Tax Breakdown Service for ETF’s and Trusts from CDSInnovations.ca

AdjustedCostBase.ca now offers a streamlined method for importing phantom distribution and return of capital transactions for many exchange traded funds (ETF’s), publicly traded mutual funds, income trusts and real estate investment trusts (REITs).  Learn more about this feature.

When you own exchange traded funds (ETF’s), trusts, or other kinds of publicly traded funds, your brokerage should provide with a T3 slip every year showing the tax breakdown of the distributions that were paid out.  The information contained on the T3 slip is vital for completing your tax return as well as for updating your adjusted cost base balances.

However, it may not always be prudent or rely on your brokerage to send you this information for the following reasons:

  • If you own multiple funds your brokerage may send you a single T3 slip covering all distributions for all the funds.  This is problematic because your adjusted cost base needs to be calculated separately for each security you own.  For example, if you’ve received distributions in the form of return of capital, you need to know the allocation of return of capital for each security for adjusted cost base to be correctly calculated.
  • On occasion incorrect information may be reported on a T3 slip.
  • T3 slips can get sent out very late in the tax season.  They are only required to be sent out by March 31st.  Many brokerage will wait until this deadline to mail them out even if the necessary information is available before then.
  • Non cash distributions (also known as reinvested capital gain distributions or a phantom distribution”) are not specified on T3 slips.  Not factoring this information into your ACB calculations will result in too much tax being paid.

A solution to these issues is to access an online service provided by CDS Innovations Inc.  They provide the tax breakdown of all Canadian public mutual funds and limited partnerships.  This includes all ETF’s and income trusts.  The data is provided in the form of Excel spreadsheets that list the breakdown of the distributions per unit.  By using this service you’ll usually be able to access the information sooner (most funds/trusts will release their tax breakdown information before the end of February) and ensure that everything is accurately recorded.

Tax breakdowns are usually provided by ETF providers and trusts on their web sites.  However, this information can be difficult and cumbersome to track down.  CDS Innovations Inc. provides everything in one place.

The tax breakdown service from CDS Innovations Inc. can be accessed here:

CDS Innovations Inc. Tax Breakdown Posting

CDS Innovations Inc. Screenshot

Unfortunately the securities are not listed by ticker symbol so it can sometimes be hard to find the one you’re looking for.  To access the data click on the Microsoft Excel file icon in the “Form” column.

As an example, let’s look at the T3 tax form for XDV (“ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND”) for 2013.  When you first open it up in Microsoft Excel, you may see the following warning about enabling macros:

Microsoft Excel Enable Macros

You will need to click on the “Enable Content” button to enable macros (the file is from a trusted source).  After macros are enabled you should see the following:

XDV T3 Form

This forms shows the tax breakdown of the distributions for XDV for 2013 broken down for each distribution.  Many of the rows, such as Actual Amount of Eligible Dividends (49) and Foreign Business Income (24) are immediately taxable for the current year and must be reported on your tax return.

The following rows are relevant towards tracking your ACB and reporting capital gains:

  • Total Non Cash Distribution ($) Per Unit
  • Capital gain (21)
  • Return of Capital (42)

The “Total Non Cash Distribution ($) Per Unit” is a distribution that has not been distributed as a cash dividend.  Rather, it has been reinvested in the fund.  This is also known as a “Reinvested Capital Gains Distribution” or a “Phantom Distribution” (since the funds are reinvested but the unitholders do not receive any additional units).  These amounts should be added to your ACB.  Since this type of distribution results in an increase in ACB, it has the effect of reducing your capital gain when the units are eventually sold.  So if you ignore these distributions, you’ll end up paying more capital gains tax than you need to.  The amount is shown as a per unit value, so you’ll need to multiply it by the number of units you own.  Non cash distributions are often paired with a capital gains distribution of equal value.

A “Capital gain” distribution occurs when a dividend is paid out but it’s taxed as a capital gain.  This can occur when a fund sells holdings, resulting in a capital gain, and this capital gain is distributed to unit holders.  The capital gain must be reported on your current year’s tax return (it should appear in box 21 of your T3 slip).  A capital gain distribution does not affect ACB.

Finally, a “Return of Capital” distribution is cash that’s returned to unit holders but isn’t immediately taxable.  ACB should be reduced by the amount of the return of capital distribution.  Since ACB is reduced, this has the effect of increasing your capital gain once the units are eventually sold.  If you fail to account for a return of capital distribution, you’ll be evading taxes.

The distributions for the year are each listed separately.  For the case of XDV in 2013, there were 12 monthly distributions.  If you made no purchases or sales of XDV for the year (i.e., the number of units owned as constant throughout the year) you can simply sum up the total annual amounts for each row.  Otherwise, you should calculate each month separately.  Pay close attention to the “Record Date” row for each distribution.  Each distribution applies to a unit if and only if the unit was owned on the “Record Date.”

