Below are some news and media articles about ACB Tracking:

January 29, 2022 - The Globe and Mail

Phantom Distributions are back with a vengeance - and potential tax liabilities


"We hold Canoe EIT Income Fund (EIT.UN - T) and have been pleased with the income stream and recent gains of the fund. But I am perplexed by something. In December the fund announced an estimated "special distribution" of 44 cents per unit that was confirmed in early January. I reached out to Canoe Financial and asked how the special distribution would be paid. I was told that I would not receive any cash or units but that my broker would increase the average cost of my units. My question is: If there is no increase in units or cash, how is it a benefit to unit holders? Am I the only one who does not understand this?"

No, you're definitely not the only one. Such non-cash distributions have been bedeviling investors for years. But with Canadian and US stock markets surging in 2021, the number of reinvested or "phantom" distributions has risen dramatically. Even when Canoe EIT Income Fund - a closed-end fund that had never paid such a distribution in its 25 year history -  gets in on the action, you know phantom payouts have become too ubiquitous for investors to ignore. Understanding how these non-cash distributions work and the tax consequences they entail in a non-registered account, is critical for investors. If you ignore them, it could end up costing you money.

Let's start by answering the first question that many investors have: If a reinvested distribution doesn't give you any additional cash or units, what exactly is being distributed? Answer: a capital gains tax liability. That's all.  During the year, investment funds are constantly buying and selling securities. For example, a fund might take some profits on a stock that's jumped in price or, in the case of an exchange-traded fund, it might need to re-balance it's holdings in line with the index it tracks.These transactions trigger capital gains and losses, which funds typically tally up at the end of the year. Generally, if the net result is a capital gain, the fund "distributes", it to unit holders in December - but on paper only. No cash actually changes hands, because the fund in most cases has already reinvested the money.  The reinvested distribution is just a year-end bookkeeping exercise that transfers the net capital gain to unit holders, who are then responsible for paying the tax.

Canoe EIT is a slightly unusual case because, unlike many funds, it does distribute some capital gains in cash to unit holders during the year. This helps to fund it's above average distribution yield which is also typically supported by return of capital and a small contribution from dividends. But 2021 was such a good year for markets - the S&P/TSX Composite Index and S&P 500 gained 21.7 percent and 26.9 percent respectively - that the fund still had a chunk of capital gains left over even after paying its regular monthly cash distributions. "Strong performance in many of the Fund's underlying holdings resulted in net capital gains that exceeded its $0.10/unit monthly distribution", Canoe Financial explained in a FAQ on it's web site.  "Capital gains that were realized by the fund must be distributed in the calendar tax year they are earned".

More than the usual number of mutual funds and ETF's also declared phantom distributions in December. For example, the press release on the BlackRock Canada website revealed that 74 of its 157 iShares ETF's had a reinvested distribution in 2021, up from just 30 the year before.

"That is a huge number" said Lea Hill, President of ACB Tracking Inc. "You're seeing it because we had very strong equity markets last year".

Every one loves rising markets. But the downside of reinvested distributions is that investors have to pay tax on capital gains they didn't receive in cash. What's more, if investors don't pay attention to these phantom payouts they could end up paying tax a second time when they eventually sell their units. That's why investors need to increase the adjusted cost  base (ACB) of their units by the amount of the reinvested distribution. This will reduce the eventual capital gain or increase the capital loss when the units are sold.

Failing to increase the ACB would result in capital gains tax that is higher than it should be because the gain would include the reinvested distribution that has already been taxed on a T3 slip. Many brokers take into account reinvested distributions when they calculate the "average cost" or "book value" figures on client's statements. But these adjusted cost base numbers aren't always accurate, and brokers "don't make the adjustment until about May", said Mr. Hill, whose company provides ACB calculations for a fee. "If you sell your ETF units in February or March, before the ACB is updated, you could fall into the double taxation trap", he said.

It's therefore imperative to be aware of any reinvested distributions and to adjust your ACB accordingly. You can use a service such as ACB Tracking or, or look up phantom distributions yourself on the fund company's website.  But if you use your broker's ACB numbers, it's a good idea to check them against another source to be sure they're accurate.  It's tedious work, but it could save you money in the long run.

