Questrade.ca Dividends from Vanguard ETFs?

[Retire-Canada]

I've just started buying Vanguard ETFs through Questrade.ca.

- VUN
- VCN
- VXC
- VTI

I assume I'll be getting dividends from some of the underlying stocks. Do I get those as cash I have to reinvest or can I set that up to auto reinvest? For my non-reg account in particular I don't want to see cash so I don't add to my taxable income for the year. If I can how do I setup the dividend reinvestment?

Newb question I know. Thanks for any help on this.

-- Vik

[Heckler]

Call up QT and ask them to set up a DRIP on all funds in your account (Dividend Re Investment Program)

You'll get automatically reinvested if you have enough units at each dividend period (quarterly for VUN/VCN, monthly for VAB).  i.e. 100 units with a $0.05 monthly dividend is only $5, not enough to buy another VAB.  The remainder will end up as cash you have to reinvest manually.  This is the cost of ETFs vs mutual funds.

I'm assuming QT works the same as my account provider (a major bank).

[Heckler]

then make up a spreadsheet and obsess about what you need to buy more of to meet the automatically reinvested dividend value.  This is why ETFs are only efficient with larger account values.  ETFs do not trade in partial units like a mutual fund.

[firebeard]

My understanding is that reinvesting dividends (even by using a DRIP) has no impact on whether or not receiving a dividend is a taxable event; if it's in a taxable account it will be taxed (with the exception of some investments e.g. most muni bonds).

Can someone confirm that buying more shares using a DRIP is still taxable at the same rate as if the dividend were received as cash?  (I think the upshot to a DRIP is avoidance of paying a commission to buy more of the same shares.)

[Cathy]

Can someone confirm that buying more shares using a DRIP is still taxable at the same rate as if the dividend were received as cash?

This is correct.

You do not need to call Questrade to set up synthetic DRIP, although back in the day (several years ago), you did need to mail them a paper form.

Also, when I last used synthetic DRIP with Questrade (and again, this was years ago), their implementation was seriously flawed and caused a few cents to "disappear" from my account with each share purchase. By this I mean, the cash balance in my account would be incorrect based on the accounting of transactions that allegedly took place. Although I was only losing 10-15 cents per DRIP, I still consider this to be an extremely severe error, because financial institutions should not lose your money due to math errors! If you multiply this error across everybody using DRIP, they may have stolen (or be stealing) a large amount of money, most of which they probably never refunded.

After weeks of arguing with customer service, somebody eventually refunded me the money they had stolen through incorrect math, but I have no idea whether they ever fixed the problem. Personally, I would never trust Questrade with my assets again. I recommend Interactive Brokers.

[Retire-Canada]

Can someone confirm that buying more shares using a DRIP is still taxable at the same rate as if the dividend were received as cash?

This is correct.

Thanks. That solves my problem. I don't mind buying ETFs manually with my dividends if there is no tax benefit in a non-registered account.

-- Vik

[ingrownstudentloans]

"then make up a spreadsheet and obsess about what you need to buy more of to meet the automatically reinvested dividend value.  This is why ETFs are only efficient with larger account values.  ETFs do not trade in partial units like a mutual fund."


Not entirely true.  You cannot buy partial units of an ETF, however, you can DRIP partial units.

I DRIP ETFs in my TDAmeritrade IRA.  Lots of the Vanguard ETFs are on the commission-free list and with the DRIP you reinvest in the partial amounts.

[Heckler]

You cannot buy partial units of an ETF, however, you can DRIP partial units.

I DRIP ETFs in my TDAmeritrade IRA.

Tell that to my Canadian broker please.  I keep getting cash that's a few bucks less than the cost of another unit.

[Retire-Canada]

Tell that to my Canadian broker please.  I keep getting cash that's a few bucks less than the cost of another unit.

Honestly having 1 more or less share of an ETF worth $30-$110 is really meaningless unless you are just starting the FI journey. Having 8000 shares or 8001 shares won't change your FIRE plans.

It would be nice to have that money invested a little earlier, but it's not important.

-- Vik

[Heckler]

Honestly having 1 more or less share of an ETF worth $30-$110 is really meaningless unless you are just starting the FI journey.

Yup, We're just starting out with our first quarter million. 

