T3 box 42: Adjusted Cost Base for mutual funds

[AndyHancock]

Investment isn't my thing, and I rely on a big bank mutual fund for
both RRSP and investment in general. The T3 gives box 42 that
contains a figure used for adjusting the cost base (ACB) of fund units/
shares. The CRA explanation is at http://www.cra-arc.gc.ca/E/pub/tg/rc4169.
This seems to indicate that you have to delve into the individual
sales of units/shares, but the whole reason I went with big bank
mutual funds is that I want to treat it like a black box and not get
into the details. I get what I think are quarterly or semi-annaul
reports, which I don't often look at because I can't do anything about
the results without first finding the time to research options to a
certain level of confidence. So far, CRA hasn't complained about my
not using box 42. I'm not sure that even a paid accountant would
descend into the depths of individual transactions, since they don't
have access to those details.

Are there any clear and significant consequences of not optimizing my
tax return using that figure? I already make use of the IMA fees as
carrying charges in Schedule 4. (A pet peeve of mine is that there is
no elucidation of what IMA stands for, but they are fund management
fees of some sort). I figure that since ACB merely accounts for the
cost of transactions, then IMA plays the same role, albeit handled
differently.

P.S. Sure would be nice of usenet became moderated. Look at what has
happened over the decades.

[Sharx35]

Post by AndyHancock
Investment isn't my thing, and I rely on a big bank mutual fund for
both RRSP and investment in general. The T3 gives box 42 that
contains a figure used for adjusting the cost base (ACB) of fund units/
shares. The CRA explanation is at
http://www.cra-arc.gc.ca/E/pub/tg/rc4169.
This seems to indicate that you have to delve into the individual
sales of units/shares, but the whole reason I went with big bank
mutual funds is that I want to treat it like a black box and not get
into the details. I get what I think are quarterly or
semi-annaul
reports, which I don't often look at because I can't do anything about
the results without first finding the time to research options to a
certain level of confidence. So far, CRA hasn't complained about my
not using box 42. I'm not sure that even a paid accountant would
descend into the depths of individual transactions, since they
don't
have access to those details.
Are there any clear and significant consequences of not
optimizing my
tax return using that figure? I already make use of the IMA fees as
carrying charges in Schedule 4. (A pet peeve of mine is that
there is
no elucidation of what IMA stands for, but they are fund
management
fees of some sort). I figure that since ACB merely accounts for the
cost of transactions, then IMA plays the same role, albeit
handled
differently.
P.S. Sure would be nice of usenet became moderated. Look at what has
happened over the decades.

The original ACB of an holding is what it originally cost you, I.e.
the actual cost of the units including any commission or service
fee directly related to the purchase. When ever you get a T3 slip
for that investment which would represent either a distribution
paid by cash into your account OR a distribution paid in the form
of more units (reinvestment) AND there is a entry in Box 42, that
simply means that SOME or all of the distribution came from your
original capital. That figure should 1: be recorded on that year's
tax return in the appropriate T3 box and 2. be subtracted from the
original ACB of the fund. So, when you eventually SELL any or all
of the units in that fund, and go to calculate your capital gain or
loss, you WILL use the adjusted ACB and NOT the originally ACB,
when calculating your profit or loss. Many people will confronted
with the above, turn their taxes over to a professional to ensure
the proper reporting and calculation of losses and MANY financial
institutions do NOT issue T5008 slips for each sale but, instead,
put all relevant transactions on an annual report, usually sent out
with the December yeare end statement but NOT ALWAYS. Sometimes,
like with Manulife, one has to REQUEST such a report. It often gets
lost in the paper shuffle because people are so programmed into
expecting SLIPS for all tax relating matters.

[AndyHancock]

"AndyHancock" wrote in message

Investment isn't my thing, and I rely on a big bank mutual fund for both RRSP and investment in general. The T3 gives box 42 that contains a figure used for adjusting the cost base (ACB) of fund units/ shares. The CRA explanation is at http://www.cra-arc.gc.ca/E/pub/tg/rc4169. This seems to indicate that you have to delve into the individual sales of units/shares, but the whole reason I went with big bank mutual funds is that I want to treat it like a black box and not get into the details. I get what I think are quarterly or semi-annaul reports, which I don't often look at because I can't do anything about the results without first finding the time to research options to a certain level of confidence. So far, CRA hasn't complained about my not using box 42. I'm not sure that even a paid accountant would descend into the depths of individual transactions, since they don't have access to those details.
Are there any clear and significant consequences of not optimizing my tax return using that figure? I already make use of the IMA fees as carrying charges in Schedule 4. (A pet peeve of mine is that there is no elucidation of what IMA stands for, but they are fund management fees of some sort). I figure that since ACB merely accounts for the cost of transactions, then IMA plays the same role, albeit handled differently.
P.S. Sure would be nice of usenet became moderated. Look at what has happened over the decades.