March 13, 2020 - The Globe & Mail

What's with ETF "distributions" that don't distribute any cash? ('Phantom' payouts are a tax liability that requires you to pay attention to your adjusted cost base)


Can you explain why my broker raised the adjusted cost base of my iShares Core S&P 500 Index ETF (XSP) units recently?  I know it relates to a distribution from the ETF, but I am concerned because I did not receive any cash, and the higher ACB caused the unrealized capital gain I had to evaporate.  As a small retail investor, I am baffled. 

What we have here is a case of reinvested or "phantom" distribution, and I can assure the reader that many investors are just as baffled as he is by these non-cash payouts. 

If you invest in exchange-traded funds, chances are you have already encountered a phantom distribution - or soon will.  In 2020, more than 200 Canadian ETFs declared these under-the-radar distributions. 

"It really has become a big issue over the past couple of years", said Lea Hill, president of ACB Tracking Inc., a company that provides adjusted cost-base calculations for a fee.  "Experience tells us that most investors, and/or their accountants, do not fully grasp the tax implications of phantom distributions received over the time they have held their positions."

Let's try to demystify the topic, using XSP as an example.  According to the iShares website, on December 22 XSP declared a total distribution of $1.92382 per unit, of which 26.792 cents was paid in cash.  The rest - $1.62290 was classified as a reinvested distribution.  (ETF providers typically publish estimates of reinvested distributions, for each of their ETFs in the fall, with final numbers at the end of the year.)

So if that $1.65590 wasn't paid in cash, what did the investor get exactly?  Answer: a tax liability. 

Throughout the year, ETFs buy and sell securities.  This triggers capital gains and capital losses, which the ETF tallies up at the end of the year.  If the net result is a capital gain, the ETF distributes it to unitholders for tax purposes - but on paper only. 

The mechanics of how the ETF does this are a bit complicated, but the key thing to understand is that the unitholder, in effect, receives a distribution that is immediately reinvested in the fund.  After this paper transaction, the investor still has the same number of ETF units, trading at the same price, as before the reinvested distribution. 

In the case of XSP, if you refer to the "2020 Distribution Characteristics" for iShares ETFs published on the BlackRock Canada website (look under "Resources" and "Tax Information Centre"), you'll notice that XSPs reinvested distribution of $1.6559 exactly matches the ETFs total capital gains distribution for the year. 

For the unitholder, the reinvested capital gain will be reported on a T3 slip and taxed in his or her hands.  To recognize that tax has been paid, the unitholder must then increase the ACB of the units by the amount of the reinvested distribution.  Failing to do so could result in the investor paying more tax than necessary when the units are eventually sold. 

"Some brokers adjust "book value" or "average cost" figures to account for the reinvested distributions.  But my advice is to double check the broker's numbers. 

Keep in mind too, that brokers who adjust book values may not get around to doing so until several months after the year-end distribution was declared.  An investor who sells during that window might make the mistake of using the unadjusted ACB, Mr. Hill said.  "Thus the investor would pay tax on the amount of the phantom distribution twice - once....throught the T3 received, and again by failure to increase the adjusted cost base, upon (the ETFs) sale", he said. 

As for the reader's concern that the increase in his ACB eliminated the unrealized gain that was previously shown on his statement, that is true - but only for tax purposes.  Bumping up the ACB didn't actually change the original price he paid for his units; all it did was increase his cost on paper, which will reduce the capital gain (or increase the capital loss) he will have to report when he eventually sells his units. 

October 2019 - Your Guide to ETF Investing

March 30, 2018 - The Globe & Mail

Taming your ETF's phantom menace by John Heinzl


March 29, 2018 - Financial Post

Why phantom distributions can be scary at tax time by Barry Critchley

January 27, 2017 - Toronto Globe & Mail

Help!  How do I figure out my ETF’s capital gain?


In February, 2001, I bought 91 shares of the iUnits S&P/TSX 60 exchange-traded fund for a total cost of $4,520.70. In October, 2016, I sold 364 units of the iShares S&P/TSX 60 Index ETF (ticker: XIU) for total proceeds of $7,816.01. It appears there was a stock split at some point because I have no record of further purchases. Any clue how I should report this investment when filing my 2016 tax return?

I chose this reader’s question because it touches on a number of issues that affect the calculation of capital gains – a process that can be particularly tricky with ETFs.

First, let’s deal with the stock split. As the reader indicated, the iShares (formerly iUnits) S&P/TSX 60 Index ETF did indeed split its units four-for-one in 2008. The key thing to know about stock splits is that, while they affect the adjusted cost base (ACB) per unit, they do not change the investor’s total cost base. In this case, the reader has four times as many units but his total initial cost is still $4,520.70.

