This information is intended to be used as a reference tool and should not be relied upon as a source of professional tax advice. Shareholders should consult with their tax advisor regarding all specific tax questions.
What factors determine the taxation of mutual fund distributions?
In general, the taxation of a mutual fund's distributions is determined by:
- The amount and type of income earned on the underlying securities in the fund,
- Gain or loss recognized by the fund on a sale of such securities, and
- The fund's holding period of such securities.
Mutual funds are not subject to federal income tax if they satisfy certain specified tax requirements and distribute all income to shareholders. This tax treatment prevents the income earned by a mutual fund from being taxed twice - first, at the fund level and second, at the investor level. Generally, the taxation of a mutual fund's distribution depends on the amount and type of income earned on the underlying securities of the fund, gain or loss recognized by the fund on the sale of such securities, and the fund's holding period of such securities. The nature, source and, character of mutual fund distributions to shareholders may result in different tax treatment, as discussed below.
Who is eligible to receive mutual fund distributions?
The shareholders on the record date of the distribution.
A shareholder is considered to be eligible to receive a distribution payment if the shareholder holds shares of the fund on the "record date" of the distribution. The mutual fund will make the distribution to eligible shareholders on the predetermined "payment date." The "ex-dividend date" is the day when the fund's net asset value ("NAV") will be reduced on a per share basis by the amount of the dividend distribution.
When are distributions paid to shareholders?
Individual mutual funds have various distribution schedules, established in accordance with the fund's prospectus and U.S. tax requirements.
Net Investment income dividends are paid monthly, quarterly or annually depending on the individual fund's prospectus. In general, capital gain distributions are calculated and paid at least annually (to the extent a fund has realized net capital gains).
How are distributions from mutual funds taxed?
Distributions of Net Investment Income are taxable as dividend income or ordinary income.
- Distributions of Short-Term Capital Gain are taxable as ordinary income.
- Distributions of Long-Term Capital Gain are taxable as long-term capital gains.
- Distributions From Capital are considered to be nontaxable distributions.
IRS Circular 230 disclosure: Commerce Bank does not provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code, and was written to support the promotion or marketing of the transaction(s) or matter(s) addressed. Clients of Commerce Bank should obtain their own independent tax advice based on their particular circumstances.
A prospectus for the Commerce Funds containing more complete information may be obtained by calling 1-800-995-6365 or by it from this website. Please consider a Fund's objectives, risks, and charges and expenses, and read the prospectus carefully before investing. The prospectus contains this and other information about the Fund.
The mutual funds referred to in this Web site are offered and sold only to persons residing in the United States and are offered by prospectus only. The prospectus contains more complete information about the funds, including charges and expenses, and should be read carefully before investing.
The method of calculation of the 30-Day Standardized Subsidized Yield is mandated by the Securities and Exchange Commission and is determined by dividing the net investment income per share earned during the last 30 days of the period by the maximum public offering price (“POP”) per share on the last day of the period. This number is then annualized. The 30-Day Standardized Subsidized Yield reflects fee waivers and/or expense reimbursements recorded by the Fund during the period. Without waivers and/or reimbursements, yields would be reduced. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders. The 30-Day Standardized Unsubsidized Yield does not adjust for any fee waivers and/ or expense reimbursements in effect. If the Fund does not incur any fee waivers and/or expense reimbursements during the period, the 30-Day Standard Subsidized Yield and 30-Day Standardized Unsubsidized Yield will be identical.