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Discussion Starter #1
Hi everyone,

I am moving soon from Europe to Canada and had a question concerning the tax treatment of my ETF portfolio. I am currently holding several ETFs (all based in Luxemburg/Ireland) and my broker is based in Germany. When in Canada, I will pay all my taxes there.
As far as I have understood, capital gains are 50% taxable in Canada, but foreign dividend payments are 100% taxable. My questions concerns now the specific taxation of accumulating ("phantom" reinvestments) and distributing foreign ETFs. For foreign distributing ETFs the solution should be pretty simple - their dividends are 100% taxable. What about accumulating ETFs? I have read that the "phantom" reinvestments are rather considered as "capital gains" as the adjusted cost base changes. This would then mean, that these should be taxed only at 50%. Does this also apply for my foreign based ETFs or only for Canadian ones?

Thanks a lot for you help!
 

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My questions concerns now the specific taxation of accumulating ("phantom" reinvestments) and distributing foreign ETFs. For foreign distributing ETFs the solution should be pretty simple - their dividends are 100% taxable. What about accumulating ETFs? I have read that the "phantom" reinvestments are rather considered as "capital gains" as the adjusted cost base changes. This would then mean, that these should be taxed only at 50%. Does this also apply for my foreign based ETFs or only for Canadian ones?

Thanks a lot for you help!
Capital gains are capital gains - that's it. They're taxed at 50% as you say. Re-invested capital gains (phantom) also should be added to your cost base, but they are indeed immediately taxable.

ltr
 

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Capital gains are capital gains - that's it. They're taxed at 50% as you say. Re-invested capital gains (phantom) also should be added to your cost base, but they are indeed immediately taxable.

ltr
Thanks for your quick reply. Thats good to hear, so basically accumulating foreign ETFs are more beneficial from a tax standpoint in Canada compared to distributing foreign ETFs, as the re-invested capital gains (phantom) are taxed at 50%.
 

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accumulating foreign ETFs are more beneficial from a tax standpoint in Canada compared to distributing foreign ETFs
Not sure about the foreign angle, but that would depend on the source of the income being accumulated or paid. The stocks, bonds, debt instruments and what have you within the fund will pay some combination of interest, dividends, capital gains or return of capital. The taxation is determined by the type of income the fund has. Whether the fund reinvests the money like a mutual fund DRIP or pays it out to you like a distribution does not influence the tax treatment.
 

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Not sure about the foreign angle, but that would depend on the source of the income being accumulated or paid. The stocks, bonds, debt instruments and what have you within the fund will pay some combination of interest, dividends, capital gains or return of capital. The taxation is determined by the type of income the fund has. Whether the fund reinvests the money like a mutual fund DRIP or pays it out to you like a distribution does not influence the tax treatment.
This would in turn mean, that any foreign distribution/"phantom" reinvestment would then be 100% taxable in Canada based on you income tax rate?
 

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I think that is quite likely. You'd have to go over the tax documents from your German broker with a Canadian accountant to work out in detail, but the safe bet is that it would just be income for tax purposes.

BTW, also look into whether a T1135 is needed. Generally an ACB above C$100K is the threshold.
 
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