The original ACB of an holding is what it originally cost you, I.e. the actual cost of the units including any commission or service fee directly related to the purchase. When ever you get a T3 slip for that investment which would represent either a distribution paid by cash into your account OR a distribution paid in the form of more units (reinvestment) AND there is a entry in Box 42, that simply means that SOME or all of the distribution came from your original capital. That figure should 1: be recorded on that year's tax return in the appropriate T3 box and 2. be subtracted from the original ACB of the fund. So, when you eventually SELL any or all of the units in that fund, and go to calculate your capital gain or loss, you WILL use the adjusted ACB and NOT the originally ACB, when calculating your profit or loss. Many people will confronted with the above, turn their taxes over to a professional to ensure the proper reporting and calculation of losses and MANY financial institutions do NOT issue T5008 slips for each sale but, instead, put all relevant transactions on an annual report, usually sent out with the December yeare end statement but NOT ALWAYS. Sometimes, like with Manulife, one has to REQUEST such a report. It often gets lost in the paper shuffle because people are so programmed into expecting SLIPS for all tax relating matters.

The thing is that the document linked to in my original post describes
mutual funds as flow-through. And mine are actively managed, and I
found a 2012 Client Tax Statement - Gains(Losses) from Sale of
Securities sheet with countless transaction line items, dated, with a
"Proceeds from Sale", an "Average Cost" column, and a Gain(Loss)
column. So I was wrong about not having the details, looks like a get
a sheet of all the transactions made by the fund manager.
Unfortunately, it doesn't look anything like the examples in the
documents that my original post links to.

That document says that even if units are sold and rolled back in, the
funds are still assumed to have flowed to me. I assume that things
are sold in one part of the fund in order to buy in another part of
the fund as the manager adjusts the mix of "pools" (that's what
they're called, apparently). I never really redeem shares in the
overall fund. To tell you the truth, it's not clear whether the fund
is the collection of pools, which the bank simply refers to as an
account, or whether each pool is a fund.

I have a feeling that I have to sit down with the bank financial
manager to sort out the lingo and do what normal people (everyone else
in my investor category, I suppose) do.

Thanks.

[Sharx35]

Post by AndyHancock

"AndyHancock" wrote in message

Post by AndyHancock
Investment isn't my thing, and I rely on a big bank mutual fund
for both RRSP and investment in general. The T3 gives box 42
that contains a figure used for adjusting the cost base (ACB)
of fund units/ shares. The CRA explanation is at
http://www.cra-arc.gc.ca/E/pub/tg/rc4169. This seems to
indicate that you have to delve into the individual sales of
units/shares, but the whole reason I went with big bank mutual
funds is that I want to treat it like a black box and not get
into the details. I get what I think are quarterly or
semi-annaul reports, which I don't often look at because I
can't do anything about the results without first finding the
time to research options to a certain level of confidence. So
far, CRA hasn't complained about my not using box 42. I'm not
sure that even a paid accountant would descend into the depths
of individual transactions, since they don't have access to
those details.
Are there any clear and significant consequences of not
optimizing my tax return using that figure? I already make use
of the IMA fees as carrying charges in Schedule 4. (A pet
peeve of mine is that there is no elucidation of what IMA
stands for, but they are fund management fees of some sort). I
figure that since ACB merely accounts for the cost of
transactions, then IMA plays the same role, albeit handled
differently.
P.S. Sure would be nice of usenet became moderated. Look at
what has happened over the decades.

The original ACB of an holding is what it originally cost you,
I.e. the actual cost of the units including any commission or
service fee directly related to the purchase. When ever you get
a T3 slip for that investment which would represent either a
distribution paid by cash into your account OR a distribution
paid in the form of more units (reinvestment) AND there is a
entry in Box 42, that simply means that SOME or all of the
distribution came from your original capital. That figure should
1: be recorded on that year's tax return in the appropriate T3
box and 2. be subtracted from the original ACB of the fund. So,
when you eventually SELL any or all of the units in that fund,
and go to calculate your capital gain or loss, you WILL use the
adjusted ACB and NOT the originally ACB, when calculating your
profit or loss. Many people will confronted with the above, turn
their taxes over to a professional to ensure the proper
reporting and calculation of losses and MANY financial
institutions do NOT issue T5008 slips for each sale but,
instead, put all relevant transactions on an annual report,
usually sent out with the December yeare end statement but NOT
ALWAYS. Sometimes, like with Manulife, one has to REQUEST such a
report. It often gets lost in the paper shuffle because people
are so programmed into expecting SLIPS for all tax relating
matters.

