Are dividends from ETFs that hold only Canadian companies eligible for the Canadian dividend tax credit?
The ETF in question is XIC (ISHARES CD SP/TSX CAP ETF).
ETF Dividend Tax Credit
Are dividends from ETFs that hold only Canadian companies eligible for the Canadian dividend tax credit?
The ETF in question is XIC (ISHARES CD SP/TSX CAP ETF).
The short answer is ... yes ... if an ETF holds only eligible Cdn dividend paying companies ... note however that XIC is not such a beast.
The long answer is ... ETFs are mutual funds, and like all mutual funds, they distribute any net (after expenses) investment income received within the fund, as well as any pertinent taxable events (ie. capital gains resulting from buying/selling within the fund, foreign withholding taxes, etc.) so that the income and events are taxed in the hands of the unit-holders rather than the mutual fund itself ... also, like all mutual funds, the distributions retain their tax-character when they are distributed to unit-holders ... so if came into the fund as an eligible dividend, then it would be distributed as an eligible dividend ... if it came into the fund as interest, then it would be distributed as interest ... if it came into the fund as a capital gain, then it would be distributed as a capital gain ... etc. etc.
XIC holds primarily Canadian companies, but it also holds some income trusts ... trusts do not distribute eligible dividends ... therefore, XIC’s distributions may contain some mixture of different types of investment return.
To quote from the horse’s mouth ...
“The characterization of distributions for tax purposes (such as dividends, other income, capital gains etc.) will not be known for certain until after the Fund's tax year end. Therefore, investors will be informed of the characterization of the amounts distributed for tax purposes only for the entire year and not with each distribution. For tax purposes, these amounts will be reported by brokers on official tax statements.”
Ah, so my broker should be telling me in a tax statement what percentage of my dividends were eligible?
If it is held in a taxable account, then YES.
If it is held in an RRSP or TFSA, then NO ... tax slips are not issued for registered holdings.
You'll receive a tax slip from the broker with all the numbers filled in for you: eligible dividends, the dividend tax credit, return of capital etc. etc. All you have to do is key it in your favourite tax software and you are done.Originally Posted by hylaride
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