Q: Good Afternoon,
I have just finished reading the ETF & Mutual Fund Update Newsletter which I really enjoy. I read the article by Moez Mahrez written about Return of Capital (ROC). I think most investors find this whole concept a bit odd and confusing. A direct quote from the article " It is not actual income generated from investments, rather it is cash that is distributed from the cash portion of the fund". If this is a return of cash why pay any tax on this? I know it reduces the ACB and becomes a tax deferral mechanism but this shouldn't be taxable at all? Once again a direct quote " ROC is quite tax-efficient as it turns that cash into a capital gain, which can be deferred". Once again isn't this a bit of a scam? If I and other unit holders buy an EFT and there is an influx of cash and the fund distributes some of this cash back to me, is this not double taxation? That money has never been invested, never earned a return and all of a sudden it's taxable to me? Under the Big Picture portion of the article " realized returns from the past as well as new money from investors", if there is a portion of the cash that are realized returns from the past then shouldn't that portion of those returns be taxed accordingly? If those returns were cap gains, dividends or interest shouldn't they be taxed as such?
Sorry this isn't directed at your organization I understand you are simply describing how the process works and I find the article very helpful. I'm sure this is a CRA issue. It's pretty basic isn't it? If the money is invested and a return is earned than that money should be taxed accordingly. If the fund has a large cash position because of a large influx of new unit holders , this hardly seems fair that when a portion of this money is distributed it shouldn't be taxable at all, this is double taxation in my mind. That is after tax dollars we are investing and a return has never been earned.
What am I missing here?
Thank-you
I have just finished reading the ETF & Mutual Fund Update Newsletter which I really enjoy. I read the article by Moez Mahrez written about Return of Capital (ROC). I think most investors find this whole concept a bit odd and confusing. A direct quote from the article " It is not actual income generated from investments, rather it is cash that is distributed from the cash portion of the fund". If this is a return of cash why pay any tax on this? I know it reduces the ACB and becomes a tax deferral mechanism but this shouldn't be taxable at all? Once again a direct quote " ROC is quite tax-efficient as it turns that cash into a capital gain, which can be deferred". Once again isn't this a bit of a scam? If I and other unit holders buy an EFT and there is an influx of cash and the fund distributes some of this cash back to me, is this not double taxation? That money has never been invested, never earned a return and all of a sudden it's taxable to me? Under the Big Picture portion of the article " realized returns from the past as well as new money from investors", if there is a portion of the cash that are realized returns from the past then shouldn't that portion of those returns be taxed accordingly? If those returns were cap gains, dividends or interest shouldn't they be taxed as such?
Sorry this isn't directed at your organization I understand you are simply describing how the process works and I find the article very helpful. I'm sure this is a CRA issue. It's pretty basic isn't it? If the money is invested and a return is earned than that money should be taxed accordingly. If the fund has a large cash position because of a large influx of new unit holders , this hardly seems fair that when a portion of this money is distributed it shouldn't be taxable at all, this is double taxation in my mind. That is after tax dollars we are investing and a return has never been earned.
What am I missing here?
Thank-you
