I’ve been looking into income-producing assets, specifically ETFs like QQQI, GPIX, PIQ, DIVO, IDVO, and similar, which distribute mostly, if not entirely, Return of Capital (ROC).
Here’s what I’m thinking:
ROC distributions aren’t technically income; they return part of your invested capital.
Normally, ROC reduces your cost basis, which means when you sell, your capital gain is calculated on the lowered basis.
In my country, there are no capital gains taxes.
So, hypothetically:
I receive monthly or quarterly distributions that are mostly ROC.
These distributions aren’t taxed as income when received.
When I eventually sell the ETF shares, the reduced cost basis doesn’t matter because there’s no capital gains tax.
Essentially, this would make both the distributions and eventual sale completely tax-free.
Am I missing anything here? Does this reasoning hold, or is there some hidden catch with ROC-heavy ETFs in a zero capital gains environments?