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Canadian Bond ETFs and Dividend Tax Credit

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  • Aug 30th, 2020 5:07 pm
[OP]
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Canadian Bond ETFs and Dividend Tax Credit

Are Canadian Bond ETFs holders like ZST, ZAG, ZLC, MFT, XSH entitled to receive Dividend Tax Credit (DTC) ?

According to this G&M article https://www.theglobeandmail.com/investi ... -retirees/ the answer seem to be yes. Wondering if anyone has received a T5 with DTC for such holdings in the past?
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Nov 27, 2019
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I don’t think so. Bonds pay interest not dividends. That’s why I keep them in RRSP.
Last edited by florenntina on Aug 30th, 2020 3:31 pm, edited 1 time in total.
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Feb 1, 2012
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No they are not. I'm not familiar with all the ETFs you mentioned, but the distributions from ETFs like XBB, ZAG and VAB consist almost entirely of interest, which is taxed as other income at your full marginal rate. They may pay small amounts of capital gains and return of capital, for example if holdings are sold at a gain. Look at the provider's website to see the composition of the distributions. In general the distributions do not contain any eligible or non-eligible dividends and are not eligible for the DTC.

If you read the article carefully you will see that the DTC referred to is for dividend paying Canadian equity ETFs.

T3s are issued for Canadian domiciled ETFs not T5s
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
[OP]
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Sep 19, 2009
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florenntina wrote: I don’t think so. Bonds pay interest not dividends. That’s why I keep them in RRSP.
Deepwater wrote: No they are not. I'm not familiar with all the ETFs you mentioned, but the distributions from ETFs like XBB, ZAG and VAB consist almost entirely of interest, which is taxed as other income at your full marginal rate. They may pay small amounts of capital gains and return of capital, for example if holdings are sold at a gain. Look at the provider's website to see the composition of the distributions. In general the distributions do not contain any eligible or non-eligible dividends and are not eligible for the DTC.

If you read the article carefully you will see that the DTC referred to is for dividend paying Canadian equity ETFs.

T3s are issued for Canadian domiciled ETFs not T5s
Eligible Dividends for ZST bellow - they qualify for DTC.

https://www.bmo.com/gam/ca/advisor/prod ... tributions
  • 2014 0.126018
  • 2015 0.021803
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I don't see anywhere on that page that states ETFs issue T5s. Generally Canadian ETFs are structured as trusts, which issue T3, Statement of Trust Income Allocations and Designations. Canadian investors do receive T5s for US domiciled ETFs.
Last edited by Deepwater on Aug 30th, 2020 5:10 pm, edited 1 time in total.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
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andrew4321 wrote: Eligible Dividends for ZST bellow - they qualify for DTC.

https://www.bmo.com/gam/ca/advisor/prod ... tributions
  • 2014 0.126018
  • 2015 0.021803
I did say "In general the distributions do not contain any eligible or non-eligible dividends and are not eligible for the DTC." and "Look at the provider's website to see the composition of the distributions."

ZST is not a pure bond fund. Its mandate allows it to hold preferred shares, which could issue eligible dividends.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.

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