# Income Tax: ETFs



## frugalmini (Feb 19, 2011)

Hi, 

I have a few questions here about the ETFs.

1, How to report the capital gain/loss if you buy and sell? I have one file from TD shows my trading history in 2010. But one of the ETF I sold was bought before, plus you buy and sell, how to track exactly how much you earn or lose? Do you deduct the commission fee? 

2, I just saw a T3 under my 2009. I don't recall looked into it. Remember talked to a person from waterhouse, and he said I don't need to worry about tax if I don't sell. What should I do something about this 2009 T3? Hopefully I don't need to file it in paper. @[email protected]

3, Just talked to a person from TD waterhouse, and he told me that the 2010 T3 is not out yet. I guess that's also why I missed my 2009 one. 

Thank you so much for your time.


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## stardancer (Apr 26, 2009)

I'll take a stab at this...

1. You have to keep track of your initial purchase price and # of units, any distributions made by the ETF to calculate your on-going ACB. There have been many threads about how to do this. Usually people have used their own spreadsheets. Don't rely on TD to keep track of the ACB. Later on, when you sell, you then have the base from which to calculate the capital gains. The commission fees are part of the process. (I'm not good at searches, so search the threads to find other discussions about ACB)

The process is the same for ETFs as it is for stocks and mutual funds.

2. T3 2009- you have to send that as an adjustment for your 2009 tax return. I just received my 2010 T3 recently, so they are coming. T3 must be included on your income tax return as reported. This is in addition to keeping track of your ACB.


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## frugalmini (Feb 19, 2011)

stardancer said:


> I'll take a stab at this...
> 
> 1. You have to keep track of your initial purchase price and # of units, any distributions made by the ETF to calculate your on-going ACB. There have been many threads about how to do this. Usually people have used their own spreadsheets. Don't rely on TD to keep track of the ACB. Later on, when you sell, you then have the base from which to calculate the capital gains. The commission fees are part of the process. (I'm not good at searches, so search the threads to find other discussions about ACB)
> 
> ...


Thank you, stardancer.


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## humble_pie (Jun 7, 2009)

hello frugalmini

an investor always has 2 progressions of capital gains/losses going on with any etf or any mutual fund he holds.

the 1st is the net gain amount, if any, that will arise from the fund's own internal trading during its fiscal year that gets allocated to you as a fundholder. This amount will be set forth on the T3 along with all the other incomes the fund has earned.

you do have to report these incomes. Star has already discussed, so i'll skip (consider filing an amendment to 2009 return.)

the 2nd capital gain/loss to report is your own personal gain/loss arising from your trades in buying & selling a security. Your message causes me to think that you have been swing-trading at least one etf, and this does produce a more complicated history. In essence, taxpayer needs to maintain a history of each holding, with cost base calculations adjusted for each acquisition and partial cost base calculations adjusted for each disposition.

here's a simple swing-traded example without adjustment for commissions:

- investor buys 200 units @ 10 for a total cost base of 2,000 & a unit cost of 10.
- following year inv buys 300 additional units @ 11 for a total cost base of 5,300 & a unit cost of 10.60.
- 2 months later inv sells 200 units @ 11.60. He has a capital gain of (200 x 1) or 200.00.
- inv now has 300 remaining units, so his ACB becomes (300 x 10.60), or a total cost base of 3,180.
- notice that his unit cost has remained 10.60 after the sale. His unit cost will not change unless/until he makes another purchase.

there are spreadsheets to maintain these histories. I don't use one myself since from time i wish to keep more elaborate chronicles for each history than any spreadsheet permits, including details such as spinoffs, mergers, special dividends affecting capital base, etc. So i keep these records in a simple hand-scribbled binder that's alpha by company. I've learned to write up each acquisition/disposition as it occurs because this is far less grief than going back later. I also grab the noon bank of canada rate if it's a US transaction. 

courage ! it may seem like a lot at first, but when you learn how & get used to it, it will be ripping.


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## frugalmini (Feb 19, 2011)

humble_pie said:


> hello frugalmini
> 
> an investor always has 2 progressions of capital gains/losses going on with any etf or any mutual fund he holds.
> 
> ...


Thank you, humble_pie.  
Yes, I'm learning to build up a file system to keep track of the trading history. I love your suggestions. Lot's to learn. 
BTW, happy belated Pi-day


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## TDCanada (Mar 17, 2011)

Hello frugalmini, 

Just saw your post, maybe this information from our team could help! 

ETF Capital Gains are calculated by subtracting the net proceeds of the buy (add commission) from the net proceeds of the sale. In this case of multiple purchases and sales, they may use a weighted average price for the buys. Hence the shares they held in 2009 would have an average price. It is difficult to exactly calculate without knowing the trading pattern.

