The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: techwiz on January 16, 2017, 01:03:45 PM
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I recently read advice from a few sources that having DRIP in registered accounts TFSA, RSSP, RESP are good, but you should not enroll into DRIP for taxable accounts.
The reasons provided were:
- It makes it difficult to determine your Adjusted Cost Base (ACB) used for taxes when you sell.
(You must calculate this yourself since your broker will not do this for you …. Not sure how complex this is or how much paper work this is?) - If you don’t do this you’ll pay more tax than necessary when you eventually sell. For a long term investor it could add up to a lot! (This got my attention.)
I have DRIPS on my taxable account thinking I was smart by not paying the $9.95 trading commissions on the new shares and it getting my dividends working for me quickly and automatically. Now I am thinking I might have created a paperwork problem or setting myself up to pay more tax than I need to in the future.
I am looking for advice hopefully from someone with knowledge and experience calculating ACB:
- Should I stop using DRIP in my taxable account?
- What is the best method of calculating ACB and tips for keeping these records? How to use these to prevent the tax man from taking more than his share?
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Maybe you've already seen this http://canadiancouchpotato.com/2013/04/08/why-you-should-avoid-drips-in-taxable-accounts/
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Yes I think that was one of the places I read about it. Just wanted to get some advice from here if anyone calculates ACB. That article has a good link to http://www.adjustedcostbase.ca/ (http://www.adjustedcostbase.ca/) site which is suppose to help calculate ACB. I haven't really took the time to try it out yet.
Seems like the advice is just don't DRIP in taxable account.
I am leaning to just phone up BMO Investorline and cancel the DRIP on my taxable account, but really would like to understand the true costs/impact of not doing ACB.
I have to phone to cancel so I will also ask the question to the brokerage maybe they have software to do this for me. I know that BMO Investorline does a thing called "synthetic DRIP" so maybe that is different to a regular DRIP.
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I did contact BMO InvestorLine and got the response that they automatically calculate Adjusted Cost Base (ACB) for my ETF's in my taxable accounts. They incorporate DRIPS, purchases, and even transfers. So I should be good and not have to worry about track ACB for my ETF's in my taxable account.
Keep Calm and DRIP On
Therefore I have left the DRIPs in place in my taxable account. I will do some checking on http://www.adjustedcostbase.ca/ (http://www.adjustedcostbase.ca/) after the next dividend payout to verify how accurate they are.
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I DRIP in my taxable accounts. With an excel spreadsheet its NOT that bad of a calculation. One or two minutes per DRIP, plus the other distributions...Maybe 20 mins per stock? Of course it takes a bit longer the first time. Not a big deal honestly. Worth it to me to keep all my employees hard at work...
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Decent brokerages will do the work for you.
Only if you hold 'proper' DRIPs do you need to do it yourself; that is, the shares are in your name, rather than held in trust by the brokerage.