To be a DIY investor, you need good records

Time, knowledge and discipline are essential to becoming a do-it-yourself investor. Patience and perspective are also important.

But there’s another important quality needed to manage your own money. You must keep records for tax purposes.

Organization isn’t my strong suit. So, I hire an accountant to do the annual tax returns for my self-managed investments (which are in a non-registered or taxable account). But I got a jolt last week when I learned I had to file a special tax form for Inter Pipeline Ltd., with a deadline just two months away. The calculations appeared to be formidable.

Inter Pipeline is one of my major holdings. I bought in at $8 and rode it up to $25. The Calgary-based company pays monthly dividends yielding 5 per cent. I use them to buy more shares without commission through my broker’s dividend reinvestment plan (DRIP).

On Sept. 1, Inter Pipeline converted itself from a limited partnership to a Canadian corporation in order to raise capital for expansion from U.S. investors. It closed a $345-million share offering on Oct. 3.

Each limited partnership unit was converted into a common share of IPL (the stock symbol on the Toronto Stock Exchange) on a one-to-one basis.

“This exchange is taxable,” Inter Pipeline said, for those holding their units outside a tax-deferred plan unless they properly completed and submitted a valid tax election form by Dec. 1.

You can find information at the company’s website. It seems to be addressed to financial professionals, not individual investors.

Unitholders will have to calculate the adjusted cost base (ACB) of their units as of Sept. 1, 2013, in order to prepare the tax election form.

They have to sign it and mail it to the company on or before Dec. 1.

Inter Pipeline offers illustrative examples and an election assistant to help with the form. But it emphasizes that it can’t provide individual tax advice and encourages people to contact their own tax advisers.

I heard nothing from my broker or my accountant about facing a big hit on my 2013 taxes if I didn’t act by Dec. 1.

Instead, I got the news from Lea Hill, president of ACB Tracking, who was hoping to publicize his company’s services.

Hill, a retired analyst at CIBC Wood Gundy, helps individual investors and financial professionals calculate the adjusted cost base on a database of more than 700 investments. Users buy bundles of ACB calculations, ranging from $85 for 10 to $1,495 for 500.

He alerted me to the problem (not knowing I’d be affected) by pointing out that IPL was widely held by retail investors.

“Since inception in 1997, most of the fund’s monthly distributions have included a return of capital component that reduces the adjusted cost base (ACB) of the holding,” he said. “In order to file a valid tax election form, each investor must calculate an accurate ACB in advance, factoring in return of capital amounts.” It takes about five minutes to calculate the ACB for Inter Pipeline using the tracking service. Alas, it won’t work for me and others who use their monthly distributions to buy new shares. “Our system is not set up to handle a dividend reinvestment plan,” said Hill’s partner Mike Wooding, adding that each monthly DRIP counts as a new purchase. The bottom line: There’s no need to file a tax election form if you hold your IPL shares in a registered plan. But if your shares are in a taxable account, better get started right away. You could be paying more tax than you expect next spring unless that form is filed on time and without any mistakes. Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca or ellenroseman.com