ROC (Return of Capital): Is it BAD? NOT NECESSARILY! + How to Track your ACB (Adjusted Cost Base)

[@fernandodoria8717]

Grazie Adriano, that is the best complete explanation of ROC on all of KZbin!!

[@carolinevicanek2608]

I did a lot of research on Roc as well and read the same articles and agree with you . A couple of quick points. You mentioned a decreasing NAV over time is an indicator of bad Roc. Yes and more specifically you can determine for a given year if Roc is bad . If the NAV for that year goes up by at least the amount of Roc you were given then the roc came from unrealized gains and is good Roc. If the NAV return over the year is less than the Roc given then at least some of the roc is bad unless some of it comes from the losses being carried for Ward or REIT write downs. Basically like you said in general make sure the Nav is not going down over time . Hopefully that’s something you are tracking in terms of recommendations to your followers ( sounds a bit culty but you know what I mean). Also if someone is concerned about the ACB being reduced by Roc and then getting a much bigger tax bill when they sell ( ya I know- never sell ) you can keep your ACB stable by reinvesting the Roc portion of your yield . I read this in a few articles as well Thanks for all your work ! Ciao

[@monex90210]

I like the idea of reinvesting the ROC as it keeps you whole on your ACB and lowers your tax liability from future capital gains.

[@PassiveIncomeInvesting]

Thanks for the valuable input! I don’t keep track at that level but I agree with your assessment

[@carolinevicanek2608]

@@PassiveIncomeInvesting Thx.As a suggestion maybe a video on the good bad and the ugly of leverage use within a fund and how to tell if it’s too much or not. It scares me a bit. BUON NATALE !

[@tuuyen4531]

Yes. The key is to not let the share price go down too much over time. If it does then most of the distributions you got over the year are bad ROC. My take on this thing is ROC can NEVER be a good thing. They either take it from (uninvested) cash or from realizing losses, neither of which is desirable.

[@danjennings4700]

Exactly, ROC is a tax allocation only and not necessarily a bad thing. Plus (for Canadians holding in a TFSA), you don't care about ROC (or ACB for that matter), because the income and gains are tax free in TFSA.

[@PassiveIncomeInvesting]

Yup 👍

[@gally.c]

When you compare apples to oranges eg. owning a dividend stock to high yield ETFs you back out ROC and Leverage and you see yields are almost all the same across the board

[@PassiveIncomeInvesting]

No you don’t … you clearly misunderstood roc . Most people do

[@bryanspear6108]

I needed to hear this Adrian. Very helpful….but like you said, in TFSA and RRSP ROC is a non issue.

[@PassiveIncomeInvesting]

Glad it helped

[@jananmurali]

Thanks Adrian. Christmas is around us and enjoy the holidays bro. Happy holidays.

[@MrChepburn]

Great explanation Adriano - you ROCk ! It's too bad that there isn't separate terminology for good and bad ROC - that way people wouldn't just assume it always means giving you back your own money.

[@paulabeattie8565]

How do you find the nav history to check to see if the distributions include good or bad roc? For example: HYLD

[@kaysjourneyasacanadiannurs4221]

Wow Thanks Adrian. Always great video!

[@fcf777]

If the unrealized gains are given out as ROC, isn't there a risk of the stock price going down and the unrealized gains becoming a loss in the future? By the way, the Adidas product placement in all your videos is crazy, LOL.

[@SoulLead87]

Great video and explain well. Thanks again Adrian and Erica..

[@tuuyen4531]

Good ROC doesn't mean it can do better than capital growth. It just means it's not as bad as it might sound, in some cases that is. What they do is sell those stocks that don't do well and keep the unrealized capital gains in tact. But the fact they can have bad stocks to sell in the first place means they're not doing that great. In the long run, reduced capital means you lose the potential to earn more in exchange for monthly income. It's only for those who need monthly income.

[@PassiveIncomeInvesting]

Of course ! Anything that uses covered calls is designed for that purpose. Giving up some capital appreciation for more income .

[@Peepa_and_the_Pearl]

Absolutely EXCELLENT content for me-an old lady retired passive income investor. Thank you so much. Question: Do you know if HSBC Invest Direct also tracks the ACB for the covered call ETFs. Could you investigate and confirm please.

[@PassiveIncomeInvesting]

Thanks , I’m not sure about that , you can always call and ask 😉

[@jayb1799]

Awesome video yet again. Would be great to get a video on eligible dividends !

