accounting for managed investment accounts

[John Ralls]

On Apr 30, 2014, at 6:04 PM, gnucash.133518b at telus.net wrote:

> On 2014-04-30 7:19 AM, John Ralls wrote:
> > * Does the manager report that you have n shares or units, or
> >   do they report the currency value?
> 
> He reports share/unit quantities for individual holdings, but currency value for the account as a whole. This is not a mutual fund. See below.
> 
> > * How do they report fluctuations in value? Do you have to
> >   report those fluctuations for taxes?
> 
> Values for the account as a whole are reported in Canadian dollars at end of month. Gains realized within the account are summarized for the year for tax reporting purposes. More below.
> 
> > * Do they pay dividends?
> 
> Individual assets within the account may generate dividends, but such dividend payments remain inside the managed account as part of its cash position.
> 
> > * When you add to or subtract from the account, how is that
> >   reflected in the statement? How is redemption handled for
> >   taxes?
> 
> Amongst the month's account activity I will find line items for any cash in/out transactions.
> 
> My original message was poorly written. I'll try to be clearer.
> 
> I do have visibility into the managed account and I do get monthly statements that detail the account's current holdings and its activity, the latter including both internal and external transaction. Holdings include Canadian and US stocks, bonds, and cash. Those holdings are directly owned by me. I am not consulted on what to buy or sell and the lengthy list of assets varies. All dividends, interest payments, and asset sale proceeds remain inside the account. Manual entry to GnuCash is the only option as there is no importable file available.
> 
> Despite the available internal visibility, my external perspective is a single account with which I make very infrequent cash transactions and no stock or bond transactions. At the end of the year the manager provides me with four tax statements (Canada Revenue Agency T3 and T5 forms) that summarize my tax consequences for aggregate realized capital gains and dividends for Canadian and US holdings. It is important to understand that those gains/dividends are still going to be inside the managed account, except as they might contribute to any cash withdrawal I may have made during the year.
> 
> While it would be technically possible for me to figure out at the end of each month what changes the manager has made inside the account and try to follow all of his machinations, the GnuCash data entry and individual transaction profit calculations would be very tedious, error prone, and somewhat defeats the purpose of having outsourced the management of this account. Nonetheless, I do want at least my external perspective represented in my GnuCash book. The end of month statements include Canadian dollar account values for each of cash, fixed income, equities, and mutual funds.
> 
> On 2014-04-30 3:39 PM, David T. wrote:
> > If the account truly is a black box, then treat it just like a
> > mutual fund--or even a savings account, where the fund manager
> > or banker decides what investments to make, and pays you money
> > in the form of interest or dividends. You record only those
> > transactions that affect the overall balance of your account.
> 
> I cannot treat it as a mutual fund because the external view sees dollar value, not fund shares. The manager does not pay me interest or dividends. Money comes out only if I make a cash withdrawal.
> 
> My tenuous grasp of accounting tells me that I need to somehow account for the (hopefully) increasing value of this managed account between external transactions.
> 
> > I have no idea what the multiple currency point is, and I don't
> > know how or whether trading accounts will affect things, as I
> > don't use either.
> 
> Despite the name of Peter's tutorial, he gets into handling gains/losses of non-monetary asset accounting as well:
> 
>  http://www.mscs.dal.ca/~selinger/accounting/tutorial.html
> 
> The GnuCash "trading accounts" feature is very poorly documented and I'm not knowledgeable enough yet to understand how it assists or displaces the gains/losses problem.
> 
> I hope I've been clearer this time.

Yes, I think I understand the situation a bit better.

If the account itself is denominated in your home currency, CAD, then trading accounts aren't going to help you much particularly since you don't actually trade the account much.

I think that the easiest way to deal with this is to pretend that it is a mutual fund with reinvested annual dividends. Create a fake security, make your initial purchase at C$10 per "unit", and enter a price by hand in the price editor every time you get a statement. Treat the year end tax statements as reinvested dividends. If you have separate tax treatment of capital gains and income, create appropriate income accounts and make the transactions so that whatever taxes you pay are recognized in the basis of your investment. The objective of that is so that you know when you redeem your investment in the pool you know how much of the gain you've already paid tax on.

Regards,
John Ralls