# Couple questions about ETF/mf cap gains



## james4beach (Nov 15, 2012)

My dad is doing very last minute taxes, _by hand_, and I worry for him. He seems unfamiliar with the process of calculating cap gains/ACB and reporting it on Schedule 3. He has some big transactions like 35K of an ETF sold this year and I'm providing some help so he doesn't forget to report the cap gains.

A few questions for the forum

1. Obviously with an ETF, we track the ACB (which I've done for him) and use proceeds of disposition to calculate capital gain/loss, enter into Schedule 3. There is no tax slip that automatically tells you this number for ETFs. How about mutual fund units? Do you do the same kind of ACB tracking with them, or is it easier to see what your cap/gain loss is for Schedule 3?

Or perhaps mutual funds somehow put that value into a T3 ? ETFs do not -- one calculates it themselves and references their T5008.

2. For spouses (my parents) it looks like investment income can be reported according to who contributed how much, perhaps effectively splitting the income/gains. That seems pretty straightforward for things like interest income. But how about with capital gains on securities, where you have to fill in shares sold, ACB, etc? To report for both spouses, do you adjust each of those numbers (e.g. half the shares, half the ACB)? That seems really wonky


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## james4beach (Nov 15, 2012)

For any of you wondering why I'm so involved with this. I'm feeling guilty, because I helped my parents set up an ETF portfolio nearly a decade ago, and it's doing great. However it's all non-registered and neither I (nor they) understood at the outset how we'd have to track the ACB etc, and what kind of weird T3s were going to come.

By the way the T5008 they got this year has an empty "cost" column, so the broker did not enter the ACB onto there. It's showing 35K of disposition and nothing under cost, so my dad is worried about justifying the number that I told him (based on my spreadsheet).

And my parents don't seem to have understood yet that any non-reg ETF or MF they sell will generate a taxable event they must report on Schedule 3. My message isn't getting through on this topic.


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## james4beach (Nov 15, 2012)

Answering my own question, yes it looks like for non-registered mutual funds you have to do the same ACB tracking just like ETFs: http://www.cchwebsites.com/content/pdf/tax_forms/ca/en/rc4169_en.pdf

I have a hard time believing that most mutual fund investors are properly tracking their ACB and reporting the amounts manually on Schedule 3. So how does the CRA handle this? I'm having trouble coming to grips with the fact that my dad has been investing in mutual funds for over 30 years but apparently has never filled a Schedule 3


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## OnlyMyOpinion (Sep 1, 2013)

Sounds like a short fuse on this thread. Yes etf and MF ACB's treated tracked the same. Be aware of potential return of capital payments along with dividends. These would be shown on historical T slips but if you have just tracked ACB based on new shares bought via DRIP then you will have lumped these amounts which is not correct.

In my experience a recent T5008 will not help you with ongoing cost or ACB. Historical T5008's should show purchases but would need to gather them since day one and summarize them as you have been doing anyway.

In my experience, if it has been held in the same account since the initial purchase, drips, etc., then the book value the account reports should be the same as the ACB I have tracked - take a look at the account's BV and see if it is close to what you are calculating. What I am not sure of however is whether etfs/MFs that have had a return of capital component to past payments still show a correct BV that matches the ACB. Worst case, if necessary I would use the BV reported in the account statement issued just before I sold my units. But you know of course that using an account BV does not absolve you of having the numbers correct as far as the CRA is concerned.

If you have never sold there would be no reason to use a schedule 3.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... 1. Obviously with an ETF, we track the ACB (which I've done for him) and use proceeds of disposition to calculate capital gain/loss, enter into Schedule 3. There is no tax slip that automatically tells you this number for ETFs.
> 
> How about mutual fund units? Do you do the same kind of ACB tracking with them, or is it easier to see what your cap/gain loss is for Schedule 3?


The articles I have read say that for ETFs, MFs, REITs, stocks, split shares etc., one calculates the ACB onself.

