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Discussion Starter · #1 ·
When you have a non-registered ETF or mutual fund holding, you have to make sure you keep adjusting your Adjusted Cost Base according to both reinvested distributions and return of capital it generates.

In the past I've done this by using the iShares tax treatment docs released each year, which show the ROC/reinvested distrib of each month. This is a horrible pain to track over the long-term, even with a nifty spreadsheet. There's a lot of monthly data to look at and a real maintenance burden, I can't keep doing this.

Does anyone know if the T3 generated by a brokerage like TD Waterhouse is sufficient to accurately track these two important ACB adjustments? T3 box 42 is the ROC amount, in total dollars, not per-unit.

Updated ACB = previous ACB + (box ?? amount) - (box 42 amount)

Which box (??) number is reinvested distribution number? Does this also reliably appear on T3's? Is my equation right?

Does this figure take into account the actual units you own at the time (the exact month) the distribution is generated? For instance if starting with 0 shares, you bought 100 shares each month and only January generated a ROC, are brokers smart enough to know that the ROC distribution only came from those 100 shares and not the 1200 shares at year-end? I'm hoping that the T3 reliably tracks both of these ACB adjustments, in which case you can simply update ACB once a year at tax time.
 

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... Does anyone know if the T3 generated by a brokerage like TD Waterhouse is sufficient to accurately track these two important ACB adjustments? T3 box 42 is the ROC amount, in total dollars, not per-unit.
I've never bothered to figure it out as I get multiple investments per T3. However, looking at the most recent T3 summary form, there is a lot more info than there used to be so I believe the sub-totals should work. I'd do a comparison to make sure it's accurate.


...Updated ACB = previous ACB + (box ?? amount) - (box 42 amount)
Which box (??) number is reinvested distribution number? Does this also reliably appear on T3's?
Is my equation right?
From the listing of boxes on the back of the T3 form, it does not look like reinvested distributions are being reported on the T3.
When I look at one from previous years that includes an iShares ETF, there is nothing for this.

Tax tips says:
How do I calculate the adjusted cost base (ACB) and capital gain when I sell my Canadian ETFs?

If you hold Canadian ETFs in a non-registered account, you must keep track of your ACB, or "adjusted cost base" for each ETF. The ACB of your investment in an ETF will be the total of:

the total that you paid to purchase your shares, including any commission,
plus the amount of all reinvested distributions or dividends,
less the "return of capital" component of any distributions,
less the ACB of any previously sold shares.
I presume there are no sales so other than there not being a T3 box for the reinvested distribution number, it looks good.
http://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm


I did see this other posting regarding misleading reporting on the web site of reinvested distributions.
http://www.moneysense.ca/taxes/tax-tip-for-vanguard-etf-investors




... Does this figure take into account the actual units you own at the time (the exact month) the distribution is generated? For instance if starting with 0 shares, you bought 100 shares each month and only January generated a ROC, are brokers smart enough to know that the ROC distribution only came from those 100 shares and not the 1200 shares at year-end?
Where I have purchased more units, the T3 summary sheet is listing date, x units, T3 box number and amount and then after the purchase 2x units, much larger amount ... so I believe so. I haven't run the numbers to confirm this though.

For example:

01/01/2014 100 26 $2.00
01/01/2014 100 42 $16.00
02/01/2014 300 26 $6.00
02/01/2014 300 42 $48.00



So without actually running the numbers to check accuracy, the only thing I don't see if the reinvested distribution number.
 

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Discussion Starter · #3 ·
Interesting, the T3 may roll many ETFs into a single box... that's no good.

But yes the T3 summary looks useful since it breaks down ROC per fund. That's what we want!

Disappointing that reinvested distributions don't show up in the T3. That means you'll have to use the numbers from the iShares final distributions document. I've been using the center column, "Reinvested Distribution Per Unit"

So the easiest way I can see right now, for the ACB equation is
a) ROC from the T3 summary
b) Reinvested distributions from the ETF providers annual document
 

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The best solution is not to reinvest distributions. Way too much headache in a taxable account. Then one only has to use the ROC numbers from the brokerage's Income and Expenses summary that accompanys the T3.
 

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Re: the T3 may roll multiple ETFs into the same box.

Worse ... I've had REITs and ETFs rolled into the same box. However, as long as the summary sheet checks out, it looks like it is detailed enough and is sub-totaling by individual investment to cover all you need except for the ETF re-invested distributions.

