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Hi all,

First off, I want to thank everyone for doing a great job on this forum. As a younger investor, I find this very informative and helpful. I've been looking around for the answer to my question but can't find it.

When I had smaller distributions, I didn't worry about this. But as my distributions are starting to become larger, I began wondering about the following.

I'm assuming this is all inside a non-RSP. When you buy a share and get a distribution, it is taxes at the dividend rate correct? My question is a Bond ETF distribution taxed as personal income similar to if I owned the bonds directly or still taxed as a dividend? Is this the same with income trusts, ETFs with a mix of bonds and equities, etc?

I appreciate all the help. Thanks again.
 

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I'm assuming this is all inside a non-RSP. When you buy a share and get a distribution, it is taxes at the dividend rate correct? My question is a Bond ETF distribution taxed as personal income similar to if I owned the bonds directly or still taxed as a dividend? Is this the same with income trusts, ETFs with a mix of bonds and equities, etc?
Bond ETFs distribute mostly interest income but also ROC and capital gains.

Income trusts distribute mostly other income and ROC.

Canadian equity ETFs distribute mostly eligible dividends and capital gains.

Foreign equity ETFs distribute mostly dividends.

Eligible dividends and capital gains are taxed favourably.

ROC reduces your ACB but no other tax implications.

Interest and other income are taxed at your marginal rates.

Check my blog for posts on this topic.
 

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ETF's are synthetic products, so how their distributions are classified will vary with the type of security the fund holds, and their internal trading. They pass through to you the same 'type' as they realized internally - after deducting management fees from their interest or dividend income.

E.g. An ETF that tracks the S&P by holding a basket of US stocks will distribute the dividends they received as 'foreign income' to you because foreign dividends do not qualify for the DivTxCr. They will distribute capital gains they realize from their own trading, as capital gains.

Compare that ETF to one that tracks the S&P by buying Futures Contract on the S&P. This ETF will distribute capital gains.

Look up the tax type (there will be a combination) on each ETFs website.
 
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