The wrinkles to the ETFs are the RoC and Phantom Distributions ... though my yearly T3's that roll up a couple of REITs (and used to have one ETF until I transferred it to my TFSA) have a number in box 42 "Amounts resulting in cost base adjustments" each year.




james4beach said:


> ... Or perhaps mutual funds somehow put that value into a T3 ? ETFs do not -- one calculates it themselves and references their T5008.


Not that I have seen anyone post and the articles such as the link below seem to say the investor has to take care of it.
http://www.taxtips.ca/personaltax/investing/taxtreatment/mutualfunds.htm

The few MFs I have held were in registered accounts where this did not come into play.


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... [ETF portfolio] it's doing great. However it's all non-registered and neither I (nor they) understood at the outset how we'd have to track the ACB etc, and what kind of weird T3s were going to come.


I am not clear on what "weird T3s" you might be getting. As I understand it, like a REIT - the key is to capture the yearly breakdown of cash paid for RoC and dig out if a phantom distribution happened.

As long as the wrinkles are taken care of, the ACB is buys and sells as per usual.

Or you can try using http://www.adjustedcostbase.ca/ or similar.




james4beach said:


> ... By the way the T5008 they got this year has an empty "cost" column, so the broker did not enter the ACB onto there. It's showing 35K of disposition and nothing under cost, so my dad is worried about justifying the number that I told him (based on my spreadsheet).


??? ... unless the purchase was in the same year, I have never seen a cost entry in a T5008 for *any* investment.

If he wants a rough estimate, he can try looking at the broker's cost column from the last statement just before the sale. It may be missing RoC and phantom distributions but as long as he hasn't changed brokers, it should be in the ball park. If he is lucky, it will be a broker that has done it correctly and the two will match.




james4beach said:


> ... And my parents don't seem to have understood yet that any non-reg ETF or MF they sell will generate a taxable event they must report on Schedule 3. My message isn't getting through on this topic.


Frustrating isn't it?

Maybe you can get one of their trusted friends to deliver the same message? I found that worked for my dad.


Cheers


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## AltaRed (Jun 8, 2009)

james4beach said:


> 2. For spouses (my parents) it looks like investment income can be reported according to who contributed how much, perhaps effectively splitting the income/gains. That seems pretty straightforward for things like interest income. But how about with capital gains on securities, where you have to fill in shares sold, ACB, etc? To report for both spouses, do you adjust each of those numbers (e.g. half the shares, half the ACB)? That seems really wonky


Tax software allows one to assign a percentage of the sale to each spouse. Example: Sell 500 shares, split 50/50. A 250 share sale shows up on one tax return and an identical 250 share sale shows up on the spousal return. If doing tax returns by hand, do the same thing... split the entry according to the right percentage between each spouse, including acquisition cost and selling cost (commission).


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## AltaRed (Jun 8, 2009)

J4B, obviously Schedule 3 only comes into play when a sale is made and that is where a lot of taxpayers make errors. I suppose the complexity of your Dad's problem depends on how many sale transactions have been made over the years. If there have been several over the years, then there is really an issue here and it would be surprising why CRA has not already been making queries (all sales transactions get reported by FI's to CRA). CRA should have been asking 'where are your cap gains reporting?' If there has only been a few sales in the last few years, it may be that CRA has not yet caught up via their matching algorithms.

For now, given tax deadline is today, I would suggest your Dad simply fil in Schedule 3 as best he can for 2015 sales transactions with a WAG on acquisition cost. Then take the next few weeks, to a month, to sort out what are the real facts and then file T1-ADJs for each year to correct Schedule 3 data.

Mutual fund companies will have all the data for all the years your parents have had mutual funds and they will provide the data upon request. I had to do this in 1993 for my Dad's Final T1 return. He had mutual funds since retirement in 1978 and I had to retrieve all 15 years of data from mutual fund companies. ETF providers likely cannot do the same thing for ETFs held in street name with a brokerage but the brokerage probably can supply the ETF data via 2 bits of info: the T5008/Annual Trading Summary and the income and expense summaries that comes with the T3 tax slips. 

