've tried dissecting this info from T3's before and it just isn't clear enough. You don't get that time granularity you need to properly do the ACB calculation.
The T3 should only show a ROC in the non-taxable box - I forget the one off my head. The capital gains is your reinvested amounts that adds to your ACB.

I'm not sure why you need a month-by-month break down, unless you are actively buying and selling the ETF all the time. Even if this were to be the case, the T3 should capture the proper reinvested and returned amounts. I used to do this all the time, do you have some example amounts I can work on?

*edit, just saw the link for the CCP site, and it's Box 42 for the non-taxable ROC.
 

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An insightful comment in that Canadian Couch Potato article is: It’s kind of ironic that we Couch Potato investors are looking for a “simple” approach to investing and we are rewarded with this kind of complexity.

I'm dismayed by this too. There is nothing simple about tracking ACB in non-registered accounts and I think that applies to both ETFs and mutual funds. And heaven forbid you get audited and must show CRA your evidence... ridiculous!
I've been through a CRA review before in a similar situation with a previous client. All that was required was to show that the T3 info was properly recorded.
 

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How is a BMO ETF holder supposed to track the ACB? ...
Which particular one?

When I pick some samples at http://www.bmoetfs.ca/, then drill into a particular ETF - there is a bar for "Overview", "Price & Performance", "Tax & Distributions" or "Holdings". Overview is the default selected one.

Switch this to "Tax & Distributions".

Use the drop box to select the year, such as "2015".

The bottom chart populates with the breakdown for the year. It is also available for download to an Excel spreadsheet, where the spreadsheet has multiple years in it - from the "Download Distribution Tax (Excel)" icon.


The default for the year is 2016 so the distribution chart is partially populated and the yearly tax breakdown is blank. I'm not sure when the annual breakdown is published but suspect it may be around March or April of the following year.


Cheers
 

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The T3 should only show a ROC in the non-taxable box - I forget the one off my head...
I'll have to check mine ... if it is labelled "non-taxable" this is misleading.

My understanding is that where one's ACB is zero or positive, the RoC should be reducing one's ACB. This is deferring the capital gains taxes that will eventually be paid. Where the ACB turns negative, the investor is supposed to report the RoC payments as a capital gain ... until another transaction raises the ACB.


... The capital gains is your reinvested amounts that adds to your ACB ..
My understanding is the capital gains are the part of the cash paid that is classed as capital gains.

What will raise the ACB is usually one of two things. DRIPs that automatically convert cash paid into more units or re-invested distributions where the number of units was held constant (i.e. phantom distributions).

Problem was, the vast majority of the distribution wasn’t paid in cash but was reinvested by the fund. What’s more, the amount that was reinvested wasn’t broken out separately on his T3 tax slip or on his brokerage statement.
http://www.theglobeandmail.com/glob...by-phantom-etf-distributions/article18225076/

BMO seems to be reporting phantom distributions as part of individual payments where the column "Reinvested Distribution Per Unit" has note 2 that "Distributions by the BMO ETF that are not paid in cash should be accounted for by investors for tax purposes by adding the distribution amount to the adjusted cost base of the units held."


I'm not sure why you need a month-by-month break down, unless you are actively buying and selling the ETF all the time ...
Agreed.



Even if this were to be the case, the T3 should capture the proper reinvested and returned amounts. I used to do this all the time, do you have some example amounts I can work on?
The T3 will show the increased amounts for having bought additional units via a DRIP but as I understand it, will not include the units bought via a DRIP or additional purchase, nor the phantom distributions. All three of these would mean the ACB needs to be updated.


