Important User Notes & Tips

The ACB Tracking calculator should be used for holders who, for the purpose of the Income Tax Act (Canada) are resident in Canada and who hold securities as capital property.

 

Part 1 - Priority Notes - Please Read

1) For how long are the reports saved on the ACB Tracking website?

Currently all reports are saved on the ACB Tracking website for seven days. Therefore it is very important for users to save all reports by clicking on the PDF Version button at the top of the Summary Report. We recommend that this be done immediately after creating the report.

2) When is data from the most recent taxation year entered into the database?

ACB Tracking Inc. will be entering and checking the data for the most recent taxation year within 24 hours after this information has been released by each closed-end fund or income trust. When you enter the first few letters of the name of the fund/trust, a box will drop down containing a list of all funds/trusts that begin with those letters. The year of the most recent tax data in our database will appear immediately to the left of the name of the fund or trust. Please note that this is the year of the latest distribution data, which is not necessarily the latest year where the distributions  contained return of capital. We endeavour to advise you in the Message Board when a fund/trust has never made a return of capital payment, or if it has not done so for a long time.  Closed-end funds and income trusts typically begin releasing data for the latest tax year in mid-January. Commencing in 2008, all information is required to be released by the end of February, however, it is not unusual for late reporting funds and revisions to be made subsequently.

3) How do I know if a closed-end fund or income trust has revised its data?

If an income trust or closed-end fund has revised the data used in the calculation of the adjusted cost base, and if you have performed a calculation involving that trust or fund, we will communicate this data revision to you via e-mail. It will then be your decision regarding the necessity of doing another calculation, based on the severity of the revision.

4) Important Merger Information

When a purchase or sale of a closed-end fund or income trust is executed within three business days prior to the effective date of the merger, the settlement date should be the effective date of the merger. In some cases, these short settlement rules have not been adhered to, and the settlement date on the confirmation is incorrect. In these cases, change the settlement date of the purchase or sale to the effective date of the merger as noted in the Merger Details Message.

5) From a tax point of view, is there a difference between selling closed-end funds in the market versus tendering them to the fund under a retraction privilege?

No, both result in a deemed disposition as of the settlement date. However, occasionally there may be an issue with respect to distributions surrounding the retraction date. Typically, the settlement date for units tendered for retraction occurs 10 to 15 days after the retraction date. The ACB Tracking Calculator can not distinguish between units sold on the exchange and units tendered for retraction. Therefore, it is possible that if units were sold through a retraction privilege, the calculator may include a distribution which the unitholder did not receive, and if return of capital was involved, an understated ACB would result, requiring a manual adjustment. 

6) Important Data Entry Information    PLEASE READ!!!!!!

"Buy" and "sell" transactions can be entered in any order.  It is important, however, that the transaction with the most recent settlement date be a "sell". Chronologically ending with a "buy" transaction will result in an invalid final ACB figure. "Buy" transactions that occur after the most recent "sell", should be entered when subsequent calculations are required. Please note that multiple "sells" are permitted, as long as the most recent transaction is a "sell". It is also very important to perform the calculation on the fund or trust that has been sold. If it was purchased as a predecessor company, the system will prompt you to enter the buy order(s) of the predecessor company.  Finally, do not use the dollar sign when entering data -- just enter the actual numerical amounts, otherwise the settlement amounts will show up as zero. 

7) When entering transactions, should I use the trade date or the settlement date?

All transactions must be entered using the settlement date, not the transaction date. Settlement date in Canada for purchases and dispositions is currently three business days after the transaction date.

8) Do calculations purchased have an expiry date?

Calculation bundles purchased have no expiry date, therefore unused portions of purchased bundles can be carried over and used in a subsequent tax year.

9) Does the ACB Tracking Calculator provide the taxation terms regarding takeovers?

If this information was available at time of data entry and was absolutely final, we endeavored to include it on the message board for the trusts or funds involved. Since a number of these events involved a redemption or takeover price that for tax purposes may have consisted of a combination of capital gain, return of capital or taxable or non-taxable distributions, and since the terms may have been modified, we strongly suggest that the documentation issued by the companies involved regarding the taxability of the takeover price be consulted.

10) What is a "phantom distribution", and how does it affect the ACB of units held?

Most funds pay their distributions in cash. However, in order to preserve cash, a fund may elect to declare distributions in the form of additional units of the fund. Once such units have been “distributed”, the fund immediately completes a unit consolidation. After the consolidation, the number of units outstanding will be identical to the number of units of the fund that were outstanding before the unit distribution was paid. While the distribution of units is a taxable event as of the record date of the distribution, the unitholder receives no cash (thus the term “phantom” distribution), however, the ACB of the position is increased by the amount of the unit distribution. This will reduce the capital gain (or increase the capital loss) when the position is ultimately sold. This is a very important benefit of using the ACB Tracking Inc. calculator, as phantom distributions are often missed.

11) "Phantom Distributions" and Exchange Traded Funds


The majority of "phantom distributions" are paid by exchange traded funds.  Approximately half of all Canadian ETFs have paid a phantom distribution at one point in their history.  Of the almost 300 Canadian ETFs that made distributions in 2012, approximately half have paid a phantom distribution at one or more points in their histories. As an investor, tax preparer or investment advisor, one could easily forget to increase the ACB on ETFs that made phantom payments over the years. This could result in a significant overstatement of the tax liability on disposition. To demonstrate the magnitude of this issue, in 2012, Blackrock, the manager of iShares ETFs, paid phantom distributions on 34 of its iShares ETFs, with the largest one a significant $0.91395 per unit. You cannot afford to miss these, and by using ACB Tracking, you won't! If you wish to learn more about exchange traded funds, we recommend that you access the following independent research site, www.etfinsight.ca


Part 2 - Useful Notes & Tips

12) What securities are included in the database?

