Harvest Portfolios Group

What is a Notional Distribution | ETF Basics

March 31, 2022

While investors often focus on the monthly distributions paid by Harvest equity income ETFs, there is another sort of distribution that Harvest ETFs may pay once a year. This is the “notional” distribution, also known as the “non-cash reinvested distribution”.

At the end of each tax year,  a Harvest ETF may pay a special annual notional distribution in units, and the outstanding units will be immediately consolidated with the units held prior to the distribution. The number of units held and the net asset value of those units do not change versus a cash distribution which reduces the net asset value.

Although taxed in the year such a distribution is made, in a non-registered account the result is an increase in the Adjusted Cost Base (ACB) of the units, which is the average of what a unitholder paid to invest in the ETF over the life of their investment. Buying more units at different market prices over time will impact a unitholder’s ACB. ACB is key to capital gains tax calculations. The value of the assets at sale are compared with the ACB to calculate the amount gained or lost on an investment. That amount is then taxed if there is a realized gain on the sale.

If a unitholder keeps their Harvest ETFs in a registered or otherwise tax-sheltered account, then the notional distribution has no impact. It can be seen as ‘neutral’ and has no impact on the growth opportunity of the Harvest ETF held.

You can see the most recent Harvest notional distributions listed here under “Non-cash Re-invested Distributions.”

The following Harvest ETFs paid a notional distribution in the last fiscal year

You can learn about other ETF and investment fundamentals here.

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