Cheers
 

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Discussion Starter · #14 ·
the T3 should capture the proper reinvested and returned amounts. I used to do this all the time, do you have some example amounts I can work on?
This earlier thread has a discussion on whether the T3 info is enough to track ACB Properly
http://canadianmoneyforum.com/showthread.php/17979-Tracking-that-pesky-ROC-using-T3-slips

The point is made in that thread that the T3 does not always show reinvested distributions. This is supported by the taxtips web page
http://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm

That above source also illustrates the problem of using the T3; these do not reliably show reinvested distributions in the same sense as the ACB adjustment calculation needs. Instead you get a convoluted number that you may or may not be able to reverse-engineer into the ACB's sense of reinvested distributions

The amount of reinvested distributions from an ETF are not identified separately in a box on your T3, but the reinvested distribution per share might be detailed in the footnotes box, or on your T3 summary as a non-cash distribution. Reinvested capital gains distributions will be included as capital gains on your T3, but a portion of the capital gains reported on the T3 may have been part of a cash payment.
So the T3 does not reliably capture reinvested distributions. It may also lump multiple securities distributions together. In that thread pwm says that tracking ACB based on the T3 is practically impossible due to all the various share actions that can occur over time.

And that's what I mean. This isn't simply a matter of reading the T3 and transcribing the information; from the information I've seen, while ROC may be reported, the reinvested distributions are either NOT reported, or they are indirectly reported -- which is the wrong number to use anyway.
 

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I'll have to check mine ... if it is labelled "non-taxable" this is misleading.

My understanding is that where one's ACB is zero or positive, the RoC should be reducing one's ACB. This is deferring the capital gains taxes that will eventually be paid. Where the ACB turns negative, the investor is supposed to report the RoC payments as a capital gain ... until another transaction raises the ACB.
My mistake, I was just going off memory and it's getting short these days :(. It's box 42, and is other income that relates to ACB. It's not taxable on your tax return, which is where I mixed things up.

My understanding is the capital gains are the part of the cash paid that is classed as capital gains.

What will raise the ACB is usually one of two things. DRIPs that automatically convert cash paid into more units or re-invested distributions where the number of units was held constant (i.e. phantom distributions).


http://www.theglobeandmail.com/glob...by-phantom-etf-distributions/article18225076/

BMO seems to be reporting phantom distributions as part of individual payments where the column "Reinvested Distribution Per Unit" has note 2 that "Distributions by the BMO ETF that are not paid in cash should be accounted for by investors for tax purposes by adding the distribution amount to the adjusted cost base of the units held."
This depends on the fund, and I was going off the experience I had when I did taxes in wealth management. We used to issue T3 slips for our clients as we managed their trusts. When assets were sold and produced a gain, the funds were reinvested, so there was no disbursement, just an increase in the ACB. Many funds I've seen since this time do the same thing.



The T3 will show the increased amounts for having bought additional units via a DRIP but as I understand it, will not include the units bought via a DRIP or additional purchase, nor the phantom distributions. All three of these would mean the ACB needs to be updated.


Cheers
 

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This earlier thread has a discussion on whether the T3 info is enough to track ACB Properly
http://canadianmoneyforum.com/showthread.php/17979-Tracking-that-pesky-ROC-using-T3-slips

The point is made in that thread that the T3 does not always show reinvested distributions. This is supported by the taxtips web page
http://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm

That above source also illustrates the problem of using the T3; these do not reliably show reinvested distributions in the same sense as the ACB adjustment calculation needs. Instead you get a convoluted number that you may or may not be able to reverse-engineer into the ACB's sense of reinvested distributions



So the T3 does not reliably capture reinvested distributions. It may also lump multiple securities distributions together. In that thread pwm says that tracking ACB based on the T3 is practically impossible due to all the various share actions that can occur over time.

And that's what I mean. This isn't simply a matter of reading the T3 and transcribing the information; from the information I've seen, while ROC may be reported, the reinvested distributions are either NOT reported, or they are indirectly reported -- which is the wrong number to use anyway.
I must admit this is new to me. I worked in a department where we used to manage trusts and we would issue the T3s. I also did a few thousand tax returns over my career, and I didn't run into this issue, but I left this work behind before ETFs became as popular as they are now. The mutual funds all were rather straight forward, and even during reviews I never ran into any issues. Then again, maybe Rev Can was just as confused as anyone else. ;)
 

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Discussion Starter · #17 ·
It could be that this entirely new to ETFs. According to that taxtips link, ETFs are different than mutual funds because the ETFs have reinvested distributions that are not explicitly spelled out on T3s. These are hidden and not visible unless you go looking for them.

When you did tax returns, before the rise of ETFs, you would not have encountered this with mutual funds.

