# Tracking that pesky ROC using T3 slips?



## james4beach (Nov 15, 2012)

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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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... 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.




james4beach said:


> ...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:
> 
> ...


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






james4beach said:


> ... 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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## james4beach (Nov 15, 2012)

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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## AltaRed (Jun 8, 2009)

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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## Eclectic12 (Oct 20, 2010)

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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## AltaRed (Jun 8, 2009)

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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## Eclectic12 (Oct 20, 2010)

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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## james4beach (Nov 15, 2012)

AltaRed said:


> 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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## AltaRed (Jun 8, 2009)

Okay, I stand corrected. Some ETFs do have re-invested distributions from time to time but I have yet to run into any personally.


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## Eclectic12 (Oct 20, 2010)

Here's iShares 2013 list if you want to get a feel for it ... though like the other types of income, it can vary year to year.

https://ca.finance.yahoo.com/news/blackrock-r-announces-final-annual-020200324.html


Cheers


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## pwm (Jan 19, 2012)

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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## cjk2 (Sep 19, 2012)

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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## Squash500 (May 16, 2009)

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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## Squash500 (May 16, 2009)

james4beach said:


> 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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## Eclectic12 (Oct 20, 2010)

Squash500 said:


> 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?



Squash500 said:


> 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




Squash500 said:


> 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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## Eclectic12 (Oct 20, 2010)

Squash500 said:


> ... 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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## Squash500 (May 16, 2009)

Eclectic12 said:


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


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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## Squash500 (May 16, 2009)

Eclectic12 said:


> 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.
> 
> ...


 Thanks again E12.


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## james4beach (Nov 15, 2012)

pwm said:


> 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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## pwm (Jan 19, 2012)

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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## james4beach (Nov 15, 2012)

We're dealing with TDDI as well. So you've found that they handle every part of the ACB except for the ROC distribution?

But does TDDI keep adjusting the ACB after you manually update that field? Hopefully making that update doesn't disrupt their own internal tracking.


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## pwm (Jan 19, 2012)

Changing the number manually doesn't affect their processes. As far as I have seen, they will continue to do what they do with whatever number you leave them with.


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## james4beach (Nov 15, 2012)

Thanks pwm. I think your solution is best among the various options I've seen: let TDDI track the ACB, and update the ROC based on the T3's each year. (Provided you're not double-counting it)

This seems to be the lowest effort way for the long-term and even if it's imperfect, will be close enough. One should of course always check for gross errors and monitor the ACB to confirm that it looks sensible.


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## james4beach (Nov 15, 2012)

I thought I'd share what I learned by running some calculations and comparing to TD's reported Book Value. I looked in detail at some TSX iShares holdings going back to 2007.

Good news: it seems that TD has accurately tracked the ACB, _including_ reinvested distributions and ROC, over many years. So it looks like you can just use TD's number without having to do any calculations yourself, for long-term ACB tracking.

To verify this I calculated ACB myself (increase acb for reinvested distributions, decrease acb for roc) over these 7 years.

For XSP, my ACB is within 20 cents (absolute value) of TD's. This fund has a ton of reinvested distributions.
For XIN, my ACB is within 2 cents of TD's. This fund has significant ROC, eliminating them from my calc throws my ACB way off.

Those are virtually precise matches via my own calculation. At this point I'm quite confident TD is properly including all distributions that affect the ACB. This is great, I'll just use their "Book Value" column!


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## humble_pie (Jun 7, 2009)

i'm not sure TDDI is accurately tracking the intermittent special dividends paid out by some of the big iShares funds. Don't know about XSP, but from time to time XIU does pay out a special dividend. They are extremely difficult to trace.

special dividends are taxable as capital gains in the year received, but they neither pay as cash nor do they result in additional units for an investor (this concept causes anguish for many unitholders.)

special dividends are to be used to adjust cost base *up.* ROC, on the other hand, adjusts cost base down, while not being taxable in the year received.

a shareholder who fails to utilize special dividends to adjust cost base upwards will, indeed, end up paying capital gains twice on the aggregated amount of the specials ... as i mentioned, i'm not sure that TD or any other broker is tracking this detail correctly, since the special dividends are not paid in any regular or consistent pattern.

accountants are not very good, either, in taking these details into account ...

all the more reason why individual investors have to be tax-smart for themselves.


