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Stocks, Bonds etc. -> Investing Tax Issues -> Exchange-traded funds (ETFs)Tax treatment of income from investments in exchange-traded funds (ETFs)This information is regarding investments which are held outside of RRSPs or other registered accounts. ETFs are funds whose goal is to achieve the same return as a stock index. The MER, or management expense ratio for ETFs is much lower than for mutual funds, and there are no front end or back end loads (fees) for ETFs. They are traded like a stock, with brokerage commissions paid on the purchase and sale. There are many types of exchange traded funds available, such as SPDRs (Standard & Poor Depository Receipts, also know as Spiders), iShares (Canadian and US), Diamonds, and others. Distributions made by foreign ETFs to Canadian shareholders are usually considered foreign dividends, 100% taxable. Distributions made by Canadian ETFs to shareholders can consist of
The distributions that are declared may not necessarily be paid to shareholders. Part or all of the distribution may be reinvested, not paid in cash. The amount of the reinvested distribution is added by the shareholder to the adjusted cost base of the shares in the ETF. Distribution and tax information for exchange-traded funds can usually be found on the websites of the companies providing the ETFs. However, the tax information is not usually available until after the end of the year. When shares in ETFs are sold, the resulting gain or loss is a capital gain or loss. If shares are sold at a loss, and then repurchased within 30 days by you, your spouse, or certain other persons affiliated with you, this is considered a superficial loss, and may not be deducted from income. US estate tax may be payable by Canadian residents on US assets owned at the time of death, including shares in US corporations. We have been unable to confirm if investments in foreign ETFs traded on US stock exchanges would be subject to US estate tax. | |||||||||||||
How do I calculate the capital gain when I sell my Canadian ETFs?If you hold Canadian ETFs in a non-registered account, you must keep track of your ACB, or "adjusted cost base" for each ETF. The ACB of your investment in an ETF will be the total of:
When you sell some or all of your shares, your capital gain or loss is:
Tax tip: Keep good records so that you can calculate the ACB of your Canadian ETFs.
For more information on ETFs, see the following web sites:
Revised: November 04, 2011
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