So, can he just subtract his cost of $4,520.70 from his sale proceeds of $7,816.01 to calculate his capital gain? Nope. It’s not that simple.

With ETFs (and mutual funds), there are two other key pieces of information you need to know in order to determine capital gains or losses. They are return of capital and reinvested distributions. Let’s look at each of these in turn.

Return of capital (ROC) is the portion of a distribution that does not consist of dividends, interest or realized capital gains. ROC is not immediately taxable; rather, it is subtracted from the ACB of the investment, which has the effect of increasing the capital gain (or reducing the capital loss) when the units are ultimately sold. ROC (also known as a “cost base adjustment”) is identified on your T3 tax slip and also on your year-end brokerage statements.

What if you haven’t kept all your records? No worries. Every year around February, iShares (and other ETF providers) publish the “distribution characteristics” – including the amount of ROC – of each of its ETFs for the previous calendar year. This information is available on the BlackRock Canada website under “Resources” and “Tax Information Centre.”

Unfortunately, the annual data only go back a few years. To find longer-term ROC information, you’ll have to go to the specific web page for XIU. (Once there, look for the heading “distributions” and click on “view full chart.” Next, click on “calendar year” and “table.” Finally, scroll down until you see a bar that you can slide to the right to reveal more columns, including “return of capital.”)

I added up all of XIU’s ROC distributions from 2001 through 2015 and got 31.63 cents a unit. Multiplied by 364 units, that’s total ROC of $115.13 that must be subtracted from the ACB (in addition to any ROC that appears on the investor’s 2016 T3).

Now, let’s turn to XIU’s reinvested distributions. These amounts – also known as phantom distributions – usually consist largely of capital gains distributed at year end. But instead of paying the money to you in cash, the ETF plows it back into the fund.

When a fund reinvests a distribution, it’s treated the same way for tax purposes as if you were adding new money – that is, the amount is added to your ACB. This has the effect of reducing your capital gain (or increasing your capital loss) when you ultimately sell.

To recap: ROC reduces your ACB, and reinvested distributions raise your ACB.

Unlike ROC, reinvested distributions aren’t recorded on your T3 so you’ll have to go directly to your ETF provider’s website. (With iShares ETFs, you can find the most recent reinvested distributions by looking under “resources,” and “resource library,” and then scrolling down to “press releases.” For the previous few years, you can consult the “distribution characteristics” document mentioned previously. To go even further back, look on the specific page for XIU under “distributions,” click on “view full chart,” then choose “recent” and “table.”)

I added up XIU’s reinvested distributions per unit since 2001 and got $1.46 (note: all of the per unit data appear to have been adjusted for the 2008 unit split). Multiplying this by 364 units produces total reinvested distributions of $531.44.

The investor’s new ACB (subject to any further ROC on the 2016 T3) is therefore the initial cost of $4,520.70, minus ROC of $115.13, plus reinvested distributions of $531.44, which equals $4,937.01. As you can see, the new ACB is higher than the original cost, which reduces the capital gain that the investor would otherwise have to report.

Tracking ROC and reinvested distributions can be a pain in the behind, and there are services – such as  – that will do the work for youBut with tax time approaching, it’s a skill worth learning. As this example illustrates, it might even save you money.


February 2015 - ETF Investing, Winter 2015

Calculating the Adjusted Cost Base of ETFs - More Complicated Than It Seems

 See Page 22

April 26, 2014 - Toronto Globe & Mail

Exorcising phantom ETF distributions


Clement Lee-Sui got a surprise when he was poking around on the iShares website.

One of his wife's exchange-traded funds, the iShares S&P/TSX Capped REIT Index ETF (XRE), declared a distribution of 68.2 cents per unit at the end of 2013 - its biggest distribution of the year by far.

Problem was, the vast majority of the distribution wasn't paid in cash but was reinvested by the fund. What's more, the amount that was reinvested wasn't broken out separately on his T3 tax slip or on his brokerage statement.

"I only know about [it] because I happened to check the iShares website," Mr. Lee-Sui said in an e-mail.

They're known as phantom distributions, and if you don't pay attention to them they could cost you at tax time.