For those people using T3s for ACB. Sure, you won't get in trouble doing that, because you're over-paying taxes. If you're not taking into account reinvested distributions, there is no way to realize this -- but you are paying more taxes than you are required to.
 

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My mistake, I was just going off memory and it's getting short these days :(. It's box 42, and is other income that relates to ACB. It's not taxable on your tax return, which is where I mixed things up ...
As I say, everything I have read says only the investor (or their agent) who has re-calculated their ACB knows whether the RoC paid is going to result a deferred capital gain when the units are sold or an immediate capital gain that is reported in all or in part on that particular tax year's tax return.

... it is possible that years of ROC distributions will reduce the ACB to zero. Any ROC received after ACB reaches zero must be reported in the tax return for the year of receipt as a capital gain ...
http://howtoinvestonline.blogspot.ca/2010/07/return-of-capital-separating-good-from.html

http://www.taxtips.ca/personaltax/investing/taxtreatment/incometrusts.htm

Or if you are a fan of CRA's web site ....
If the ACB of the trust units is reduced below zero during the tax year, the negative amount is deemed to be a capital gain in the year ... Enter the amount of the capital gain on line 132 of your Schedule 3 (place a zero on line 131 since there is no actual sale of units).
http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html#P1180_82238


If all of this is not confusing enough, my broker rolls multiple investments that pay RoC into a single T3 form. Should say XIC be one of them, where the last couple of RoC payments turned the ACB negative so that those small amounts need to be reported as a capital gain - then the number than needs to be reported might be tiny compared to what could be five different investments, all summed up in box 42 of a single T3 form.



It could be that this entirely new to ETFs. According to that taxtips link, ETFs are different than mutual funds because the ETFs have reinvested distributions that are not explicitly spelled out on T3s. These are hidden and not visible unless you go looking for them.
I believe this is the case as I seem to recall reading that MFs would give more units which is more obvious. The ETF on the other hand, gives the gain then re-consolidates the units so there is nothing beyond the reporting to indicate a change.


Cheers
 

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It could be that this entirely new to ETFs. According to that taxtips link, ETFs are different than mutual funds because the ETFs have reinvested distributions that are not explicitly spelled out on T3s. These are hidden and not visible unless you go looking for them.

When you did tax returns, before the rise of ETFs, you would not have encountered this with mutual funds.

For those people using T3s for ACB. Sure, you won't get in trouble doing that, because you're over-paying taxes. If you're not taking into account reinvested distributions, there is no way to realize this -- but you are paying more taxes than you are required to.
This seems to be the case. I remember that each fund would issue a statement that showed exactly what was paid, and how to calculate the ACB. Still doesn't mean it's worth the extra fees, though.
 

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Discussion Starter · #20 · (Edited)
Let me recap here ... yes the RoC shows up on the T3, but the ETF's reinvested distributions (aka phantom distributions) do not.

As the reinvested distributions are just as critical an adjustment as RoC, and occur frequently across all kinds of ETFs, that means that T3 slips alone are not enough to track the ACB. If you're only using T3s for ETF tracking, then you might overpay taxes substantially. An example, our XSP holding has an ACB of 34.8 k with reinvested distributions (done properly) but only 29.7 k if you omit them. Your penalty for omitting the reinvested distributions? $5100 extra in capital gains which the CRA will never correct you on, because nobody there will calculate this properly either.

We're all in the same boat. Calculating this stuff is very difficult and nobody knows how to do it, so I'm just trying to brainstorm.

As far as I can tell, for BMO ETFs, the CDS Innovations (or one of those web site services) are the only way you can calculate this yourself. For iShares, you can use the annual tax characteristics document which I think is easier to work with than CDS Innovations. And you can always check against the broker's records. Am I covering all the methods?

I want to make sure I'm using the right methodology and also want to make sure that I have the collateral in case the CRA disagrees. Showing them the broker's statements will probably not cut it. So what can I show CRA? A print-out of the CDS Innovations spreadsheet, combined with scribble notes showing how I convert their percents to dollars? This makes me nervous. I want to report taxes accurately, but I also want to be able to back up my claims.
 
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