# "Notional distribution" question



## vidm (Mar 4, 2012)

I have a question about distributions.
I created myself excel spreadsheets that track my investments and loaded data into them from my bank. I noticed about 400$ difference and started investigation.
So at the end of 2010 I had 703 shares of "ISHARES SP/TSX GL GLD ETF" (symbol XGD). On Jan 8th 2011 they paid distribution with type "Total Capital Gains" for amount of 396.94. Normally these type of distributions come into my account as cash deposit. Not for this case. This amount came into my account and was right away deducted with type "Dividend reinvestment plan". I checked and I confirmed that actuall number of shares for this ETF did not change in my account, so they did not added more shares. I called my bank and had investigation on this. At first they could not understand themselves, but then their tax department informed them - this was so called "notional distribution". I was told that such distribution increases my book value of the shares. Is that true? If so, why this type of distribution then mixed in with other distribution types?
I know about distribution type "Return of capital" - because that reduces my book value for tax purpose. But bank clearly separates this type of distribution when sending yearly report so I could clearly identify it and apply to my purshares. But I never heared of "Notional distribution" - is anybody aware of them? Is my understanding about this type of distribution correct? 

There was no way I could identify this if I would not use my own tracking spreadsheets.


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## CanadianCapitalist (Mar 31, 2009)

vidm said:


> I was told that such distribution increases my book value of the shares. Is that true? If so, why this type of distribution then mixed in with other distribution types?


Capital gains distributions of this kind are quite common. It means that the fund realized capital gains and the proceeds were reinvested in some other security. Cash was not distributed to investors but they still have to pay tax on the capital gains realized within the fund. As you point out, the reinvested capital gains will result in an increase in the ACB. 

Interestingly, XGD made another capital gains distribution on 4-Jan-2012 that you should be accounting for as well.

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


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## vidm (Mar 4, 2012)

Thanks CanadianCapitalist,

Thanks for confirming that I understand this taxing issue right. What bothers me - is that this type of distribution is not clearly separated in the forms bank sends me, so there is very high chance that me or many other people will overpay tax in such case. For some reason bank clearly separates info on "Return of Capital" distribution because that requires to pay more tax. But they hide/mix it in with other distribution "Notional distribution" and most people will have no idea that they have to increase their ACB by that amount and this way save on tax.
As you pointed out XGD paid another distribution in December. I had no idea about it - because this year there is no info about that on my statements. There is no credit/debit lines for that amount, so I was not aware of it at all. I have not received yet "Summary of trust income" from my bank for 2011, hopefully info will be in there and now I will know that I have to make a note of this type of distribution.

Thanks again for your help.


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## andrewf (Mar 1, 2010)

I imagine that the capital gain is a result of hedging activity. Yet another reason to own IAU/GLD instead.


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## chris_goulet (Mar 25, 2013)

I would like to add to this older post because it comes up fourth in Google for "notional distributions" and has been viewed over 1300 times. I have useful info for people who are searching this:

I have both an RBC Direct Investing and a TD Waterhouse brokerage account. I verified that in both accounts, notional distributions correctly INCREASE the Book Value (ACB) reported on the statement of the month of the distribution and that return of capital (R.O.C.) correctly DECREASE the Book Value reported on the statement. Also, I verified that the notional distributions are correctly reported on the T3 issued the following February in box 21 (Capital gains) and that the R.O.C. is correctly reported on the T3 in box 42 (Amount resulting in cost base adjustment). These are also listed on the "Statement of trust income allocations/designations". So people can use the Book Value on the statements to correctly report their capital gains/loss on their T1 General return.


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