Today, we'll explore what these distributions are, how you can identify them and what you need to do to make sure you don't pay more tax than you should.

Phantom menace

In most cases, ETFs pay distributions in cash. However, occasionally an ETF will choose to reinvest some of its realized capital gains internally instead of paying the money out to unitholders.

Even though investors don't receive these reinvested distributions directly, they still have to pay tax on them (assuming the ETF is held in a taxable account, of course).

Reporting income from ETFs is straightforward. Year-end brokerage statements and T3s list the total amount of interest, dividends and capital gains, and plugging these numbers into the appropriate boxes on one's tax return is a simple affair.

The hard part is determining what portion of the capital gain was paid out in cash, and what portion - if any - was reinvested by the fund.

"It seems that the only reliable way to find out your reinvested capital gains distribution for any particular ETF is to go to the website for that ETF and check the detailed characterization for the distributions," Mr. Lee-Sui said.

Why does it matter?

When a fund automatically reinvests a distribution, it's essentially the same as if you received the money and then reinvested it yourself. In both cases, you are effectively putting new cash to work. (This is similar to what happens with a dividend reinvestment plan, or DRIP.)

As a result, you need to increase the adjusted cost base (ACB) of your investment by the amount of the reinvested distribution. (I discussed the ACB in detail in two recent columns: and

What if you fail to increase your ACB? You end up reporting a bigger capital gain - and paying more tax - than necessary when you sell the fund. That's why it's critical for investors to stay on top of reinvested distributions.

Mistakes can be costly

Such non-cash distributions "are almost always missed by holders," said Lea Hill, president of, a website that, for a fee, provides detailed ACB calculations for ETFs, closed-end funds and other investments.

Failing to account for phantom distributions can make a capital gain look a lot larger than it actually is, Mr. Hill said.

Consider the iShares S&P 500 Index ETF (XSP). Assuming an investor bought 1,000 units in 2006 for $16 each and sold them in 2013 for $21 each, the capital gain would appear to be $5,000 ($21,000 minus $16,000).

However, the investor would have also received $3,374.05 in reinvested distributions during the holding period. These phantom payments would increase the ACB to $19,374.05 from $16,000. The investor would also have received $55.06 in return of capital (ROC), which would reduce the ACB to $19,318.99 (reinvested distributions are added to the ACB, and ROC is subtracted).

The actual capital gain would therefore be $1,681.01 ($21,000 minus $19,318.99).

"Failure of the client to realize how phantoms impacted this would result in the client declaring $3,319 more in capital gains in 2013 than was owed," Mr. Hill said.

"Paying taxes twice - not a good plan!"

XSP isn't an isolated case. According to Mr. Hill, ETFs and closed-end funds have made more than 600 such distributions over the years.

Fortunately for Mr. Lee-Sui, he now knows to check the ETF provider's website every year to see which funds declared reinvested distributions.

"We do own several ETFs and it's an issue for every one of them," he said.

 March 2009 -- Investment Executive

 Solving return-of-capital puzzles at tax time

  " really becomes a challenge for the accountant, advisor or the individual... to come up with an accurate ACB.  ACB Tracking Inc., offers a Web-based service that allows clients to determine the adjusted cost base of any Canadian income trust, closed-end fund, split -share corporation or exchange-traded preparation professionals are saved the work of calculating the figures themselves at their hourly rates." 

March, 2008 -- The Bottom Line

Adjusted Cost Base Service Can Save Time, Money
“ The service is quick, accurate, and not expensive. It avoids the need for a detailed cost buildup schedule. This is a valuable tool for any size firm that is responsible for client write-up and tax return preparation. ACB Tracking is a unique service that can save accounting and financial advisory firms both time and money.”

March/April 2008 -- The Canadian MoneySaver

A Cure for the Annual Income Trust Headache

“The 2007 taxation year was very unique for income trusts due to the number of takeovers that did not provide the election of a tax-deferred rollover. Nearly 50 income trusts were bought out for cash, with the result that each one will require ACB calculations. Some of the more widely held issues affected are……..”

March 31, 2007 -- The Victoria Times Colonist

Firm Makes Tax Calculations Easier

"A Victoria company is starting a revolution in the number-addled and often complicated world of accounting. ACB Tracking Inc. has come up with a web-based, adjusted cost base calculator intended to save accountants and investment advisor's time and aggravation when preparing tax returns. The man behind it is still wondering how he's the first to market..."

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