Handling of "Return of Capital"

sprimost's Avatar


21 Feb, 2024 01:02 AM

FR: sprimost

My fund has a "nasty" habit of declaring, at the end of each year, an amount of the yearly income as "return of capital" (at least I don't pay taxes on it, and it lowers the cost basis. It did not bother me until I noticed that the cumulative declaration after a number of years is getting significant!

Back in 5/20/21 @dwg posted on GITHUB (Moneydance Zendesk site) that there was no method through MD to handle this...principally to reduce the cost basis. Has anyone come up with a alternative method, while less elegant, does the same thing?


  1. 1 Posted by dwg on 21 Feb, 2024 02:56 AM

    dwg's Avatar

    As I'm sure you know there is no RoC action type in Moneydance.

    Given this you have to look at other methods to try and achieve the same outcome. There are ways but each has pros and cons.

    The biggest impact I think is on where you have direct share ownership where you have to maintain quite detailed records. Funds are somewhat different in that they maintain records and provide their customers with yearly reports so Moneydance users maintaining records is I think more about tracking, there are of course different levels that users can want to maintain fund records at in the software.

    From a purely record point if view the most complete approach is to sell the investment at it cost price then enter buy transactions at the cost reduced price. This can get involved if you need to use lot matching. As it stands you lose performance data taking this approach and it can require a lot of maintenance.

    The other way that is commonly used, works more at the total level and cannot accommodate lot matching, so you have to use average cost.

    This method involved entering a sell for the total amount of the return but with zero shares.

    Some work is currently being done to more accurately produce reports when this method is employed, hopefully to be seen in the next version of Moneydance.

    With this second method where you need to keep more detailed records, for example when you have to use lots many of use keep supplemental information in spreadsheets. This is not much different to where accountants keep supplemental work sheets as part of a full set of books.

  2. 2 Posted by sprimost on 21 Feb, 2024 03:01 AM

    sprimost's Avatar

    Thank you. I'm on avg cost so the second approach is the most reasonable.


    On Tue, Feb 20, 2024, 9:56 PM dwg <[email blocked]> wrote:

  3. 3 Posted by Stuart Beesley ... on 21 Feb, 2024 08:21 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    Do you get get this RoC amount as cash which you can keep? Ie almost like a free dividend?

    If so, then, with avg cost control, I use sell zero shares for the value. Works well.

  4. 4 Posted by dwg on 21 Feb, 2024 08:52 AM

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    Technically RoC is a tax deferred payment :)

  5. 5 Posted by Stuart Beesley ... on 21 Feb, 2024 10:30 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    I think it’s definition. I need RoC for equalisation payments. These have no tax implications and are not dividends. It is 100% your own money back (in U.K.).

  6. 6 Posted by dwg on 21 Feb, 2024 12:55 PM

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    In my case they are actual returns of capital from owned shares (or the flip side capital calls) so they reduce my cost base and hence have an impact on Capital gains.

  7. 7 Posted by Stuart Beesley ... on 21 Feb, 2024 02:07 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    It is true (for me) that they reduce the cost basis, and hence the future value of future capital gains

  8. 8 Posted by dwg on 21 Feb, 2024 02:23 PM

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    That is why they are called Tax deferred, it is deferred until there is a capital gain/loss and it is included in that rather than in the income tax year it is paid.

  9. 9 Posted by Stuart Beesley ... on 21 Feb, 2024 02:37 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    I'm going to disagree... (but it really doesn't matter 😉 )... My scenario is where you buy a fund after the div date... The price then builds up (by dividend) by day until the next (monthly) dividend, then the price drops again (by the dividend)... When you buy part way through a period, you are therefore buying at a higher price and won't receive the dividend for the days between exdiv date and today. Hence, on the buy, they return this amount as an equalisation payment. It's simply your money back and lowers the cost basis for the original purchase... It's not a deferred tax thingy....

  10. 10 Posted by dwg on 21 Feb, 2024 08:56 PM

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    That is not your classic RoC type return then which relates more to direct share ownership, but I can see you using such a transaction type to achieve the needed outcome. It shows how you need flexibility in a personal finance application.

  11. 11 Posted by sprimost on 22 Feb, 2024 12:25 AM

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    From: sprimost

    Lively discussion, but off-track to issue...This may be specific to US
    tax laws, so there may be edge cases that are a result of British tax laws.

    I got a 1099 brokerage statement that details the total amount received
    from the _mutual fund_, i.e., line x, y, z....., It breaks down the
    amount as dividends (includes ST capital Gains, a "feature" lost in one
    of the many rewrites of the tax law), LT Capital gains as well as other
    squirrel definitions, including foreign tax credits. For some obtuse
    reason, each year this particular mutual fund declares an amount of the
    total amount as RoC. For us (US) that means that this is funds that we
    invested in the fund, and being returned to us, and is not a "dividend",
    the latter being taxable depending on the nature, and the former, being
    _my_ money that I already have paid taxes on in the past.

    As @dwg suggested, and is appropriate for this specific question, it is
    reducing my investment in the fund, i.e., the cost basis. This is
    confirmed when I look at dome documents from the mutual fund that show
    the cost basis, both in amount and per share. As @dwg also pointed out,
    unless I do something other than average cost, selling the fund on a
    selected lot basis is going to be difficult. Again, US Tax law treats
    reporting of the cost basis of sales differently depending on when you
    purchased the shares. (A) the amount isn't large so it doesn't call for
    too much concern, and (B) there is a logic to allocating the RoC across
    the whole cost basis proportionally ("various") as a reasonable solution
    _as long as_ you keep good records (which MD does an excellent job along
    with the excel spreadsheets.

    Good luck to any development of a solution within Moneydance for this!


    On 2/21/24 15:56, dwg wrote:

  12. 12 Posted by dwg on 22 Feb, 2024 02:35 AM

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    In my case I am under Australian Tax law. No software is going to offer a complete solution so I look more to accurately maintaining the basic data, which I do use Moneydance along with Spreadsheets to do. Sure Moneydance could do more in maintaining the basic data.

    My fund investments are somewhat different I have a wrap account which in turns invests in wholesale funds, so I can use specialist funds for specific categories of investments. The transaction data I can get from these is fairly high level and in any case not all that usable within Moneydance, it comes as simple CSV data. Hence my tracking in Moneydance for these is at the total level.

    Direct share investments are a different story, that is where I could use various transactions types that Moneydance currently does not have, as that is data I need to maintain myself. Brokers do not do that here, They can tell you about your holdings but things like dividends do not go through them.

  13. 13 Posted by Ali on 04 Apr, 2024 04:21 PM

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    A mutual fund I invest in does the same. They call it a 'Refund of Capital' and the only difference is that they reinvest it instead of giving it as cash. So I just do a Buy transaction for the # of shares they added at zero cost. This helps manage the cost-basis accurately for any capital gains reporting.

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