# How Diversified Monthly Income Fund taxation works



## akatsiya (Oct 20, 2011)

Hi EVERYONE

Please help I am confused.
Would somebody please tell me, how does taxation work for Diversified Monthly Income Fund such as XTR?
It can have capital gains, interest, dividends from Canadian and foreign bonds shares and reits. 10 different ETFs in one ETF. How do I know what money came from dividends and what from interest and what is Canadian part of my income ? If I sell it how much of capital gain/loss do I have from foreign vs Canadian securities? How do I deal with CRA at the end of the year?


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## slacker (Mar 8, 2010)

chillax.

At the end of the tax year, the fund provider will provide you with a T3 (not T5), detailing what you need to fill in your tax return. This addresses income (aka distributions) generated from the ETF (or mutual funds)

But what about capital gains distributions and ROC?

You may receive something called a T5008 summary. If not you'll need to go through your trading summaries.

Now take this information, go to http://adjustcostbase.ca and fill it all in, including ROC, trading commission, capital gains distributions, buy, sell. All this will help calculate the adjusted cost base, and determine your capiltal gains and loss. You need to do this even if you did not do any selling in your tax year, because ROC affects your ACB, and you are responsible for tracking it correctly. CRA will not assist you here.


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## FrugalTrader (Oct 13, 2008)

if you are worried about the taxation, then you may want to consider moving the investment to a tax sheltered account (rrsp,tfsa)


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## akatsiya (Oct 20, 2011)

Hi Slacker and Frugal trader
thanks for your replays
it is a little bit clear now but I am still confused

as I know TFSA and RESP will not help me any when it comes to US ETFs. RRSP will indeed help. Am I correct?

So lets say I keep VWO in my RRSP which is US ETF but it invests in emerging markets. Will The Canada/US tax treaty apply here? I mean this is US made ETF but all securities are from different markets(not from US).

thank you in advance


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## slacker (Mar 8, 2010)

For non-reg accounts, I don't think there'll be a proper way of reporting to the CRA which cent of your dividend came from Cambodia, which cent came from Vietnam. I've heard that most people simply report USA or n/a in the tax return.

This is a confusing topic ...


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## akatsiya (Oct 20, 2011)

OK For non-reg accounts, if I have a Canadian ETF which invests in foreign markets can I simply report it as Canadian income? I am sure somebody on this forum keeps claymore emerging markets. How do you report it? as Canadian or non Canadian income?
thank you in advance


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## slacker (Mar 8, 2010)

I have no idea, but most foreign market etf's, there could be dozens of countries. I think some people put in n/a. As usual take tax advice from the internets with grains of salt.


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## Financial Cents (Jul 22, 2010)

akatsiya said:


> So lets say I keep VWO in my RRSP which is US ETF but it invests in emerging markets. Will The Canada/US tax treaty apply here? I mean this is US made ETF but all securities are from different markets(not from US).


Tax treaty applies for RRSP. Not for TFSA.

Here are some rules of thumb:

• U.S. stocks held inside an RRSP or LIRA – you don’t pay withholding taxes.
• U.S. stocks held inside an RESP or TFSA – you pay 15% withholding taxes.
• U.S. stocks held in unregistered accounts – you pay 15% withholding taxes PLUS tax at your full marginal tax rate.

Some of the information you can find in the iShares prospectus, just for an example:

"Distributions paid on the shares of a U.S. iShares Fund are generally classified as dividends under U.S. tax rules and therefore subject to U.S. withholding taxes, even where the distributed income results from interest 
payments on fixed income securities. Interest income arising from direct investments in U.S. fixed income securities is generally not subject to U.S. withholding taxes."

Summary? You will have no withholding tax on VWO in RRSP. 15% withholding tax when VWO held in TFSA. 

Happy Investing.


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## akatsiya (Oct 20, 2011)

thank you all for your replays

Can somebody comment on my previously posted question?

"For non-reg accounts, if I have a Canadian ETF which invests in foreign markets can I simply report it as Canadian income? "

I am sure somebody on this forum keeps claymore emerging markets. How do you report it? as Canadian or non Canadian income?

Not that many responses is it because this question too complicated or too simple? 


thank you in advance


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## slacker (Mar 8, 2010)

here you go:

http://www.claymoreinvestments.ca/etf/fund/cwo/distributions


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## akatsiya (Oct 20, 2011)

thanks Slacker
So I understand that foreign tax has been paid by ETF itself and so I do not claim it as foreign income. rather I claim it as Canadian. Am I correct?


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## slacker (Mar 8, 2010)

sigh, I don't know. You'll receive a T3, and it'll instruct you on which box to fill in which number. You don't have to make any decision.


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## akatsiya (Oct 20, 2011)

thank you


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