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Updated 2mo ago.
Updated 2mo ago.
A distribution is the periodic payment an ETF makes to its unitholders. It can include dividends, interest, realized capital gains, or a return of capital. Unlike individual stocks, ETFs distribute all income generated by their underlying holdings.
ZAG.TO (BMO Aggregate Bond Index ETF) makes monthly distributions from the interest of the bonds it holds. VEQT.TO makes quarterly distributions reflecting dividends paid by the thousands of stocks it holds. These distributions are taxed differently depending on the income type and account (TFSA, RRSP, or taxable).
The frequency and nature of distributions affect tax planning. In a taxable account, capital gain distributions are less tax-efficient than eligible Canadian dividends. In a TFSA or RRSP, the type of distribution has no direct tax impact.