• Portfolio Construction + Management

More Book Value Blunders

In my last blog post, I explained how RBC Direct Investing was not properly tracking the cost base of US dollar securities held by their clients.  Another area where RBC (and presumably many other brokerages) is dropping the ball for their clients is with their return of capital (ROC) adjustments.  RBC mails out their Summary of Security Dispositions report in February of each year, but this report has not yet adjusted the cost base downwards for any ROC received during the prior year (in the past, RBC updates this in April of each year).  This means that if you sold a security during the previous tax year that had a portion of its distributions paid out as return of capital, you may have understated your realized gains (overstated your realized losses) for the year.

For example, let’s assume an investor placed a trade to buy 6,500 shares of the iShares S&P/TSX Capped REIT Index ETF (XRE) on January 7, 2014 (settlement date), at a price of $15.35 per share (for a total cost of $99,784.95, which includes a $9.95 commission):

Initial Book Value = 6,500 shares × $15.35 per share + $9.95 commission= $99,784.95

On December 4, 2014 (settlement date), the investor sold all 6,500 shares of XRE at a price of $16.52 per share (for total proceeds of $107,370.05, including the $9.95 commission):

Proceeds of Disposition = 6,500 shares × $16.52 per share – $9.95 commission = $107,370.05

In February of the following year, RBC mailed the investor a realized gains and losses summary for the 2014 tax year.  It included the following information:

Summary of Security Dispositions 2014 (Unadjusted)

December 4, 2014 -6,500 shares


107,370.05 99,784.95 7,585.10


After quickly reviewing the report, the investor included the $7,585.10 capital gain on their 2014 tax return.  As the report had not included the ROC adjustment for the 2014 tax year, the investor ended up paying less tax than they owed.

Don’t ROC the boat with CRA

The client should have adjusted their book value downwards to account for the ROC distributions received prior to the sale of XRE.  I’ve included the adjustments in the chart below:

January 28, 2014 0.02201 6,500 -143.07
February 25, 2014 0.02201 6,500 -143.07
March 21, 2014 0.02201 6,500 -143.07
April 25, 2014 0.02111 6,500 -137.22
May 27, 2014 0.02111 6,500 -137.22
June 20, 2014 0.02111 6,500 -137.22
July 28, 2014 0.02177 6,500 -141.51
August 26, 2014 0.02177 6,500 -141.51
September 19, 2014 0.02177 6,500 -141.51
October 28, 2014 0.01883 6,500 -122.40
November 25, 2014 0.01883 6,500 -122.40
Total     -1,510.20

Source:  CDS Innovations

After we adjust the book value downwards by $1,510.20 to account for the return of capital distributions, we end up with an actual book value of $98,274.75 ($99,784.95 – $1,510.20).  The client should have reported a realized capital gain of $9,095.30 during the 2014 tax year ($107,370.05 – $98,274.75).

Summary of Security Dispositions 2014 (Adjusted)

December 4, 2014 -6,500 shares


107,370.05 98,274.75 9,095.30


It is important to note that the investor is ultimately responsible for tracking their adjusted cost base.  However, brokerages should be aware that many investors may not be making these adjustments.  If they simply changed their process to adjust the book values for return of capital distributions prior to sending out their Summary of Security Dispositions report, this would solve a number of inaccuracies on their report.

By |2017-01-17T15:02:35+00:00March 29th, 2015|Categories: Portfolio Construction and Management|Tags: |6 Comments


  1. ilya April 10, 2015 at 10:50 pm - Reply

    Thank you Justin. I guess the only way to avoid manual calculations would be the Tangerine Funds or TD Efunds?

    • Justin April 11, 2015 at 8:52 am - Reply

      Usually the fund companies do a decent job of tracking the ACB, but if your situation is more complicated (for example, you hold the same fund in multiple accounts), you will still need to calculate your book value manually (even on mutual funds).

  2. ilya April 10, 2015 at 12:47 pm - Reply

    Which broker is best for keeping track of ACB ontime without misleading statements? TD?
    Can i have 100% trust in any broker??

  3. lake superior john March 31, 2015 at 8:23 am - Reply

    Great post, well laid out. Excellent comment above. Keep up the informative posts Justin!

  4. Davie215 March 30, 2015 at 1:41 pm - Reply

    Unlike the foreign currency adjustments to be made on purchases and distributions, which seems to be something that most people should know already, this ROC thing is a real blockbuster.

    First, the whole ROC thing is confusing, but if RBC only do the adjusting after the tax deadline, or close enough to it that most would have already worked through their apparent ACB calculations, that’s a tax bomb just waiting to blow up on us.

    Since ETF providers must submit the CDS reports by the end of February, the ACB data is on hand long before the tax filing deadline, and the brokerages ought to be required to make the adjustments promptly.

    I can recall an ACB adjustment with RBC DI on a CDZ holding a couple of years back, where I challenged them through secure e-mail to explain the new numbers. They were polite and cooperative through the secure e-mail messages, and patiently explained the adjustments. Do not know if it was in a taxable account, or the exact calendar date, but agree that the ROC discrepancies could make a big difference, and you know the CRA would pounce on shortchanging the tax owing.

    On a related issue, I talked to Purpose Investments, who convert interest income to CG or dividends with their mutual-fund-like capital class structure for ETFs. So they send you a T5, not a T3. The former has no box for ROC, so if there is any of this, you would not even see it, unless you pored through the CDS Innovations site looking for their tax package spreadsheets.

    Never mind the broker screwing up on ROC, the fund company does not seem to be providing a heads up either!

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