If you have any other question please call one of our specialists at TD Waterhouse 1-800-465-5463 or reach out to us on Twitter (No acct info please) 

Sincerely, 
TD Canada


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## humble_pie (Jun 7, 2009)

dear td waterhouse,

i'd like to nip your participation in this forum in the bud & say that just as the state has no place in the bedrooms of the nation, so the broker has no place in the personal tax records of the clients.

it's preposterous that a discount broker would try to "advise" a client on personal income tax calculations arising from such client's swing trades or partial trades. Whatever is your team manager thinking of.

elsewhere in this forum you'll find countless messages from senior members warning others not to rely on brokers cost base calculations as these are being supplied on a best-efforts basis by brokers, as their disclaimer clearly states.

in my experience, a simple history of short duration is likely to have a correct cost base as offered by a discount broker. It's the longer & more complicated cost base histories, in many cases with mergers, spinoffs, special dividends, even warrants, that do get into trouble chez the discount broker, who in the last analysis has no obligation whatsoever to maintain accurate cost base records & is only offering these as a kind service. Which is why discount brokers offer clients the option of setting their own cost bases.

it's not proper in the least, imho, for a discount broker to speculate as you are doing about cumulative swing trades that "may" result in a weighted or average cost ... or "may" not. Every taxpayer is saddled with the obligation to report the exact correct proceeds-and-cost results of all of his trading dispositions during a taxation year. No mays, ifs, buts or maybes allowed. Not even full-service brokers will venture into this red-hot nuclear zone. Taxpayers either have to learn to do it themselves or else get an accountant.

on the general subject of your daring to take part here, i would like to note that scotia itrade does maintain a representative who is exceptionally low-key & therefore well-accepted. Specifically, itrade does not take part in discussions even when these are critical of itrade. The representative politely intervenes perhaps once every 18 months, or far less often than once a year, and only to clear up dire misunderstandings of a technical nature.

i for one think it's a near-scandal for td waterhouse to barge into this forum with so-called "advice," and i would like to invite you to very kindly barge right out again.


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## andrewf (Mar 1, 2010)

Wow.... let's dial it back a little. I don't see any harm in a brokerage, clearly identifying themselves, for offering their advice. It's up to the mods of course. I think it's good form to include your real name, so that people can refer to what you say here in later conversations with TD.


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## humble_pie (Jun 7, 2009)

what's to dial back. Discount brokers have no license to offer any "advice" whatsoever. This one has gone too far & is trying to meddle with an unknown stranger's personal cost base calculations. Not even full-service brokers will go there.

in my message i had hoped to make clear that i for one support, even welcome, discounters who send representatives to monitor here, as scotia itrade does. To the best of my knowledge, itrade hardly ever posts here. In fact i've seen only one intervention & it concerned a technical issue with their website. So i appreciate this.

itrade's respectful conduct is a far cry from a broker trying to win friends & gain customers by posing as an authority with specific "advice" for a stranger.

please note that this issue is not about a licensed representative quite properly explaining to an individual client of his brokerage, whose account & investor profile are open before him, how the brokerage attempts to calculate a specific cost base for that client. This issue is about a discount broker sending a non-compliant anonymous representative into a forum to wrongfully offer e-advice to thousands of unknown e-readers.

one has to wonder what the team manager was thinking of.

btw on a related issue: all investors transferring accounts should take note that the original cost base will probably not be transferred. The uptaking new brokerage is likely to establish a "new" cost base that will be the closing prices for individual securities on the day the transfer officially occurs. Yikes. These are not the figures that the CRA wants. All the more reason for investors to maintain their own accurate cost base calculations.


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## Toronto.gal (Jan 8, 2010)

humble_pie said:


> here's a simple swing-traded example without adjustment for commissions:
> 
> - investor buys 200 units @ 10 for a total cost base of 2,000 & a unit cost of 10.
> - following year inv buys 300 additional units @ 11 for a total cost base of 5,300 & a unit cost of 10.60.
> ...


Thank you *humble*; this info. will come in handy for me too as I did not have to do any such calculations prior to 2010.


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## CanadianCapitalist (Mar 31, 2009)

As humble noted, plenty of ACB trackers are available. I cleaned up and shared mine on the request of a reader. It is available here:

http://www.canadiancapitalist.com/free-acb-capital-gains-tracker-in-excel/

I'll second (or third) the excellent suggestions made in this thread. Do not rely on broker supplied book value. They are rife with errors. It's best to track your buys and sells on your own with a separate sheet for each holding. Personally, I don't bother religiously tracking transactions in RRSP and TFSA accounts.


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## andrewf (Mar 1, 2010)

Is it a bad idea to use the account activities in doing your ACB calculations for the year? The ACBs in the platform at Questrade are pretty bad (it would be nice if you could edit them to correct errors), but the Penson statements seem bang on. The only drag is that you have to wait until the fund announces their tax information to account for return of capital. It involves a lot of rework.


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## Toronto.gal (Jan 8, 2010)

CanadianCapitalist said:


> As humble noted, plenty of ACB trackers are available. I cleaned up and shared mine on the request of a reader. It is available here:
> 
> http://www.canadiancapitalist.com/free-acb-capital-gains-tracker-in-excel/


Thank you CC.


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