It might not be as simple as you want but sounds like it is easier than what you doing now.


Re: best solution is to not re-invest distributions

Problem is the ETF I had in my taxable account does not give one a choice ... it does it behind the scene and requires the investor to deal with it. I believe the MFs I've had have done the same thing but it didn't matter to me as they were held in a registered account.


Cheers
 

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I understand a few products (primarily closed end funds I believe) may require reinvestment of distributions and I actually owned an open ended MF (from Mackenzie I believe) that required one to also do so. I dumped that MF and that company as soon as I could. The principle for me is no one has a right to tell me what to do with the income I make, however I make it. If MFs and ETFs cannot manage their business to pay out distributions on schedule, I cannot trust them as money managers.
 

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It is a more than a few.

The distributions that are declared may not necessarily be paid to shareholders. Part or all of the distribution may be reinvested, not paid in cash.
The amount of the reinvested distribution is added by the shareholder to the adjusted cost base of the shares in the ETF.
http://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm

Same line item for MFs.
http://www.taxtips.ca/personaltax/investing/taxtreatment/mutualfunds.htm

Sun Life talks about the same thing for their MFs, referring to this as "Notional Distributions".


In fact, the G&M says this is common for ETFs.
http://www.theglobeandmail.com/glob...ep-more-of-your-etf-nest-egg/article10207129/


I have heard similar about buying a MF towards the end of the year as well.


Cheers
 

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Discussion Starter · #8 ·
The best solution is not to reinvest distributions. Way too much headache in a taxable account. Then one only has to use the ROC numbers from the brokerage's Income and Expenses summary that accompanys the T3.
This isn't a choice you can make. Many ETFs reinvest distributions, XDV for instance. If you're not accounting for reinvested distributions then you're overpaying tax when you cash it out later.
 

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With T3 ROC, reinvested units, buying and selling shares over time, company spin-off shares, and ETF notional distributions which increase your ACB rather than decrease it, the process of accurately calculating your ACB is almost impossible. The good news is that if you have trouble coming up with a perfect number there's no way CRA has any better chance of doing so. In my opinion it's almost an honour system. They get a copy of your trading summary, so as long as you state the correct proceeds number, the ACB number is just an educated guess, and they know it.
 

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What about TD e-series funds? From what I can tell on my tax slips, there doesn't seem to be any ROC, capital gains distributions, reinvested distributions, etc. that I need to worry about...but then, perhaps I just don't know where I should be looking. ETFs have tax documents at the end of the year that break down the different types of distributions (like the iShares document james4beach linked to), but I can't seem to find one for e-series funds?
 

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Hi James. IMHO TDDI does track the ROC based on the T3's. For example, on my XTR holding in my non-registered account, my ACB fell from $12.40 down to $12.25. I called a rep at TDDI, and was told that they adjusted all ETFS with ROC last week. The rep told me that they do all ETF notional distributions in early January and all ROC adjustments once a year in April.

Therefore, from what I understand ROC lowers your ACB (or Book Value).

I don't re-invest ETF distributions in my non-registered account (just get the monthly cash), so not sure how that part of it works tax wise?
 

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This isn't a choice you can make. Many ETFs reinvest distributions, XDV for instance. If you're not accounting for reinvested distributions then you're overpaying tax when you cash it out later.
XRE also had a big notional (or re-invested) distribution in 2013. Therefore the book value (or ACB) of my XRE holding (in my non-registered account) went way up without me buying any additional shares of the XRE. I had to pay capital gains on the XRE. I guess when I go to sell the XRE, I won't have to pay as much capital gains on the XRE, as my XRE acb (or book value) increased accordingly.

TDDI does that calculation as well for you automatically in early January of each year.

What I'm curious about is how it works (tax wise) if you synthetic drip your ETF shares in a non-registered account?
 

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Hi James. IMHO TDDI does track the ROC based on the T3's.

For example, on my XTR holding in my non-registered account, my ACB fell from $12.40 down to $12.25. I called a rep at TDDI, and was told that they adjusted all ETFS with ROC last week. The rep told me that they do all ETF notional distributions in early January and all ROC adjustments once a year in April.
This is in the book value on the web site or statement, correct?

