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ETFs and Phantom distributions


rukawa
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Basically when an ETF reinvests cash from stocks it sold into other stocks instead of distributing the money to you, it affects your ACB and its in your interest to track these distributions when you sell the stock. Its explained in more detail here:

https://www.adjustedcostbase.ca/blog/phantom-distributions-and-their-effect-on-adjusted-cost-base/

 

Most investors don't do this...I certainly never have although thankfully I have never sold an etf. If you don't adjust the acb then are paying tax twice when you sell the etf.

 

So anyone who has sold an ETF in the past year should pay careful attention to this as it could have a big impact on the taxes you will pay.

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Additional comment on the topic of reinvested or "phantom" distributions.

 

-For Canadian investors who hold "foreign" ETFs, all annual returns of capital and reinvested distributions would constitute foreign income and therefore result in 100% taxable income. The adjusted cost base calculation still applies though.

 

https://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm

 

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