AdjustedCostBase.ca supports the tracking of ACB and capital gains for the distribution types mentioned above.  Below is an example of how to enter the distribution for December 31, 2013 (distribution #12):

XDV Distribution #12

In this case the distribution contains a capital gain and an eligible dividend distribution.  These would appear on the T3 slip you receive from your brokerage and would be included in your tax return for the current year.  The distribution also has a non cash component and a return of capital component.

Let’s assume that 1,100 shares of XDV are owned on the record date of December 31, 2013, with a total ACB of $27,570.

The “Total Non Cash Distribution ($) Per Unit”  and “Capital gain” components can be entered jointly as a “Reinvested Capital Gains Distribution” transaction as follows:

Reinvested Capital Gains Distribution

Since no new units were issued, enter 0 for the “Additional Shares Purchased/Received” field.  The distribution amount is specified as $0.11827 as shown on the T3 form from CDSInnovations.ca.  This has the affect of increasing the total ACB by:

  1,100 units x $0.11827/unit
= $130.10

Next, the “Return of Capital” transaction must be accounted for as a “Return of Capital” transaction type:

Return of Capital Transaction

The amount is entered as $0.00382 per share as shown on the T3 form.  This has the affect of decreasing the total ACB by:

  1,100 units x $0.00382/unit
= $4.20

You must also account for the other 11 transactions for the year, although the rest of the transactions do not have a non-cash or capital gain component.

Let’s assume that the following purchases were made for XDV:

  • Initially buy 1,000 shares for $25.00 on January 2, 2013 with a $10 commission.
  • Buy 100 shares for $25.50 on July 10, 2013 with a $10 commission.

The complete list of transactions for XDV for 2013 would appear on AdjustedCostBase.ca as follows after entering all 12 distributions:

Transactions for XDV

If the number of units owned was constant throughout the year, we could have combined the 12 return of capital transactions into one.  Since the number of units was constant for the first 6 return of capital transactions they could be combined into one (ditto for the last 6).

6 thoughts on “Tax Breakdown Service for ETF’s and Trusts from CDSInnovations.ca

  1. Spencer

    Hi There, I’m so very close to the information / data I need! I’m a recent registrant to your web site’s helpful services & have just set up my portfolio. I thought I’d explore the CDS Innovations tax breakdown services to verify if I have captured all of the Return of Capital, Capital Gain, and Total Non Cash Distributions per Unit for my few holdings and verify my own historic record keeping at the same time. (I’m attempting to check to see how accurate my record keeping & reporting has been since the 2014 & 2015 tax year, just ahead of this year’s 2016 tax year deadline.). Your helpful introduction to the CDS Web site and it’s downloadable data is very good. However, I’ve encountered a technical hurdle that I’m hoping you may have some insight or may have been alerted to by any other users. For instance, when I access the investment’s 2014 T3 (same issue for other years), I open up the spreadsheet (as indicated above). However, I’ve noticed that the spreadsheet will not update when I change the Calculation Method from PERCENT (which is the default upon initially opening the spreadsheet) to RATE. This is, of course, even after enabling macros. I’m using Microsoft Excel 2007 and have noted that CDS Innovations indicates their template is compatible with Excel 97 and 2003 versions. I’ve even contacted CDS Innovations Support however, they instead refer me to the investment dealer for that particular investment (contact information on the spreadsheet). (The investment dealer supplies the data; however, the spreadsheet template reporting the data seems common to all of the investment dealers reporting their data to CDS Innovations so it would almost seem that the spreadsheet template is proprietary to CDS Innovations. I’m wondering if you have heard whether any other users have reported similar challenges and if there is a solution. Otherwise, I would likely have to look up each fund family separately. This would be a further challenge since recent tax years are available, however, previous tax years may require further follow-up with the investment dealer.

  2. AdjustedCostBase.ca Post author

    Spencer,

    The PER CENT / RATE drop-down menu is intended for the accountants filling out the forms to use in order to indicate the nature of the values being inputted, rather that for readers of the data to toggle between dollar amounts and percentages.

    Note that AdjustedCostBase.ca Premium provides a user-friendly means for you to access fund tax data and import it into your calculations:

    https://www.adjustedcostbase.ca/blog/streamlined-import-of-return-of-capital-and-phantom-distributions-and-for-exchange-traded-funds-etfs-publicly-traded-mutual-funds-and-trusts/

  3. AdjustedCostBase.ca Post author

    Emilia,

    US-listed ETF’s should not generally make distributions that involve return of capital or phantom distributions. The distributions are normally taxable as foreign income no matter how the distribution might be categorized by US tax law.

  4. emilia

    Thanks. So, even if the US listed ETF has a return of capital portion in their distribution, is it taxed as income or capital gain?

  5. AdjustedCostBase.ca Post author

    Emilia,

    It’s my understanding that income from a US-listed ETF is taxed as foreign income even if it’s considered to be the equivalent of ROC in the US (and there is also no reduction in ACB).

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