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## pwm (Jan 19, 2012)

Thanks for the update j4b. I took another look at the notes I made in last years income tax file. TDDI DID apply the notional distributions that I received for XRE, VEE and VDY. They increased the ACB correctly. (XRE was a huge one, over $2400, which is why I checked the others as well at the time). On the other hand, they did NOT apply the ROC to the ACB for ZRE, CPD, XRE, VFV, VEF, and VEE. I did those manually in Webbroker.

Although I don't doubt your calculations j4b, and I too have seen them do ROC correctly for some of my holdings as well, they don't appear to be consistent. The whole process is very confusing, and I doubt that many investors are actually able to state their correct ACB after many years of holding these type of securities.


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## james4beach (Nov 15, 2012)

Thanks for the notes pwm and humble_pie. So it appears there may still be special distributions and some ROC that is not included properly. Nuts.

I only ran detailed checks on XSP and XIN from 2007-2014 but you're right, just because they got these right doesn't mean others don't slip through the cracks.

The numerical-precision guy in me says, "arrgh, why is it impossible to easily account for ETF distributions??"
The practical guy in me says, if I can't track it perfectly, CRA can't either... unfortunately the inevitable result is I will over-pay taxes on ETFs.


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## humble_pie (Jun 7, 2009)

u are right, it is nuts. Probably other brokers are not doing even as good a job as the big green.

the way i see it there are only 2 solutions:

1) go like Eclectic & keep detailed records from the getgo. Don't forget that Ec once said his spreadsheets are so elaborate that he allows one full Excel page per security ...

one should keep in mind also that it might comfortably take a year to learn Ec's system;

2) the other solution is pure heresy. It goes Don't Own ETFS, Own Stocks Instead.

(yea i know your hair is standing on end & poor pie has become day-old toast for launching this idea)


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## james4beach (Nov 15, 2012)

Well the ETFs are basically mutual funds. Do we have these same issues with mutual fund distributions?

What's different with ETFs?


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## pwm (Jan 19, 2012)

TDDI handles re-invested distributions for mutual funds correctly. You are deemed to have received the cash and bought more units at the NAV at that time. I know this because Quicken does it correctly, and it matches TDDI's ACB. The problem seems to be with ROC and the notional distributions that you see with ETFs. 

I wonder how well they do with ETF's when they are being DRIP'd like mutual funds. Can't say because I don't have any.


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## james4beach (Nov 15, 2012)

humble_pie, you're going to love this. I may soon just invest in individual stocks.

It's because of what the IRS is doing to me. Because I will have to report all foreign holdings, the IRS needs to know about my Canadian ETFs (and any mutual funds). The IRS calls them PFICs and wants ridiculous paperwork detailing them. My accountant says that the reporting has been very problematic in her experience and now I'm considering ditching all my ETFs. (I may keep some in the RRSP)


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## humble_pie (Jun 7, 2009)

james4beach said:


> (I may keep some [ETFs] in the RRSP)


.

i believe, though, that the IRS regards a canadian RRSP like any other ordinary non-registered investment account; so washington would tax ETF distributions in an RRSP regardless.

what would happen if you were holding TD bank? i haven't checked, but it's possible that the capitalization of TD bank is greater than the portfolio holdings of a smaller etf such as XIC.

i also think that the diversification of a large bank is as great as the diversification of an etf like XIC. I mean, the bank has clients in every single industry & corner of the economy that is imaginable.


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## james4beach (Nov 15, 2012)

humble_pie said:


> .
> i believe, though, that the IRS regards a canadian RRSP like any other ordinary non-registered investment account; so washington would tax ETF distributions in an RRSP regardless.


They do by default, but (the newish) Form 8891 can be filed with the IRS to use the exemption granted under the US-Canada tax treaty.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... 1) go like Eclectic & keep detailed records from the getgo. Don't forget that Ec once said his spreadsheets are so elaborate that he allows one full Excel page per security ...
> 
> one should keep in mind also that it might comfortably take a year to learn Ec's system; ...


Hmmm ... there might some added here.

I did say I kept one sheet per security but that was because a lot of securities have been held a long time plus I like to use the sheets to group by investment. The sheets themselves are basic.


If one has mastered the ins-outs of the different transactions, which there are only a set number of (ex. RoC, DRIP, Buy, Sell, Commission, Special Dividend) - it is similar to a cheque register. The lion's share of the time is in the understanding of what to record. After that, the organisation is simple.


Cheers


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