[@PassiveIncomeInvesting]

Have you see my tax videos?😉

[@dkyrtata6688]

Even though the brokerage tracks your ACB, it's a good idea to also track it yourself because their figures may be wrong (even legitimately). Case in point, I bought 400 shares of ZWC in three purchases during 2021 from Investorline. I sold half the shares in December 2021. The numbers that appeared in the T5008 did not add up to the ACB number I calculated. Their figures did not include ROC and they were missing at least one of the four commissions. Maybe all the ROCs will appear when I sell the remaining shares of the fund but that could be years from now. Ultimately, the investor (tax payer) is responsible to report the correct numbers and override the info in the T5008.

[@PassiveIncomeInvesting]

it could be yes... but a huge pain in the butt!

[@dkyrtata6688]

​@@PassiveIncomeInvesting, Indeed, I've been doing it for 30 years when they were not sending out the T5008 and the fund companies were not openly tracking it. That changed in the last 5-10 years. For the most part, their numbers are correct but I have come across some cases that the numbers are off by a few dollars. In one case, they seem to have fabricated transactions to derive at their number. As I mentioned earlier, there are several legitimate reasons why the T5008 is wrong. For example, if you hold the same investment with two different brokerages and you sell one of the investments, your capital gain/loss must reflect the average cost across both brokerages. The T5008 cannot do that. I avoided the complexity of doing that because when you ultimately sell everything, you come up with the same numbers anyway (but across different tax years which could have a different marginal tax rate).

[@joakimlind3424]

Hey Adrian! Not sure you mentioned this in any previous videos. But what's your strategy on reinvesting your drip? Looking at most charts stocks tend to dip on it's Xday. So do you refill on Xdays to try and snag a couple of extra stocks? Looking long term I don't see a problem on "missing" a dividend so to speak. Kind regards/A Swede

[@PassiveIncomeInvesting]

Hey bud ! I don’t use the drip . I tend to invest regularly every month . Check my drip video 😉

[@veneetbansal8559]

How do we find the ROC info for YTSL? I can’t find the tax information on their website

[@PassiveIncomeInvesting]

it wont be there until next year . you can only see the 2023 data sometime in early 2024. i would bet my house its all Capital Gains and ROC . its practically impossible it can be anything else

[@MS-jl1tl]

Thank you !

[@brianjordan4634]

Hi Adrian, my thanks to you and your wife for creating these videos they are very informative and helpful. Could you please explain where the money originates from for a fund company to pay "unrealized capital gains" as distributions? Thanks.

[@PassiveIncomeInvesting]

Stock price increases

[@medwayhistory3101]

Anyone know the answer to wealthsimple tracking or not? Thanks

[@seanstours3913]

Hey guys, so apparently a Return of Capital took place in my TFSA May 5th with my BTCY and ETHY etfs…so the average cost of my BTCY reduced from 6.80$ to 6.24$ and ETHY went from 5.51$ to 5.13…but my total book cost in my TFSA was reduced by 4,000$…i dont know if this is a good thing or bad thing? As I made an investment Friday to reach a new milestone in my portfolio but instead turns out iv just been reduced by 4,000$. Please help as RBC direct investing can only provide whats happened but no investing advice…

[@PassiveIncomeInvesting]

its neither a good thing or a bad thing really. it does not change anything for you, especially in a TFSA or any registered account for that matter. your income does not change and your #shares does not change right?, sleep well my friend

[@yen_mytran5435]

Thank sir

[@robertcheszes4347]

HI Adrian, Split share distributions showing as Interest not dividends on my BMO investorline account?

[@PassiveIncomeInvesting]

It’s just a “ bmo” thing. It’s not interest income don’t worry . It’s mislabelled . It’s technically a distribution.

[@sabrina7455]

love the video, Adriano...Also noticed the hair....very nice

[@rickmorrissette1787]

Awesome video!

[@MeZoRH]

I'm running into the issue that I've maxed my TFSA. Would opening a personal account be worth it?

[@PassiveIncomeInvesting]

Of course it is . Your going to leave you money in the bank doing nothing ?? 😎

[@brucebircher497]

I still am confused. If paying out roc results in an adjusted cost base lowering then if I sell it I have to pay capital gains on the difference it sure seems like I’m just getting my $$ back. And by including roc in the yield payable it is a fake number I think since lots of the yield is just getting your own $$ back?

[@PassiveIncomeInvesting]

Then don’t sell …

[@t-bonesteak1502]

Adrian. I just sold my house and I’m afraid to buy back into this crazy market. Do I go all in on high dividend stocks?

[@PassiveIncomeInvesting]

Yes ! 😉 just build yourself a diversified and balanced portfolio and live off the interest. That’s whAt I did ! .

[@RC-lc6ph]

I agree but hard to do right now with the market at all time highs, it can be bit scary if you think about it. Recommend you DCA for a couple months. This way you can get comfortable with the the positions you choose prior to going all in. Also, in case your timing is off and major crash happens after your all in, keep some cash to buy more should that occur.

