# Tax implications of a mutual fund switch



## Doctor_Ed (Apr 13, 2015)

Yesterday in a non-registered account I switched a TD Canadian Index (TDB216) to its e version (TDB900). Is this transaction subject to capital gains tax?

According to an article by RBC, "If you switch between mutual funds in a non-registered account, you are deemed to have sold units of one fund and purchased units in another," so *Yes*.

But the same blurb says, "When switching between mutual funds in a corporate class structure, an investor can switch between funds with no tax cost". What? So I guess the answer is *No*. 

Is it because TDB216 and TDB900 are issued by the same company? What about if I switch to and from any other TD funds? 

The article also says I have to keep track of capital gains myself. Are there particular rules about how one goes about doing that? I mean, I guess I have to know the book value, and maybe costs.


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## Eclectic12 (Oct 20, 2010)

As I recall, corporate class MF's charge more for the privilege so I'm pretty sure the answer is no (i.e. it will be subject to capital gains).

A corporate class MF is a flavour of MF so it depends on the MF. MF companies love money so they will off a range of choices, including the corporate variety.


For the tax treatment of MFs ...
http://www.taxtips.ca/personaltax/investing/taxtreatment/mutualfunds.htm 


Cheers


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## GreatLaker (Mar 23, 2014)

The fund prospectus lists all the TD corporate class mutual funds:
https://www.tdassetmanagement.com/Fund-Document/pdf/Prospectus/TD-Mutual-Funds/TD_MF_SP_Final_E.pdf

Mutual funds fall into Trusts and Corporations. It lists TD Canadian Index fund as "Units of a Mutual Fund Trust" i.e. not corporate class.

For tracking capital gains I use adjustedcostbase.ca, although for mutual funds it is simple and well described in the document to which Eclectic12 posted a link.


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## Doctor_Ed (Apr 13, 2015)

Okay, thanks. This is new to me. 

I looked at the taxtips page. I don't think I agree that it is simple to calculate "the amount of all reinvested distributions or dividends."

I'm amazed that the banks don't issue info slips for capital gains. Don't amateur investors make mistakes doing their own?


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## Eclectic12 (Oct 20, 2010)

If it's new ... it might be helpful to borrow a book on investing that has a section on taxes, including sample calculations (ex. MF for dummies). I've also seen tax books have a good couple of chapters on investing.

As for the "reinvested distributions or dividends", as I understand it - this is published by the MF company to you through a T3 form for most MF companies or for a few, a T5 form once a year. The second source is where the investor enrolled so that the cash paid into the account automatically buys more units (in this case, you will see the number of units increasing).


And yes, investors can make mistakes in the calculations (that is one of the reasons why the MF company, broker etc. also report their numbers to CRA) but it is part of investing in a taxable account. One can take their tax return to a tax preparer but if there's an error, it is the tax payer that is responsible.


I doubt the banks would want to take on figuring out what cost should be used for shares/MF or ETF units/REITs being transferred into their hands.


Cheers


*PS*

Having assumed what I knew about stock capital gains calculations applied to REITs and lived through a painful process to get info that was no longer available ... I now check out how the investment is taxed before I buy. This way any adjustments to my bookkeeping as well as new types of calculations can be dealt with on my schedule.


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## Eclectic12 (Oct 20, 2010)

Here are some links that might help as well ...

http://howtoinvestonline.blogspot.ca/2009/01/etfs-and-mutual-funds-calculating.html
http://money.stackexchange.com/ques...ual-fund-or-etf-capital-gains-taxes-in-canada
http://www.fiscalagents.com/newsletter/4abcacb.shtml
http://canadiancouchpotato.com/2014/06/27/calculating-adjusted-cost-base-a-case-study/


Here is a sample spreadsheet ...
http://www.canadiancapitalist.com/free-acb-capital-gains-tracker-in-excel/


This link should download a good PDF from Royal Bank that covers all the details.
http://r.search.yahoo.com/_ylt=A0LE...unds.pdf/RK=0/RS=bsW8o34_Pyv0mjTe1hYKG5tj.wQ-


Cheers


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## Doctor_Ed (Apr 13, 2015)

Uh, thanks.

I wish people wouldn't say it's simple and then tell me to read a book on it and visit several tough-to-read websites. 

It's not simple, it is hard.

But I will have a look at this stuff and see how it goes.


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## lb71 (Apr 3, 2009)

If you sold all the units of that particular fund, then it is quite simple as the BV would already reflect the dividends, capital gains, etc that were reported on your T3/T5. So your capital gains would simply be MV less BV.


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## Eclectic12 (Oct 20, 2010)

It looks hard because of the volume of info to work through and understand.

Let's try an example using an ETF. 
Bear in mind that a MF will be easier to figure out as the MF company is taking care of the RoC parts that an ETF hold has to take care of on their own.

Buy Jan 2nd, 2013 200 units of XIU @ $18 with a $10 commission.

ACB = (# units x price per unit) + commission = (200 x $18) + $10 = $3610 or $18.05 per unit.

iShares web site lists the per year RoC, which is also going to affect ACB.
http://www.blackrock.com/ca/individ...ex-etf?locale=en_CA&siteEntryPassthrough=true

Per unit RoC in the distribution paid for 2013 was 0.00471

Revised ACB = old ACB + (RoC per unit x units) = $3610 + (0.00471 x 200) = $3610 + 0.94 = $3610.94 or $18.05 per unit.

