Glossary.

Every term this site uses that a reader might not already know, written for someone who has never held a fund. 38 entries.

Adjusted cost base ACB, cost base: What the tax system treats as the amount you paid for a holding — your purchase price plus commissions, adjusted for anything that has happened since. It moves. Return of capital lowers it every time you are paid, so the figure on your statement the day you bought is almost never the figure that matters when you sell.
Capital gain: The profit when you sell something for more than its adjusted cost base. Only half is taxable in Canada, which makes it the cheapest kind of investment income for most people at most income levels.
Covered call: An option the fund sells against shares it already owns. The buyer gets the right to buy those shares at a set price; the fund keeps the premium either way, and pays much of it out as distributions. The premium is not free money. It is sold in exchange for giving up the gains above that set price, so these funds tend to hold up in flat markets and lag badly in strong ones.
Distribution: The cash a fund pays out, usually monthly, expressed per unit. The fund collects income from its holdings and passes it on. Not the same as a dividend. A distribution is a mix — dividends, capital gains, foreign income and return of capital — and each piece is taxed differently.
Dividend tax credit DTC: A non-refundable credit that offsets tax on the grossed-up dividend, approximating the corporate tax already paid on the profit. It only offsets tax you would otherwise owe. Inside a TFSA or RRSP there is none, so the credit is forgone entirely.
Domicile: The country a security is legally established in, which decides the withholding tax on its dividends — not the exchange it trades on. A fund trading on the TSX in Canadian dollars can hold US-domiciled securities, and the withholding happens at the fund before your account matters.
DRIP distribution reinvestment plan: An arrangement where distributions automatically buy more units instead of arriving as cash. Those units then pay too, so the position compounds. A broker DRIP buys whole units only; the remainder stays as cash. Some brokers charge for it.
Eligible dividend: A dividend from a Canadian public company that has already paid full corporate tax. It is grossed up by 38% on your return, then largely offset by the dividend tax credit. The grossed-up figure counts in your net income, which is what income-tested benefits like Old Age Security are measured against — so $100 can cost you benefits as though it were $138.
Ex-dividend date ex-date: The cutoff that decides who gets paid. You must already own the units before this date; buy on it, or after, and the payment goes to the seller. The price also opens lower that morning by roughly the distribution. That is not a loss — the fund is about to hand out cash it currently holds.
FHSA First Home Savings Account: A registered account, opened to Canadians in April 2023, giving an RRSP-style deduction going in and a TFSA-style tax-free withdrawal for a first home. It gets no US treaty exemption. Foreign dividends are withheld at source and cannot be recovered, exactly as in a TFSA.
Foreign tax credit: A credit for tax withheld by another country, claimable against Canadian tax on that same foreign income. It only exists where Canadian tax is payable. In a TFSA, RESP or FHSA there is none, so foreign withholding is unrecoverable.
Foreign withholding tax: Tax the source country takes from a dividend before it reaches the fund. The United States withholds 15% from dividends paid to Canadian holders. You never see it as a line item and it is not a fee, so it does not show in the management expense ratio. Outside a registered account you can claim it back as a credit; inside a TFSA or RRSP it is simply lost.
Fund of funds: A fund whose holdings are other funds rather than individual companies. Its published management fee is often 0%, which is true and misleading: it charges nothing directly and you still pay the fees of everything it holds. This site shows the combined figure instead.
Gross-up: The amount a Canadian dividend is inflated by on your tax return before tax is calculated — 38% for eligible dividends, 15% for non-eligible ones. It inflates net income, which is what income-tested benefits are measured against. The dividend tax credit fixes the tax but not the income figure, so eligible dividends reach the OAS threshold on roughly 28% less cash than other income does.
Integration: The principle that a dollar earned through a corporation and paid out to you should bear roughly the same total tax as a dollar earned directly. It is what the gross-up and dividend tax credit exist to achieve, and why two kinds of dividend exist at all.
Issuer provider: The company that builds and runs an ETF, sets its fee and publishes what it holds. The legal term in Canada is investment fund manager. Not a bank, though several are bank-owned, and not a hedge fund.
Leverage: Borrowing inside the fund to hold more than your money alone would buy. A fund at 125% exposure has borrowed 25 cents for every dollar you put in. It amplifies both directions, and fees are charged on the gross exposure — so a leveraged fund of funds costs more than the weighted fees of its holdings would suggest.
Management fee MER, management expense ratio: The annual charge for running the fund, taken out before anything reaches you, in every market. The most certain number in investing. Not the whole cost. Trading expenses inside the fund and foreign tax withheld at source both reduce what you receive without appearing here.