What your father (and mother?) needs to do is to make a written request to each of the brokerages and mutual fund companies, simply saying that he/she forgot to keep track of buy and sell transactions, and income distributions over the years and to provide duplicates (or summaries) of each of the transactional activity for each asset. It may take a month or so to get all this. OTOH, it is possible your parents kept all the paperwork and it is a matter of going through all the statements to find the data. Sounds like it could be a big job (or not) and maybe easiest for your parents to have a tax accountant now sort it out (at some cost obviously).

Added: I suspect mutual fund companies and brokerages get these requests on a daily basis, especially from exeutors of estates. So it would not be out of the ordinary for your parents to make these requests (should they need some convincing to actually undertake this effort).


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... I have a hard time believing that most mutual fund investors are properly tracking their ACB and reporting the amounts manually on Schedule 3. So how does the CRA handle this?


The same way as stocks? 
Whatever is to their benefit ... I didn't include a CL one year as I didn't have the numbers handy so rather than delay filing, I skipped it. I noticed the NOA had an adjustment to include the missed stock with a zero for CG or CL. When I dug out the numbers, I filed an adjustment get the loss.

At the end of the day, the question is when the algorithm spits out enough of a discrepancy for them to adjust or look into it. 


The other question is how many are DIY types and how many have someone taking care of this for them. Certainly my parents didn't have any taxable MFs being sold until they had 
long since passed over the number crunching to other parties.




james4beach said:


> ... I'm having trouble coming to grips with the fact that my dad has been investing in mutual funds for over 30 years but apparently has never filled a Schedule 3


Has he had them in a taxable account for that long?
Had he been selling in the taxable account?

I guess our family is exceptional in that pretty much the whole family (including my aunt) work from the idea that one should at least read up a bit on the tax implications to investing before doing it.

(Not that this saved me from making the mistaken assumption that a REIT was treated the same way as an eligible dividend paying Canadian stock! :stupid: )


Cheers


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## james4beach (Nov 15, 2012)

Thanks everyone, such great replies in a short time!



> In my experience a recent T5008 will not help you with ongoing cost or ACB.


OK, thanks for confirming that. Good to know that the T5008s are not useful for this.

I *do* actually have some accurate ACB tracking. I considered ROC and reinvested distributions of course. I'm reasonably confident in my numbers (since I know how many shares they bought in what year), but my dad just questioned where I came up with the figures and he was hoping to see proof somewhere in a document. And I want him to double check it. This is big, it's an $8,000 cap loss figure for one ETF _that nullifies other huge cap gain distributions he has_ and it's important the number is accurate.

It made me nervous giving him such a big number, that he's not well placed to verify himself, with the time pressure. And if he doesn't enter the cap loss, then he'll be over-paying tremendously on all the other cap gains.

The best answer I had to this was that "this is something you have to track yourself, and I know you haven't, but I have... here you go... and you can grab a TDDI statement from the month prior to selling to check that this number is the cost base"

When down to the wire, I took the gamble and said -- yes, I'm confident in this 8K cap loss figure, I suggest you use it rather than failing to report it. This is why I'm sweating. [1]



AltaRed said:


> For now, given tax deadline is today, I would suggest your Dad simply fil in Schedule 3 as best he can for 2015 sales transactions with a WAG on acquisition cost. Then take the next few weeks, to a month, to sort out what are the real facts and then file T1-ADJs for each year to correct Schedule 3 data.


Yeah, I think some adjustments may be in order. The real problem is that I have not yet convinced him that he must dedicate the time and attention to this. I've certainly given him all the info to proceed on the immediate filing, Schedule 3 will be filled to the best information / best of ability / best faith



> If you have never sold there would be no reason to use a schedule 3.


