Questions about dividends and taxes

[bob2007]

Hi everyone, I'm relatively new to investing, just bought RBC a few weeks ago.

Currently, I'm lookin at this company Enerplus Resources Fund, tempted by its dividend of around 12%.

However, going through the site, it seems like theres huge taxes on dividends, I'm not sure if my interpretation is correct, if you could take a look.

"2004 estimated taxable income (other income) for Canadian residents is 85%" - does that mean I have to pay 85% of the dividend in taxes? Doesn't seem to make any sense.
http://www.enerplus.com/investor/tax_information.shtml

Also, http://www.enerplus.com/investor/documents/2003ERF-Canadiantaxletter-amended.pdf

It seems to say they paid out $4 something, but the actual return to investors is $0.75.

I'm rather confused, it seems like the 12% dividend isn't 12% or anywhere near it?

Thanks,
Jimmy

[GeorgeF]

I am not Canadian, I know little of the ways of the true north. Observe that 'distribution' is not the same thing as dividend. If they sell tax software it might be worth buying it or last years on ebay and trying different amounts and see what you get. Also note that there was a 'return of capital' in the 'distribution'. It seems that under Canadian law your 12% distribution is divided up into 3 components (each taxed differently). Once again tax software is the most time efficient way of understanding the implications of all this crap.

I own many small holdings in REITs LPs ect. For my US taxes I just plug the numbers into my software and hope for the best. I have no idea how my taxes are calculated.

[GeorgeF]

Return of captial example:
You put $1000 in a fund. After a year the fund closes down and they send you a check for $1010. $1000 is a return of capital and $10 is a dividend. I suspect that in Canada they do not tax the $1000 return of capital but do tax the $10.

What I don't know is exactly what a return of captial means for you royalty trust and what other taxable income is (I suspect interest on float).

[GeorgeF]

oops I've been drinking. Did you know port is 20% alchohol. You need to be concerned about the return of capital as if you are young say 20, it is very likely that your trust will run out of what ever it is selling before you retire. Many trusts do not purchase new resources or explore for new resources. On the other hand fancy new extraction techiniques might increase the amount of resources that can be recovered. By the way I bought a bottle of '94 Duff Gordon port. It's ok but a bit harsh, I prefer Noval. I might splurge on the 2000 Noval Silval. Heard good things.

[adios]

I've bought and sold Enerplus many times. It's considered one of the blue chip Canadian Royalty Trusts (CanRoys). You should not be taxed at all on Return of Capital. If you buy ERF in an IRA your dividend should not be taxed at 15%. I've read much stuff on CanRoys and can refer you to experts on these equities. Send me a private message and I can put you in touch with people far more knowledgable than myself about them. The bottom line is get the right broker. Scottrade handled my divies correctly FWIW. CanRoys are different than American Royalty Trusts (AmRoys) in that they can acquire additional assets via acquisitions so George's statement isn't exactly correct regarding the depletion of their assets. They can acquire new ones but that means they take on more debt and/or do secondaries.