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Return of capital on leveraged mutual funds

6482 Views 7 Replies 4 Participants Last post by  OhGreatGuru
Hi Everyone,

I'm new to this forum and hope this does not repeat any posts out there as I did not find one in my search.:confused:

I currently hold shares of a IA Clarington Dividend A mutual fund (closed fund now) that pays a monthly distribution as a return of capital. This is obviously reducing my ACB, so what happens when it approaches zero?

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If return of capital distributions put your ACB below zero, then you start claiming capital gains each year to bring your ACB back to zero.

"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. The new ACB of the trust
units is deemed to be zero.
For example, Richard purchased RST Mutual Fund Trust
units for $1,000 in 2002 and received a $200 return of capital
in each of the 2003, 2004, 2005, 2006 and 2007 tax years. The
total return of capital by the end of 2007 is $1,000. In 2008,
he received an additional return of capital in the amount
of $200. On his 2008 tax return, Richard will report a capital
gain of $200. The ACB of his units will be reset to zero."
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The tax slip should list the RoC, but that doesn't necessarily mean you have to pay tax on that if you have positive ACB. I'd have to look up the line/box numbers, but not all the lines/boxes on those slips actually result in tax payable (it always depends on your situation).

Also, if they're dividends, interest, other income, or capital gains distributions, then that's different than a RoC distribution. Depending on what is held, a mutual fund could distribute all of the above.
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