I'd say that's what I guess has happened. But he's also certainly gotten T3s over the years showing capital gain distributions, and those should have appeared on a Schedule 3, and that's why I'm nervous he hasn't seen Schedule 3 before.



Eclectic12 said:


> The articles I have read say that for ETFs, MFs, REITs, stocks, split shares etc., one calculates the ACB onself.


OK, thanks for confirming this as well. That's what I thought.

[1] If anyone wants to help me sleep better at night and check that I haven't given him horrible data, here's the data behind the 8K loss figure that I'm telling him to use.

1500 XIN purchased 2007-11-14 at $28.35 total cost $42,534.99
1500 XIN sold 2015-08-20 at $23.40 ish, total proceeds $35,084.01


```
ACB starting point 28.36
2007	reinvest		+0.83897
2007	roc		-0.09628
2008	roc		-0.04181
2009	roc		-0.15826
2011	roc		-0.01809
2012	roc		-0.01801
2013	roc		-0.01965
2014	roc		-0.02024
2015-06-17	roc		-0.01494
Ending ACB	28.80835
```
My figures show,
ACB = $43,212.53
Proceeds of sale = $35,084.01
And capital loss = −8,128.52


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## AltaRed (Jun 8, 2009)

Looks right without checking specific arithmetic. The only ghost that may be there would be phantom re-invested distributions, but that is to your father's loss, and to the gov'ts gain. Ignore that aspect for now.... I agree with your assessment.

Added: Regarding income distributions on an ongoing basis, and types of income, yes, there could/would be cap gains that goes on Schedule 3 but I would think your father would have done that IF he was recording the information off the T3 tax slips on to his tax return correctly. The back of the tax slip is pretty clear WHERE the amount in Box 21 goes in the tax return.


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## james4beach (Nov 15, 2012)

I see what you mean. So with that distrib cap gain on T3, you can just follow the instructions and it's straightforward. Right. And if he's never explicitly sold a position, he would have never encountered the more difficult manual process.

On XIN - yeah perhaps I missed other reinvested distributions (those are the phantom ones) but at least I have that big one in 2007. To try and proof my numbers, I used yahoo finance to grab historical data. My 28.36 starting ACB is right on the purchase day, so the only way I could be getting this wrong is if I am way off on the reinvested distrib & ROCs.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... Good to know that the T5008s are not useful for this.


YMMV ... if the investments were bought after the broker started giving T5008s, then the buy transactions should show up on each year's T5008. Where one has kept copies for long enough, one could get an approximation of the cost by using the cost from each buy transaction over the years. I say "approximation" as this should be accurate for common stock but won't have RoC or phantom distribution info.

Now that I get all the documents via eServices, keeping/using the copies is a lot more feasible than when the paper copies would arrive, have to be filed etc.




james4beach said:


> ... Yeah, I think some adjustments may be in order. The real problem is that I have not yet convinced him that he must dedicate the time and attention to this.


That's where if someone he trusts can give the same message that may help. Then too, with the number of books on investing/taxes - another route to go is to get him to take one that covers ETF taxation, preferably with an example, out from the library.

At the end of the day, there are plenty of sources so if you can find one or more he will accept, it should eventually be accepted.

The other key messages IMO are that:

a) humans are involved in all of this so mistakes by the broker and/or the ETF do happen. 

&

b) like balancing a cheque book, planning for it and having a system one can live with takes this from a problematic, big job down to a tedious but short amount of maintenance each year. 

You might want to remind him that nobody cares about his money as much as he does (or whatever similar saying he might be familiar with or use).




james4beach said:


> ... But he's also certainly gotten T3s over the years showing capital gain distributions, and those should have appeared on a Schedule 3, and that's why I'm nervous he hasn't seen Schedule 3 before.


If he is doing his taxes on paper ... ouch! 
Has he complained about a puzzling small difference that is showing up on the NOA a lot of the time? That could be CRA fixing the missing CG that they have on their copy of the T3 form(s).

