capital gain distribution witholding tax bond etf

Discussion in 'ETFs' started by luisHK, Dec 12, 2012.

  1. luisHK



    I got hit twice today by BOND. Totally unaware of a capital gain distribution payment outside the usual end of the month dividends payment - which I try to avoid because of the 30% witholding tax - not only did I come long this morning with abt 5500shrs, but I purchased some more premarket when I noticed some unusual activity below the price at a time when teh etf is usually dead. It took me a few minutes to discover the capital gain distribution :(

    Besides hoping to finally get the lesson to keep my hands out of the keyboard premarket, as i'm usually less informed than the guys on the other side, are those cap gain distribution witheld by IB at the same rate of dividends or are they considered like cap gains, and declared at the end of the year to tax authorities and taxed according to one's residence (the difference is very substantial in my case) ?
  2. luisHK


    It doesn't look good

    US tax law requires the withholding of tax for non-US persons (non-resident aliens) at a rate of 30% on payments of US source stock dividends, short-term capital gain distributions and substitute payments in lieu

    It looks like I just blew roughly 1.5k :( if the price stabilises where it shows now , last year on the parent fund there was a rougly 5% cap gain distribution - that would be painful :eek:

    F***n hate distributions !
  3. luisHK


    Anybody here cares to comment, as Pimco specifies it whould be treated as long term cap gain on their prospectus ?

    I will see tomorrow how much IB has witheld but would like to know how those cap gain distributions should be treated, and wether there are opportunities to claim a refund from the IRS for non US national nor US residents ,on the ETF or the parent mutual fund, or other BOND funds, as i'd be interested in holding more and longer term but the many distributions make a serious dent in the profits.

    Page 97

    "The Funds generally are not expected to qualify for the deduction for dividends received by corporations and/or the
    reduced tax rate for individuals on certain dividends. Distributions of net capital gains, if any, designated as capital gain
    dividends, are taxable as long-term capital gains, regardless of how long the shareholder has held a Fund’s shares and are not
    eligible for the dividends received deduction. Any distributions that are not from a Fund’s investment company taxable
    income or net realized capital gains may be characterized as a return of capital to shareholders or, in some cases, as capital
    gain. The tax treatment of dividends and distributions will be the same whether a shareholder reinvests them in additional
    shares or elects to receive them in cash. The maximum tax on long-term capital gains is currently scheduled to increase from
    15% to 20% after 2012."
  4. luisHK


  5. gkishot


    This could happen with any etf. Not sure what is your beef with BOND.
  6. luisHK


    coz I'm long BOND, not other ETF... I started getting used avoiding the dividends distribution, but it's the first time I get hit with the cap gains distribution.
  7. Distributions generally don't make or lose the holder money... just make for annoying accounting.

    The amount of the distribution lowers your cost basis in the stock.. the amount basis gets reduced is recovered "tax free" or is added to cost basis on subsequent stock purchase and is effectively recovered tax free.
  8. luisHK


    As a non US resident non us national, I get 30%witheld from IB on any dividend payment. Yet my cap gains are taxed at the beautiful rate of 0%.

    Quite a bit of difference. This is one of the reasons I switched to futures from ETFs as I can get roughly the same returns but without the dividends witholding tax. YetI couldn't figure out how to do BOND with futures, and BOND returns have been very good since inception.

    Really 2 mistakes out of ignorance today, first could have liquidated the position around MOC yesterday tax free, getting indirectly the full amount of the distribution (and actually I did plan to sell some today), plus I shouldn't have bought anything premarket before figuring out what was going on.

    Lousy week so far, when i've been bleeding a couple of grants here and there (not all financial markets related) without much good happening.
  9. bjw


    assuming from your handle you're from Hong Kong. this would not be good as to my knowledge there's no current tax treaty between the USA and HK (but it might be worth to check, my knowledge is not up to date). However, for other non US nationals reading this thread: if the US does have a tax treaty with your country, you should complete a W-8 Form to get your withholding % reduced to the agreed rate (usually 15%), and you can generally claim back the 15% you do have to pay as a credit in your own country under a clause to avoid double taxation.