The thing is that the document linked to in my original post
describes
mutual funds as flow-through. And mine are actively managed, and I
found a 2012 Client Tax Statement - Gains(Losses) from Sale of
Securities sheet with countless transaction line items, dated,
with a
"Proceeds from Sale", an "Average Cost" column, and a Gain(Loss)
column. So I was wrong about not having the details, looks like a get
a sheet of all the transactions made by the fund manager.
Unfortunately, it doesn't look anything like the examples in the
documents that my original post links to.
That document says that even if units are sold and rolled back
in, the
funds are still assumed to have flowed to me. I assume that
things
are sold in one part of the fund in order to buy in another part of
the fund as the manager adjusts the mix of "pools" (that's what
they're called, apparently). I never really redeem shares in the
overall fund. To tell you the truth, it's not clear whether the fund
is the collection of pools, which the bank simply refers to as an
account, or whether each pool is a fund.
I have a feeling that I have to sit down with the bank financial
manager to sort out the lingo and do what normal people (everyone else
in my investor category, I suppose) do.
Thanks.

Yes, do discuss it with their expert. SOMETIMES switches between
mutual funds (which might otherwise result in taxable gains or
losses) do NOT result in taxable transactions. It all depends on
the corporate structure of the particular mutual fund. In other
words, some switches are like going from room to room in the same
house--not taxable. Others are like going from house to house
(taxable). The bank's person should know the difference.

[Canuck57]

Post by AndyHancock

"AndyHancock" wrote in message

Post by AndyHancock
Investment isn't my thing, and I rely on a big bank mutual fund for
both RRSP and investment in general. The T3 gives box 42 that
contains a figure used for adjusting the cost base (ACB) of fund
units/ shares. The CRA explanation is at
http://www.cra-arc.gc.ca/E/pub/tg/rc4169. This seems to indicate
that you have to delve into the individual sales of units/shares,
but the whole reason I went with big bank mutual funds is that I
want to treat it like a black box and not get into the details. I
get what I think are quarterly or semi-annaul reports, which I don't
often look at because I can't do anything about the results without
first finding the time to research options to a certain level of
confidence. So far, CRA hasn't complained about my not using box
42. I'm not sure that even a paid accountant would descend into the
depths of individual transactions, since they don't have access to
those details.
Are there any clear and significant consequences of not optimizing
my tax return using that figure? I already make use of the IMA fees
as carrying charges in Schedule 4. (A pet peeve of mine is that
there is no elucidation of what IMA stands for, but they are fund
management fees of some sort). I figure that since ACB merely
accounts for the cost of transactions, then IMA plays the same role,
albeit handled differently.
P.S. Sure would be nice of usenet became moderated. Look at what
has happened over the decades.

The original ACB of an holding is what it originally cost you, I.e.
the actual cost of the units including any commission or service fee
directly related to the purchase. When ever you get a T3 slip for
that investment which would represent either a distribution paid by
cash into your account OR a distribution paid in the form of more
units (reinvestment) AND there is a entry in Box 42, that simply
means that SOME or all of the distribution came from your original
capital. That figure should 1: be recorded on that year's tax return
in the appropriate T3 box and 2. be subtracted from the original ACB
of the fund. So, when you eventually SELL any or all of the units in
that fund, and go to calculate your capital gain or loss, you WILL
use the adjusted ACB and NOT the originally ACB, when calculating
your profit or loss. Many people will confronted with the above, turn
their taxes over to a professional to ensure the proper reporting and
calculation of losses and MANY financial institutions do NOT issue
T5008 slips for each sale but, instead, put all relevant transactions
on an annual report, usually sent out with the December yeare end
statement but NOT ALWAYS. Sometimes, like with Manulife, one has to
REQUEST such a report. It often gets lost in the paper shuffle
because people are so programmed into expecting SLIPS for all tax
relating matters.

The thing is that the document linked to in my original post describes
mutual funds as flow-through. And mine are actively managed, and I
found a 2012 Client Tax Statement - Gains(Losses) from Sale of
Securities sheet with countless transaction line items, dated, with a
"Proceeds from Sale", an "Average Cost" column, and a Gain(Loss)
column. So I was wrong about not having the details, looks like a get
a sheet of all the transactions made by the fund manager.
Unfortunately, it doesn't look anything like the examples in the
documents that my original post links to.
That document says that even if units are sold and rolled back in, the
funds are still assumed to have flowed to me. I assume that things
are sold in one part of the fund in order to buy in another part of
the fund as the manager adjusts the mix of "pools" (that's what
they're called, apparently). I never really redeem shares in the
overall fund. To tell you the truth, it's not clear whether the fund
is the collection of pools, which the bank simply refers to as an
account, or whether each pool is a fund.
I have a feeling that I have to sit down with the bank financial
manager to sort out the lingo and do what normal people (everyone else
in my investor category, I suppose) do.
Thanks.