The database of ACB Tracking Inc. includes approximately 600 Canadian publicly traded income trusts, closed-end funds, split share corporations and exchange traded funds. The database does not include any open-end mutual funds. ACB information on open-end funds is generally available directly from the fund manager

13) What is the Message Board and how is it used?

On the “Calculate ACB” page is a box entitled “Messages”. Included here will be important information concerning events such as stock splits, consolidations, mergers and name changes.

14) When a security is purchased or sold, what data is required to be entered to calculate the ACB?

The following three pieces of information must be entered each time units of a security are bought or sold:

  • the total number of closed-end fund or income trust units
  • the total settlement amount, including commission costs
  • the settlement date of the transaction

With this information entered, the ACB Tracking Calculator automatically calculates the ACB of the security, as well as the resulting gain or loss.

15) What if securities are acquired through a distribution reinvestment plan (DRIP)?

Positions acquired through a DRIP should be recorded as purchases in the same manner as any other units of the same property, using the number of units acquired, the net settlement amount and settlement date of the acquisition. This information is usually available on the monthly statements from the financial institution holding the security. If you are dealing with more than two years of monthly distribution reinvestment, we strongly advise you to create interim reports and then do a final calculation using the results of these interim reports. This will eliminate the possibility of losing your input in the event of either a mistake in data entry, or some external cause such as a power failure or system crash.

16) How should rights offerings be handled?

Units acquired as a result of exercising rights are handled the same way as any other purchase. If additional rights are acquired in the market and excercised, the net settlement amount of the rights acquired should be added to the settlement amount of the units acquired upon the excercise of the rights to provide the total acquisition cost.

17) When entering transactions, how should commission costs be accounted for?

On purchases, the total cost including all commissions must be used. On dispositions, the net amount after commissions paid must be used.

18) What can change the ACB of a security?

Among the items that can change the ACB of an identical property pool are purchases and dispositions, units acquired through mergers, distributions that are deemed to be a return of capital and phantom distributions. The ACB Tracking Inc. database contains the total per unit distribution paid, the record date of each distribution, and the per unit amount that the fund has reported to be a return of capital.

19) Does ACB Tracking Inc. identify dispositions that may trigger a superficial loss?

No. The onus is on the user to determine if any disposition triggers a superficial loss as outlined in the Canadian Income Tax Act.

20) Will the ACB calculator handle short sales?

No. The ACB calculator will not accurately calculate an ACB where the sale date of the position is prior to its purchase date, or where the number of units sold exceeds the number of units held. Thus, short sale transactions cannot be entered into the ACB calculator.

21) What happens if the ACB of the security position is reduced to zero?

Users should consult with their professional advisors with respect to the tax consequences relating to any position where the adjusted cost base calculation has resulted in a value of zero.

22) How do you calculate the ACB for funds that have merged?

If an investor has acquired units of a fund on a tax-deferred rollover basis, (this is the default option of the ACB Tracking Calculator),  you will be prompted to enter the transactions of the predecessor company first. The number of units of the successor fund received will automatically be entered by the ACB Tracking Calculator as a purchase of the successor fund as of the effective date of the merger, using the calculated ACB of the predecessor fund as the settlement amount.

Example: A unitholder owns 1,000 units of Fund “A” that merges with Fund “B” on a tax-deferred rollover basis, effective January 1, 2012 and 1,500 units of Fund “B” are received for the 1,000 units of Fund “A” previously held. ACB Tracking Inc. first calculates the adjusted cost base of Fund “A” and then automatically transposes this information as an acquisition of 1,500 units of Fund “B” as of January 1, 2012. All information concerning Fund “A” and Fund “B” will appear on the Summary Report, and will be counted as a single calculation. A Detailed Report for each fund showing all buys, sells, distributions and mergers is also created.

23) How is a merger that was a taxable event handled?

Using the numbers and dates from the example above, if this merger was not a tax-deferred rollover, there would be a deemed disposition of Fund “A” units at the time of the merger. This will require an ACB calculation for the Fund “A” units disposed of during the relevant taxation year and the production of an ACB calculation report. The cost of the units of Fund “B” acquired, is the fair market value of those units at the date of the merger. In this example, a purchase should be entered of 1,500 units of Fund “B” on January 1, 2012 at the fair market value of the transaction. If units of Fund “B were disposed of later in the same year, an additional ACB report is required. Therefore, this will require two separate calculations – one for Fund “A” and one for Fund “B”.

24) What happens if units of a fund have been “split” or “consolidated”?

The ACB Tracking Inc. database automatically adjusts for stock splits and consolidations. Thus, purchases and dispositions should be entered as originally contracted at the time of purchase or sale and you should not enter any transactions specifically related to splits or consolidations.

25) How does the ACB Tracking Inc. calculator handle instalment receipts?

Several years ago, the use of instalment receipts was popular. Typically for a $10.00 unit, the investor paid $6.00 per unit for the first instalment on the initial public offering, and $4.00 per unit one year later, at which time the instalment receipt was exchanged for a fully paid unit. Distributions paid on the instalment receipts for the first year were identical to the distributions paid on the fully paid units, if fully paid units were concurrently outstanding. The ACB Tracking Inc. calculator does not distinguish between an instalment receipt and a fully paid unit. However, every fund or trust that issued instalment receipts will have a message in the message board indicating how the user should handle the second instalment.

 

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