Dan Hallett

From Our Canadian Bureau: Quarterly Distributions on Canadian ETFs

Distribution estimates were announced this week by Barclays Global Investors, State Street Global Advisors, and TD Asset Management for their respective Toronto Stock Exchange traded exchange-traded funds. The table below summarizes the expected distributions for each.

All of the ETFs shown in the above table pay dividends quarterly and capital gains annually. So, the distributions above consist entirely of dividends. Canadian taxpayers receiving dividends from Canadian corporations, receive a bit of a break via the dividend tax credit. Since corporations pay dividends with after-tax dollars (i.e. they're not deductible), Canadians pay tax on 125% of the actual dividends received, to approximate the pre-tax amount of the dividend. A dividend tax credit, equal to 1/6th of the actual dividend, directly offsets federal tax. Provincial tax treatment of dividends differs somewhat but most are consistent with the federal treatment.

A taxpayer in Ontario, Canada's largest province, with taxable income less than about $30,000 will have a marginal tax rate of less than 5% on Canadian-source dividend income in 2001. Ontario's highest tax bracket kicks in when taxable income tops $100,000, at which point the marginal rate on dividends peaks at about 31%. Interest is always fully taxable, while only half of all capital gains are included in taxable income. Canadian taxpayers wanting to get specific figures for their own situation should pay a visit to the excellent tax calculator at the Ernst and Young website.

For Canadian tax purposes, exchange traded funds are treated the same as other pooled investment funds or "flow-through entities". Remember that commissions incurred to buy or sell iUnits effectively reduce any capital gains or increase capital losses, but are not deductible in the year paid. Click here for more information on how income tax affects Canadians holding investment funds.

Dan Hallett, B.Comm., CFP is Senior Investment Analyst with Sterling Mutuals Inc. Sterling Mutuals Inc. (http://www.sterlingmutuals.com) is registered as a Canadian mutual fund dealer in Ontario, British Columbia and Manitoba.[/:Author:]