[@goldman1195]

hi . today is 16 dec and SBC.to price has crashed from 15 down to 12 and change ..do you know whats going on with this as the underlying stocks it holds all are up instead of down ?? i hold this fund and now concern about it..thx.

[@PassiveIncomeInvesting]

The split they had ? Where you been bro ? Not in my Facebook group I guess 😉

[@goldman1195]

@@PassiveIncomeInvesting i will add ya to my fb too but why do I see a 20% loss on my account...did i just incurred a big loss because of this split decision? how does that work? should I sell ?

[@PassiveIncomeInvesting]

Don’t sell , the price dropped but you will get 25% more shares for free !

[@rontho7093]

The split should not have lost you money. Your Broker should have adjusted your avgerage cost price/share down to $12 to reflect the split and 25% increase of shares. Example: 1000 shares @ 15.00 = $15000 should have be adjusted to 1250 shares @ $12.00 = $15000 I am with Questrade and they added the 25% increase in shares but "forgot" to adjust down the share cost price. I called Questrade and they fixed the issue. Good thing with the split is 25% more shares earning $0.10/share dividend.

[@goldman1195]

@@rontho7093 thanks ron. i am with questrade too and they forgot to do it as I still see a big loss on my account. so i will contact them for sure. is there a way to see on questrade how many shares was added post split to my total shares?

[@louis20122]

What do you think about QYLD's ROC?What do you do if you find out it is a bad ROC? It is not easy to identify bad ROC if money continues to flow in to support net assets so you don't see net assets decrease.

[@PassiveIncomeInvesting]

Exactly . Look at the nav and stock price it’s not steadily going down . It fluctuates little that’s a good sign !

[@efullname]

@@PassiveIncomeInvesting This information is very helpful specially for PII. Some high yield stocks like BK is hard to analyze because I can't find its NAV price history while analyzing SBC was a breeze.

[@suzymail1000]

Hi Adrien, I purchased SBC and received a notice of split shares Should i hold or sell? If the NAV is too low i get no divs. Need your expertise on this topic. Cheers and thanks Suzy

[@PassiveIncomeInvesting]

Buy and hold it forever . That’s my expertise 😉

[@jumbothompson]

Does Questrade track ACB?

[@PassiveIncomeInvesting]

yup

[@jumbothompson]

@@PassiveIncomeInvesting thx!

[@frankiestacks944]

I only received a 1 cent dividend on DFN not the 10 cents. I’m with CIBC this must be a mistake. Anyone else have this problem getting shorted on DFN pay date on December 10th

[@PassiveIncomeInvesting]

Yup you’re not the only one , Join my Facebook group 😉

[@frankiestacks944]

@@PassiveIncomeInvesting followed

[@chrishanzek8930]

How do you get a tax refund if you pay no tax?

[@PassiveIncomeInvesting]

?? I pay tax . I had salary income that I paid tax on

[@chrishanzek8930]

18:40 "If you had no salary income like us" 18:58 "In the end, not only do we not pay any tax, but for 2020 we actually got tax refunds"

[@PassiveIncomeInvesting]

Right now we don’t . In 2020 I did . Now we have no salary income , but we have business income . What I’m trying to say is that it’s very tax efficient

[@Anzegrupen]

Q&A from other video, "Sorry Adrian but it is not clear about TFSA contribution room. You are saying, make a withdrawals in order to increase the contribution room, in this case you was supposed to do it for years and your TFSA book value should be much bigger for now with bigger dividends after reinvestment. BUT I can't see you doing that on your TD account 😬. Dividends withdrawals cannot increase the contribution room of TFSA 😉"

[@PassiveIncomeInvesting]

Dude I only had a tfsa for about 3 years … and when you withdraw any dividend $ from your account ( not touching the principle ) you increase your tfsa room for the following year by the amount you take out . This is a fact and it cannot be disputed . If you will still dispute it , I can’t help you further .

[@Anzegrupen]

@@PassiveIncomeInvesting Thanks man, appreciate your help!!!!

[@billychu4630]

May I kindly seek your advice whether the ROC of GOF (US CEF) is a good or bad ROC? Thanks a lot

[@PassiveIncomeInvesting]

Looking at the chart price shows stability , I don’t see the nav eroding , so I would say it’s probably good roc

[@dwaynecunningham2164]

Thanks dude. You ROC.

[@PassiveIncomeInvesting]

haha

[@valveman12]

I wanna *ROC* I couldn't help myself.😁

[@moresugartradercc2744]

yes RY.TO tracks ROC

[@PassiveIncomeInvesting]

Thanks for co confirming !