Therefore, from what I understand ROC lowers your ACB (or Book Value).
Yes ... until it falls negative, at which point you start reporting the RoC part on your yearly tax return until a transaction makes the ACB positive again.
http://howtoinvestonline.blogspot.co.uk/2010/07/return-of-capital-separating-good-from.html
http://howtoinvestonline.blogspot.ca/2013/03/return-of-capital-examples-of-good-and.html


I don't re-invest ETF distributions in my non-registered account (just get the monthly cash), so not sure how that part of it works tax wise?
Where the ETF distribution is cash and it is DRIPed into more units, it's the same as buying new units, in terms of the ACB. The difference is you have to get the price paid from the ETF web site.

The tricky part is that at times the ETF, MF etc. will choose to do it in a way that there are no additional units. So you can't just look at whether the number of units has gone up.

Looking at the XIU distribution link, the DRIP'd units from cash payments have a "DRIP Price" column.

The "Reinvested" column are the non-cash distributions that have been rolled into the ETF as note 2 says:
Reinvested distributions are not paid in cash but instead remain invested in the Fund. To recognize that these distributions have been allocated to investors for tax purposes, the amounts of these distributions should be added to the adjusted cost base of the units held.
Both will increase the ACB but one is more obvious than the other.

http://ca.ishares.com/product_info/fund/distributions/XIU.htm


For XIU, the last non-cash re-invested distribution in the table has an Ex-Date of 24-Dec-2008.


Cheers
 

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... What I'm curious about is how it works (tax wise) if you synthetic drip your ETF shares in a non-registered account?
You pay the appropriate taxes for the cash distribution on your tax return.

For the Drip, retrieve the price paid per unit from your monthly statement, multiply by the whole number of units (you did say synthetic DRIP) and add the total to the ACB.


Cheers
 

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This is in the book value on the web site or statement, correct?



Yes ... until it falls negative, at which point you start reporting the RoC part on your yearly tax return until a transaction makes the ACB positive again.
http://howtoinvestonline.blogspot.co.uk/2010/07/return-of-capital-separating-good-from.html
http://howtoinvestonline.blogspot.ca/2013/03/return-of-capital-examples-of-good-and.html




Where the ETF distribution is cash and it is DRIPed into more units, it's the same as buying new units, in terms of the ACB. The difference is you have to get the price paid from the ETF web site.

The tricky part is that at times the ETF, MF etc. will choose to do it in a way that there are no additional units. So you can't just look at whether the number of units has gone up.

Looking at the XIU distribution link, the DRIP'd units from cash payments have a "DRIP Price" column.

The "Reinvested" column are the non-cash distributions that have been rolled into the ETF as note 2 says:


Both will increase the ACB but one is more obvious than the other.

http://ca.ishares.com/product_info/fund/distributions/XIU.htm


For XIU, the last non-cash re-invested distribution in the table has an Ex-Date of 24-Dec-2008.


Cheers
Excellent post E12. Much appreciated. As far as ROC goes TDDI does this automatically totally based on the ROC totals contained in the T3.

What makes this tricky is that TDDI doesn't post this ROC calculation in your non-registered account activity screen. The only reason I figured this out is because I noticed that my XTR book value went down last week. Then I checked my T3 XTR ROC totals as well as my monthly account statements. That's when I decided to call the TDDI rep.

I have an accountant do my taxes, but I'm trying my best to learn this ETF distribution material myself.
 

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Discussion Starter · #19 ·
With T3 ROC, reinvested units, buying and selling shares over time, company spin-off shares, and ETF notional distributions which increase your ACB rather than decrease it, the process of accurately calculating your ACB is almost impossible. The good news is that if you have trouble coming up with a perfect number there's no way CRA has any better chance of doing so. In my opinion it's almost an honour system. They get a copy of your trading summary, so as long as you state the correct proceeds number, the ACB number is just an educated guess, and they know it.
I'm glad it's not just me. And I agree, it's just about impossible to accurately track this over a long time.

The best solution I've seen so far is to trust the brokerage's calculation for ACB, but they make mistakes too. But maybe it's the best bet.

So pwm, what do you do personally? The T3 doesn't have all the info. The brokerage tracks ACB but could be making mistakes.
 

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I hold almost all of my non-registered investments at TDDI. I have found that they do a good job of handling re-invested units, and notional distributions. They don't appear to automatically handle the "Box 42" ROC numbers from my ETFs. The T3 only shows the total number but the "Summary of Trust Income" statement breaks down the total number from the T3 statement into the individual securities. So once a year, for each security that has a ROC, I decrease the book value number using Webbroker accordingly and I trust TD to take care of the other stuff.
 
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