Unfortunately, it's divided across several accounts (his RRSP, her RRSP, her spousal, his TFSA and her LIRA), following a 2014 Canadian Couch Potato with smart asset location, a wholistic view of asset allocation and ability to rebalance via several accounts that are all being contributed to.  The result is some of our holdings are not big enough to DRIP even 1 unit, which is unfortunate, but drives us to contribute more.   

[okits]

CCP says DRIPs make calculating ACB a PITA for non-registered accounts.  (Couldn't resist acronym city. :)

http://canadiancouchpotato.com/2013/04/08/why-you-should-avoid-drips-in-taxable-accounts/

[Retire-Canada]

CCP says DRIPs make calculating ACB a PITA for non-registered accounts.  (Couldn't resist acronym city. :)

http://canadiancouchpotato.com/2013/04/08/why-you-should-avoid-drips-in-taxable-accounts/

Thanks for the link the ACB hassle seems to evaporate if you can buy new shares for free as is the case with Questrade. That way when you sell your CG or CL would be = (sale price/share - avg cost/share) x # shares - sale fee.

That seems easy enough the calculate regardless of whether you bought 200 shares once per year or 20 shares each month as long as there were no fees for those purchases to track.

Does that sound right?

-- Vik

[Retire-Canada]

I've maxed out my TFSA and RRSP for 2015 so all my savings each month are going into my non-reg account now.

Since there is no tax benefit to DRIP I'll just manually buy ETFs with any dividends each month when I make my additions.

-- Vik

[okits]

CCP says DRIPs make calculating ACB a PITA for non-registered accounts.  (Couldn't resist acronym city. :)

http://canadiancouchpotato.com/2013/04/08/why-you-should-avoid-drips-in-taxable-accounts/

Thanks for the link the ACB hassle seems to evaporate if you can buy new shares for free as is the case with Questrade. That way when you sell your CG or CL would be = (sale price/share - avg cost/share) x # shares - sale fee.

That seems easy enough the calculate regardless of whether you bought 200 shares once per year or 20 shares each month as long as there were no fees for those purchases to track.

Does that sound right?

-- Vik

I don't think it's the fees, more just having to track each purchase for the purpose of calculating ACB. Even with only quarterly dividend distributions, over 10 years that's an additional 40 transactions to document for a single ETF.

CCP assumes people are not in love and obsessed with their investment spreadsheets.  :)

[Retire-Canada]

I don't think it's the fees, more just having to track each purchase for the purpose of calculating ACB. Even with only quarterly dividend distributions, over 10 years that's an additional 40 transactions to document for a single ETF.

CCP assumes people are not in love and obsessed with their investment spreadsheets.  :)

If your brokerage account for the ETF in question provides an average buy cost for the shares can you not simply use that number, the sale price and the sale fee to calculate your capital gains/loss? Assuming no fees to buy ETFs.

--Vik

[Cathy]

You probably want to keep track of your transactions in a spreadsheet of your own construction, because unlike in the USA, brokers are not required to keep track of your adjusted cost base for you. You might think you're in the clear because they are showing you an average now, but there's no guarantee that that number on the broker's webpage will be correct in the future.

Just by way of one example, a couple years ago Questrade transitioned to a different trading platform, and in the process, they discarded all historical data on purchase prices in accounts. If you had had Questrade account at that point, your displayed average price would have been reset to the current market price on the date of the transition, completely throwing away the information that you are depending on. Knowing Questrade, that could happen again the future. They are under no obligation to keep that information accurate for you.

Even if Questrade remains accurate indefinitely into the future (an unlikely proposition really), you might transfer the assets to another broker who would not receive your transaction history as part of the transfer.

I would recommend keeping your own records.

[Retire-Canada]

I would recommend keeping your own records.

Good advice. Thanks.

-- Vik

[My Own Advisor]

I would recommend keeping your own records.

Good advice. Thanks.

-- Vik

Agreed although your broker should keep decent records.

[Retire-Canada]

Agreed although your broker should keep decent records.

I'm thinking something simple like snapping a screen capture of my brokerage info once a quarter. If I have # of shares and avg price I can work out the ACB down the road when I have to.

Ideally I never have to use the archived data if my brokerage account retains my records.

-- Vik

[My Own Advisor]

Screenshots are good! Big fan of them.