Deductible Interest Tracker

Investment Distribution

Use this event when your holdings pay dividends or distributions, especially those containing return of capital.

When to Use

Record this event when a security in your brokerage pays a distribution. This is particularly important for ETFs and funds that may include return of capital (RoC) in their distributions, as RoC affects your cost base and borrowed allocation.

For simple dividends with no return of capital component, you can still record them to keep your personal cash balance accurate, though the impact on interest deductibility is minimal.

What You Enter

Date — The payment date when cash was deposited to your brokerage account.

Symbol — The ticker symbol of the security that paid the distribution.

Total amount or Amount per unit — The total distribution received, or the per-share amount. If you enter per-unit, the app calculates the total based on your holdings.

Return of capital — The RoC portion of the distribution. You can enter this as a total amount or per-unit. This information comes from your T3 or T5 tax slip, or from the fund company's distribution breakdown.

Units (optional) — The number of units receiving the distribution. Defaults to all units you hold. You might specify a different number if you acquired shares after the record date.

What Happens

Distributions have two components: return of capital (RoC) and everything else (dividends, interest, capital gains). The app treats these differently.

Return of Capital Portion

RoC is not income—it's your own invested money coming back to you. This affects your cost base and, importantly, the borrowed portion of your investment.

Credit Account:

  • Invested Principal decreases by the borrowed portion of RoC
  • Uninvested Principal increases by the borrowed portion of RoC

Brokerage Account:

  • Borrowed Cash increases by the borrowed portion of RoC
  • Personal Cash increases by the personal portion of RoC

Holdings:

  • Total Cost Base decreases by the RoC amount
  • Borrowed Cost Base decreases proportionally
  • Personal Cost Base decreases proportionally

Income Portion (Dividends, etc.)

The non-RoC portion is income. It goes entirely to personal cash.

Brokerage Account:

  • Personal Cash increases by the income amount

The income portion doesn't affect your cost base or the invested/uninvested split—it's new money, not return of capital.

Example: Distribution with Return of Capital

You hold 500 shares of an ETF with a $12,000 cost base: $9,000 borrowed (75%), $3,000 personal (25%). The ETF pays a $0.30 per unit distribution, of which $0.08 is return of capital.

Event: Investment Distribution

  • Symbol: XYZ
  • Units: 500
  • Amount per unit: $0.30
  • Return of capital per unit: $0.08

Calculation:

  • Total distribution: $150 (500 × $0.30)
  • Total RoC: $40 (500 × $0.08)
  • Income portion: $110 ($150 - $40)
  • Borrowed portion of RoC: $30 (75% of $40)
  • Personal portion of RoC: $10 (25% of $40)

After:

  • Invested Principal decreases by $30
  • Uninvested Principal increases by $30
  • Borrowed Cash increases by $30
  • Personal Cash increases by $120 ($110 income + $10 personal RoC)
  • Cost Base decreases by $40 (to $11,960)
  • Borrowed Cost Base decreases by $30 (to $8,970)

The distribution put $150 in your brokerage: $30 as borrowed cash (the borrowed portion of RoC returning) and $120 as personal cash (income plus personal RoC).

Example: Simple Dividend (No RoC)

You hold shares of a stock that pays a quarterly dividend of $0.50 per share on 200 shares.

Event: Investment Distribution

  • Symbol: ABC
  • Units: 200
  • Amount per unit: $0.50
  • Return of capital: $0 (or leave blank)

After:

  • Personal Cash increases by $100
  • Everything else unchanged

With no return of capital, the entire distribution is income and goes to personal cash. Your cost base and borrowed allocation are unaffected.

Finding Return of Capital Information

RoC information comes from:

T3/T5 Slips: At tax time, your fund company sends tax slips showing the breakdown of distributions. Box 42 on T3 slips shows return of capital.

Fund Company Websites: Many ETF providers publish monthly or annual distribution breakdowns showing the RoC component. Check the "distributions" or "tax information" section.

Estimated vs. Actual: Fund companies often provide estimated breakdowns throughout the year, with final figures confirmed in tax slips. You can record distributions with estimated RoC and adjust later when you get the actual figures.

Why Return of Capital Matters

RoC gradually reduces the borrowed portion of your investment. Consider a position that was 100% borrowed:

  • You invest $10,000 borrowed money in an ETF
  • Over several years, you receive $2,000 in return of capital
  • Your cost base is now $8,000
  • Your borrowed cost base is also $8,000
  • Your invested principal has decreased by $2,000

Each RoC distribution returns some borrowed capital to your brokerage as borrowed cash. If you don't reinvest it, that cash might eventually be withdrawn for personal use—shifting debt from deductible to non-deductible.

To maintain maximum deductibility, you could reinvest the returned borrowed cash in new securities.

Common Questions

What if I don't know the RoC breakdown yet? You can record the distribution with zero RoC initially, then edit it later when you receive your tax slip. The app will recalculate all subsequent balances.

Should I record every dividend? For pure dividends with no RoC, recording them keeps your cash balance accurate but has minimal impact on interest deductibility. If a distribution has any RoC component, definitely record it.

What if RoC exceeds my cost base? This can happen if you've received substantial RoC over time. When RoC exceeds remaining cost base, the excess is treated as a capital gain. The app will warn you if this situation occurs.

How does this affect my taxes? RoC isn't taxed when received—it reduces your cost base instead. This means a larger capital gain (or smaller loss) when you eventually sell. For interest deductibility, the key point is that borrowed cost returns as borrowed cash.

CRA Basis

Return of capital reduces the adjusted cost base (ACB) of your investment. Per Income Tax Folio S3-F6-C1, when borrowed money is returned (through RoC or sale), the return follows the same tracing as the original investment.

The app applies this by reducing the borrowed portion of cost base when RoC is received, and returning that borrowed amount as borrowed cash (uninvested principal) in your brokerage.

Related Events

Investment Purchase — Reinvest returned borrowed cash to maintain invested principal.

Investment Sale — Sales also return capital, using similar logic.

Brokerage Cash Withdrawal — If you withdraw the returned borrowed cash for personal use.