No sells or buys in 2014 so repeat the RoC, where the 2014 RoC was 0.02824.

Revised ACB = $3610.94 + (0.02824 x 200) = $3610.94 + $5.65 = $3616.59 or $18.08 per unit.

Sell 150 units on Jan 15th, 2015 @ $20.80 with a $10 commission.

The ACB is already known so there's only the capital gain (or loss) left to report on Schedule 3 "Capital Gain or Loss for year 2015", part 3 "Publicly trade shares, MF units ... " on one's tax return.

The ACB that is wanted for the capital gain calculation is ACB for the units sold, which is why a lot of investors will calculate the per unit version. The tax form ACB = units sold x ACB per unit = 150 x $18.08 = $2712.


If the cash payments were being reinvested, there's nine more transactions to calculate.
For each cash payment, the monthly statement should show the number of units added and how much the cost was ... say 1 unit @ $18.50.
Revised ACB = old ACB + reinvested distribution.


Notice that the math is not complicated ... it is all simple addition, subtraction, division or multiplication. It fits nicely in a spreadsheet and if handled like balancing a cheque book (i.e. update it as soon as the info is available), it won't be tons of work.


It is tedious in a similar way to reconciling a CC statement but not as complicated as it first appears.


Cheers


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## Doctor_Ed (Apr 13, 2015)

Eclectic12 said:


> RoC


Rate of change?
Return on capital?
Republic of Cuba?


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## none (Jan 15, 2013)

Doctor_Ed said:


> Uh, thanks.
> 
> I wish people wouldn't say it's simple and then tell me to read a book on it and visit several tough-to-read websites.
> 
> ...


If it's hard then get an accountant. That's what i do. For me having my taxes done for me is worth the $300 or so. I just take one less weekend vacation per year and I think I get more enjoyment and relaxation not ever having to do my own taxes.


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## Doctor_Ed (Apr 13, 2015)

Eclectic12 said:


> It looks hard because of the volume of info to work through and understand.
> 
> Let's try an example using an ETF.
> Bear in mind that a MF will be easier to figure out as the MF company is taking care of the RoC parts that an ETF hold has to take care of on their own.
> ...


I'm sorry, but I don't know what RoC means, and that three letter word does not appear on the website that was linked. I tried to get the distribution for 2013, but could not find it on that website. The value of 0.00471 does not occur on the website.


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## Doctor_Ed (Apr 13, 2015)

lb71 said:


> If you sold all the units of that particular fund, then it is quite simple as the BV would already reflect the dividends, capital gains, etc that were reported on your T3/T5. So your capital gains would simply be MV less BV.


What are BV and MV?


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## lb71 (Apr 3, 2009)

ROC = return of capital
BV = book value
MV = market value


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## GreatLaker (Mar 23, 2014)

Doctor_Ed said:


> I tried to get the distribution for 2013, but could not find it on that website. The value of 0.00471 does not occur on the website.


http://www.blackrock.com/ca/individual/en/products/239832/ishares-sptsx-60-index-etf?locale=en_CA&siteEntryPassthrough=true

Click on Distributions (under performance). Then click on Calendar Year. Return of Capital for 2013 is 0.00471 (you may need to scroll to the right in the table to see it).


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## Eclectic12 (Oct 20, 2010)

Doctor_Ed said:


> I'm sorry, but I don't know what RoC means, and that three letter word does not appear on the website that was linked.


Sorry ... usually I put the full word with the shortcut after. For example, return of capital (RoC) and then start using the short form. Clearly I missed this but others have responded. 




Doctor_Ed said:


> I tried to get the distribution for 2013, but could not find it on that website.


I was under the impression that the navigation steps were not required as I posted the URL after the correct page was up. Thanks to GreatLaker for providing the navigation.


Another way of expressing my point is that there's lots of writing in my post to explain four transactions that use a simple formula/math. 
If you take your time and work through some examples ... what seems like a ton of reading and work may become tedious but manageable. 

Bear in mind that some of the links were included as alternatives (ex. some work through examples with numbers and some don't) so there is likely far more than you will need.


Cheers


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## Doctor_Ed (Apr 13, 2015)

Lots of obfuscation and false leads in this thread. Most likely my fault for not having read that book. 

I phoned the bank. They will be providing a Trading Summary at the end of the year. That's sufficient for now.

Thanks for the laughs, guys. Next time I'll make sure I ask a question that is not so tough.


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## lb71 (Apr 3, 2009)

You get what you pay for Doctor.


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## Eclectic12 (Oct 20, 2010)

Doctor_Ed said:


> Lots of obfuscation and false leads in this thread. Most likely my fault for not having read that book.
> I phoned the bank. They will be providing a Trading Summary at the end of the year. That's sufficient for now.


Since you were caught by surprise once for what CRA requires, I'd have thought you'd want to know what else was out there ... but if you are sticking to MFs you should be fine.




Doctor_Ed said:


> Thanks for the laughs, guys. Next time I'll make sure I ask a question that is not so tough.


Interesting approach for someone who was looking for help ...


Cheers


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