Yes, do discuss it with their expert. SOMETIMES switches between mutual
funds (which might otherwise result in taxable gains or losses) do NOT
result in taxable transactions. It all depends on the corporate
structure of the particular mutual fund. In other words, some switches
are like going from room to room in the same house--not taxable. Others
are like going from house to house (taxable). The bank's person should
know the difference.

Should know the difference but will they tell you? Remember they work
for the bank.

I wouldn't take a bankers advise without thoroughly understanding it in
depth. I just finished with a banker/investor service meeting 2 months
ago and I almost ran then off and didn't use their services as much of
what the tout is pure BS.

Take RRSPs. Banks always recommend them but for most it is a tax trap
especially if taken too far. What they will not tell people is there is
a higher than average probability you will pay more taxes out as a
percentage than you defer going in. For 95% of the people, they are
better off in TFSAs.

Another issue is the banker said 3% return is good. BS again. To
retain value the equation is inflation plus taxes on inflation, so 3.2%
inflation needs returns north of 4.6% just to retain purchasing value.
Anything less is a purchasing value loss to you and isn't even tax
deductible.

The banks are loaded with myths and thus a real bad place to get good
advise. And there isn't a bank mutual fund in Canada I would own as
they have negative value returns after inflations and taxes.

[Canuck57]

Post by AndyHancock
Investment isn't my thing, and I rely on a big bank mutual fund for
both RRSP and investment in general. The T3 gives box 42 that
contains a figure used for adjusting the cost base (ACB) of fund units/
shares. The CRA explanation is at
http://www.cra-arc.gc.ca/E/pub/tg/rc4169.
This seems to indicate that you have to delve into the individual
sales of units/shares, but the whole reason I went with big bank
mutual funds is that I want to treat it like a black box and not get
into the details. I get what I think are quarterly or semi-annaul
reports, which I don't often look at because I can't do anything about
the results without first finding the time to research options to a
certain level of confidence. So far, CRA hasn't complained about my
not using box 42. I'm not sure that even a paid accountant would
descend into the depths of individual transactions, since they don't
have access to those details.
Are there any clear and significant consequences of not optimizing my
tax return using that figure? I already make use of the IMA fees as
carrying charges in Schedule 4. (A pet peeve of mine is that there is
no elucidation of what IMA stands for, but they are fund management
fees of some sort). I figure that since ACB merely accounts for the
cost of transactions, then IMA plays the same role, albeit handled
differently.
P.S. Sure would be nice of usenet became moderated. Look at what has
happened over the decades.

The original ACB of an holding is what it originally cost you, I.e. the
actual cost of the units including any commission or service fee
directly related to the purchase. When ever you get a T3 slip for that
investment which would represent either a distribution paid by cash into
your account OR a distribution paid in the form of more units
(reinvestment) AND there is a entry in Box 42, that simply means that
SOME or all of the distribution came from your original capital. That
figure should 1: be recorded on that year's tax return in the
appropriate T3 box and 2. be subtracted from the original ACB of the
fund. So, when you eventually SELL any or all of the units in that fund,
and go to calculate your capital gain or loss, you WILL use the adjusted
ACB and NOT the originally ACB, when calculating your profit or loss.
Many people will confronted with the above, turn their taxes over to a
professional to ensure the proper reporting and calculation of losses
and MANY financial institutions do NOT issue T5008 slips for each sale
but, instead, put all relevant transactions on an annual report, usually
sent out with the December yeare end statement but NOT ALWAYS.
Sometimes, like with Manulife, one has to REQUEST such a report. It
often gets lost in the paper shuffle because people are so programmed
into expecting SLIPS for all tax relating matters.

But given the investor is unsophisticated, they probably should not own
ACB type stocks or mutuals. While ACB can be good, for many it is
deceit to the person holding the securities.

While many are good, many are not and here is an example many bad ones
pull off. Simplified to show the bad news:

You pay $1000 to get a ACB revenue stream. They pay say 10%, $100 a
year in dividends classified as return of capital. Thus, you don't pay
taxes on it. But the tax situations adjusts your cost base down to
$900...so when you sell you will pay more taxes on it as the ACB.

The reality is many just return your capital and get you in a tax
situation, no real earnings are behind many of them so the net after tax
gains are negative. Especially after inflation.

It isn't to say not to use them, many are good but should be considered
only for advanced investors doing the math behind the investment. As
the return of capital and cost basis adjustments can be deceptive to
fool novice investors.

[Canuck57]

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