Mutual Fund Distributions

Because of their structure, many mutual funds pay a distribution.

Two mutual fund structures:

1. Mutual Fund trust structure: Classified by Canada Revenue Agency as a “flow-through entity”, this structure allows the taxable income earned inside the trust to be treated such that taxable income flows through to the individual unitholder and be treated at the individual’s tax rate, which is often lower than the highest marginal tax rate at which it would be taxed if the fund held on to it.
2. Share class structure: Some of our funds are structured as a share class of a Canadian corporation. This share class structure allows clients to switch between Funds without realizing capital gains. Capital gains are triggered only when shares are redeemed for cash or when shares are switched to a mutual fund set up as a trust structure. These funds also payout distributions to investors. They payout distributions in the form of capital gains and dividend income.

Fund distributions:

• Distributions from BMO Security Funds and BMO U.S. Dollar Money Market Fund are always reinvested in the funds
• Distributions from BMO Monthly Income Fund and other funds may include a return of capital. This portion of the distribution isn't taxable
• BMO U.S. Dollar Equity Index Fund and other funds that use derivatives distribute all earnings from derivatives as income, rather than capital gains
• BMO Precious Metals Fund and BMO Resources Fund distribute gains from the sale of precious metals as income, rather than capital gains

Income earned by BMO U.S. Dollar Money Market Fund must be reported in Canadian dollars for income tax purposes. When the fund sells or matures investments in U.S. dollars, it may realize a gain or loss on the exchange rate when converted to Canadian dollars. This is treated as a capital gain or loss for income tax purposes. The fund distributes any capital gains and consolidates outstanding units in December to maintain an NAV of US$1.00.

Calculating your capital gain or loss
A capital gain or loss for tax purposes is the difference between the amount you receive for a redemption or switch and the adjusted cost base (ACB) of your units.

How to calculate ACB
ACB = Your initial investment
    + Plus additional contributions
    + Plus reinvested distributions
        - Minus the capital returned in any distributions
        - Minus the ACB of any previous redemptions