TD Waterhouse - CG DIV

[rbarrett]

Hi there,

I received a CG DIV (Capital Gain Dividend) from a Canadian ETF T.COW (ISHRS GLB AGRI INDEX ETF) for $209. This was supposed to increase my AVG Basis by +$209 while leaving my OOP Historical Basis unchanged since the dividend does not appear in cash or get reinvested in any shares. All my "Dividend Types" in Fund Manager will decrease my OOP Historical Basis except for "Return of Capital" which seems to lower my AVG Basis as well. And of course Dividend Reinvestments will increase my ACB but will also increase my number of shares (not applicable here).

Any idea how to account for my CG DIV in Fund Manager? In my research this seems unique to ETFs over Mutual Funds.

See here:
http://www.taxtips.ca/personaltax/inves ... t/etfs.htm
Section: Reinvested Distributions from Canadian ETFs

Thanks,

Ray.

[Mark]

Hi Ray,

If I understand correctly you didn't actually receive cash for this dividend, but the proceeds were put back into the ETF. You ended up not owning any more shares though. Your tax cost basis should go up by the amount of the dividend, and you'll have to pay taxes on the dividend itself, even though you didn't receive it in cash. Is that all correct?

This scenario is like the dividend was reinvested, but the number of shares owned has not changed. I can think of 2 ways to handle this:

1) Fund Manager won't allow you to enter a 0 share reinvestment, but you could record a reinvestment plus a split. You could figure out how many shares that dividend would have been equal to, and record it as reinvested for that many shares, and then record a split to adjust your share balance to be correct again. For example, if you owned 100 shares, and the dividend was for 1 share, record a reinvested dividend for 1 share, and then a 100 for 101 split.

2) Record 2 distributions, one for the dividend, and an equal/opposite one for a Return of Capital type distribution. For example, record a $100 dividend, and a -$100 Return of Capital distribution. This will have the net effect of no cash, no share balance change, and increasing your tax cost basis by $100.

I think scenario #2 is probably more accurately reflecting what happened in this case.

[rbarrett]

Hi Mark,

Yes, if I use a negative value in combination with the ROC dividend type option to offset a dividend, then the numbers seem to match what I need.

Is this unique to Canada and why there isn't an dividend type option to handle this in Fund Manager?

Thanks,

Ray.

[Mark]

Hi Ray,

Glad that works. I'm not sure if it specific to Canada. All distribution types work pretty much the same way, except a couple of them (RofC and Account Fee) can be used to adjust cost basis. You can customize your own distribution type labels. To handle this without having to record 2 distributions we would have to add a new type of transaction. It is possible, but hasn't been an issue I've seen before.