Beat-up tech stocks, ‘phantom’ ETF distributions and the cryptocurrency craze: What you need to know in investing this week

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Beat-up tech stocks, ‘phantom’ ETF distributions and the cryptocurrency craze: What you need to know in investing this week (subscribers) GlobeInvestor

If you invest in exchange-traded funds, chances are you have already encountered a “phantom” distribution – or soon will, John Heinzl writes. To demystify the topic, let’s use iShares Core S&P 500 Index ETF as an example. According to the iShares website, on Dec. 22 XSP declared a total distribution of $1.92382 per unit, of which 26.792 cents was paid in cash. The rest – $1.65590 – was classified as a reinvested distribution. If not cash, what did the investor get exactly? A tax liability.

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 adjusted cost base 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.

 

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