Marginal tax rate: The rate you pay on your next dollar of income — not the average rate across everything you earn. It differs by the kind of income. At the same salary, a dollar of eligible dividends, a dollar of capital gain and a dollar of interest are all taxed at different rates.
Net income: The figure on your return that income-tested benefits and credits are measured against, calculated before the dividend tax credit is applied. It contains the grossed-up dividend, not the cash you received — which is why it matters more to a dividend investor than taxable income does.
Non-cash distribution phantom distribution: A distribution the fund declares, reinvests on your behalf and immediately consolidates away, so your unit count is unchanged and no money arrives. Usually a year-end event. You may still owe tax on it. In exchange your cost base rises by the same amount — but only if you record it, and people who do not end up paying tax twice on the same dollar.
Non-eligible dividend ordinary dividend: A dividend paid from income taxed at the small business rate, grossed up 15% and carrying a smaller credit than an eligible dividend. It is taxed more in your hands precisely because it was taxed less in the corporation. The system is balancing the total, not penalising you.
OAS recovery tax OAS clawback: Repayment of Old Age Security at 15 cents per dollar of net income above an annually indexed threshold. It is tested against net income, which counts the grossed-up dividend rather than the cash received.
Overlap: The share of two funds that is the same underlying holdings. Two funds with high overlap are one position bought twice, not diversification. It can be structural rather than coincidental: a fund of funds may hold another fund you also own directly.
Pay date: The day the cash actually reaches your account — typically one to two weeks after the ex-date. Being entitled and being paid are separated by a gap, so the first month feels wrong in both directions.
Payout ratio: The share of earnings or cash flow paid out as distributions. A ratio near or above 100% means the payment is not covered by what the business earns. Coverage tells you more about whether a distribution survives a downturn than the yield does.
Record date: The day the fund reads its register to see who holds units. Since Canada moved to one-day settlement in May 2024, it falls on the ex-date, so there is one cutoff in practice rather than two.
Return of capital RoC: Part of a distribution that is your own money handed back rather than income earned. Not taxed when you receive it; instead it lowers your adjusted cost base. The tax is deferred, not cancelled — it returns as a larger capital gain when you sell. And a cost base cannot go below zero: once it reaches zero, further return of capital is an immediate capital gain with nothing sold.
Risk rating: The fund's own published rating, from Low to High, set by a standard method based on how much its value has moved historically. It measures past volatility, not the chance of a distribution being cut — which is the risk an income investor actually cares about.
RRIF Registered Retirement Income Fund: What an RRSP must become by the end of the year you turn 71, and from which a prescribed minimum percentage must be withdrawn every year after. There is no maximum, only a floor. The percentage rises with age — 5.28% at 71, 20% at 95 — regardless of what the holdings pay or what markets did.
Sequence-of-returns risk: The risk that poor returns early in a withdrawal period do lasting damage, because money withdrawn at a low point cannot recover. A RRIF minimum is a percentage of the 1 January value, so a market fall in February does not reduce the amount you are required to take.
Superficial loss: A capital loss denied because you or an affiliated person acquired identical property within 30 days either side of the sale and still held it. Your own TFSA and RRSP count as affiliated, and a DRIP counts as an acquisition — so a loss can be denied without you placing a trade.
T3 slip: The annual slip issued by a trust, reporting distributions and how they broke down for tax. Most Canadian-listed ETFs are trusts. The deadline is later than a T5 — typically the end of March — and amended slips are routine. Filing in early March means filing twice.
T3 slip: The tax slip an ETF issues, breaking the year’s distributions into their taxable components. ETFs are trusts, so you get a T3 rather than the T5 you may expect — and trusts have until the end of March to issue them, weeks after other slips and a month before the filing deadline.
T5 slip: The annual slip issued by a corporation reporting investment income, generally due by the end of February.
Total return: What you actually made: the change in price plus every distribution, compounded as though each was reinvested. The only figure that answers whether a holding was worth owning. A fund can pay a large yield and still have a poor total return, because the payments came out of the unit price. Yield alone cannot tell you which happened.
Unit: One share of an ETF. Distributions are declared per unit, so your income is the rate times how many you hold. Taking distributions as cash keeps the count flat; reinvesting grows it, which is why the same starting position can end up paying very different amounts.
Yield distribution yield: The last twelve months of distributions actually paid, divided by the current unit price. On this site it is measured, never forecast. A high yield can mean a generous fund or a falling price, and the arithmetic cannot tell you which. Read it next to total return.