If he is using software, the interview process or form process may be hiding from him that the T3 CG entries are going onto Schedule 3. He might have been reporting it all along but not be aware of it as it automatically prints or is netfiled.


Re: here's the calcs to help confirm/deny

I will run the numbers when I get a chance.


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> I see what you mean. So with that distrib cap gain on T3, you can just follow the instructions and it's straightforward. Right. And if he's never explicitly sold a position, he would have never encountered the more difficult manual process ...


 .... +1 

If it was one or two entries, with some missing years (i.e. no CG income) then he might have done it properly by recording on Schedule 3, line 179. The sale GC or CL is much earlier on the form so the different look may be a source of misunderstanding.


Cheers


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## james4beach (Nov 15, 2012)

Ouch indeed! Dad keeps rushing to do last minute taxes, by PAPER each year. And yes absolutely, every year the CRA is fixing up his returns so he's definitely missing something. It makes me nervous (I'm also the executor of the estate)


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## Eclectic12 (Oct 20, 2010)

Do he skip schedule 3 completely or is his familiar with line 179?

If he is accurate with the "nothing on schedule 3" then likely one of the fixes is likely to be T3 capital gains ... *sigh*.


Cheers


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## james4beach (Nov 15, 2012)

I think one year when the CRA wanted more taxes from him, it was due to capital gain distributions from the T3s - so he's missed it at least one year. I don't know how often this happens to him. It's not just ETFs but also his mutual funds which have T3 cap gain distributions.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... On XIN - yeah perhaps I missed other reinvested distributions (those are the phantom ones) but at least I have that big one in 2007 ... My 28.36 starting ACB is right on the purchase day, so the only way I could be getting this wrong is if I am way off on the reinvested distrib & ROCs.


Both the buy and sell price is within the yahoo daily high low for those days. I put in $9.99 for buy/sell commission as that reconciled the cost total where for some reason, my number was a bit off at -8,122.52 so likely you are good.

Where did you find the 2015 RoC as the iShares page seemed to stop at 2014?
Does the 2015 RoC number of 0.01494 take into account that selling in June means missing out on the Dec 2015 distribution?


Cheers


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> Both the buy and sell price is within the yahoo daily high low for those days. I put in $9.99 for buy/sell commission as that reconciled the cost total where for some reason, my number was a bit off at -8,122.52 so likely you are good.


Great, thanks for looking at that  I appreciate it



> Where did you find the 2015 RoC as the iShares page seemed to stop at 2014?


Here's the 2015 one. Someone in this forum shared the link
https://www.blackrock.com/ca/indivi...e/2015-final-distribution-breakdown-en-ca.pdf

I've been collecting these for years. I have 2007 through 2015, kept as evidence.



> Does the 2015 RoC number of 0.01494 take into account that selling in June means missing out on the Dec 2015 distribution


Checking... yes. The iShares document lists June 0.01494 and December 0.00813, so I did use just the June one and ignored the second RoC number since the shares were gone before then.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Great, thanks for looking at that  I appreciate it


You are welcome.




james4beach said:


> Here's the 2015 one. Someone in this forum shared the link
> https://www.blackrock.com/ca/indivi...e/2015-final-distribution-breakdown-en-ca.pdf


Good to know in this age of computers and quick turnaround times, the numbers can be known for 2015 but the calendar year listing stops at 2014 ... *sigh*




james4beach said:


> Checking... yes. The iShares document lists June 0.01494 and December 0.00813, so I did use just the June one and ignored the second RoC number since the shares were gone before then.


Perfect ... now you can tell your dad that there's been independent calculation. :biggrin:


Cheers


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> If he is doing his taxes on paper ... ouch!
> Has he complained about a puzzling small difference that is showing up on the NOA a lot of the time? That could be CRA fixing the missing CG that they have on their copy of the T3 form(s).


Yes, always paper returns. Ugh.

And now he's getting audited. I'm going to help him out with that but I don't yet know what CRA's questions are.


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