How to record non-cash return of capital adjustment

OK, I can understand how that nets out the cash, but are you able to explain what this is, i.e. what causes a transaction like this to be required? i.e. what is the transaction doing (which is a different question from how to enter into Quicken)?

There was, in fact, a dividend reinvestment from that date, so it you seem to be on the right track @markus1957. I highlighted reinvestment to make clear that the dividends were fully reinvested, including part units, with no impact on the account's cash balance. I may call the broker I used for this fund (RBC Direct Investing) and ask them to explain this transaction to me. When I get a chance to call them, I'll post my learning back here.

I have no idea what a form 1099 is… not a Cannuck thing, I guess. Oh, and this is held in a Self-directed, Registered Retirement account, so there are no tax implications with any transactions on this account (until funds are withdrawn from the shelter, of course… and then, whammo… but, I digress).

The Canadian equivalent is the T3 slip along with the T5 for income from trusts.

I was prepared to assert that what @markus1957 suggested won't work because the dividend was paid in units not cash, and I had entered the dividend transaction into Quicken using the Reinvest Dividend transaction type. This entry method accurately modelled how the transaction appears on the broker statement in that there is no cash component, just addition of units as payment of the dividend. However, what I can do is go back and split the dividend transaction into two transactions in Quicken where the first transaction pays cash and the second transaction buys the units using the cash. Then I can do what @markus1957 suggested and reduce the cash dividend by $11.99 to offset a RoC transaction of the same value.

Because this is a tax sheltered account, doing this additional work has no value (for this account) other than the possible satisfaction derived from having the book cost in Quicken match that reported by the broker, even though the book cost isn't required for tax purposes here. But, I will encounter this same transaction on my non registered investments, so the learning has value for properly tracking those.

I did call the broker and confirmed that this is what is intended by these Return of Capital (reduce book cost without affecting cash or units) and Notional Distribution (increase book cost without affecting cash or units).

Thanks to all who contributed here for your input.

My non-technical understanding of how this works is the following… dividends pay out according to a schedule with most paying out in December. There is some degree of estimation/approximation/room for calculation error in paying out the dividend. So, if, for example, I receive $900 in dividend in December, and if that is a mutual fund it typically pays out in additional units (not cash). Then, come February or March the fund managers figure out the precise amount of dividends that should have been paid and it happens to be $890.00, then they issue a RoC for the $10 to correct for the difference between was was paid and what should have been paid. That return of capital transaction is really converting $10 worth of the previously paid dividend from a dividend to return of capital. I already received the value - paid in units - so, the only effect is to decrease the book value and I see a reduction in the book value of $10 if I compare the March statement to the February statement. Put another way $10 of the $900 dividend was really returning my capital, so the book value needs to be adjusted to reflect that I got $10 back - appreciating that I was compensated in units rather than cash. So, in effect, yes, I did "receive" the $10, it was simply paid two month prior and paid out in units versus cash. I hope my explanation makes sense. Put another way, all these RoC transactions are corrections to small errors in dividend payouts.

I don't know if it is just a Canadian thing, but with most brokers the default way to pay dividends on mutual funds is pay them in units. Some also offer this on ETFs, with the difference being that mutual funds would pay completely in units, including party units; whereas with ETFs you can only receive whole units, so you get cash for the what would be part unit portion. You can opt to receive the dividends in cash, but the advantage to taking them in units is that you get to buy additional units with no transaction fee.

I can't offer much on the parameters as to when this happens or explain why I commonly encounter this and you never have. At a quick glance, I also see this has happened recently with some of my Vanguard and ishares ETFs; therefore, in my case, it is not limited to mutual funds. I haven't reviewed my statements on the USD side of my account to see whether the same thing happens there. I'm going to guess that if the issue is particular to certain parties then it would be particular to the fund manager and not particular to the broker. I expect the broker is simply processing transactions as reported by the fund manager. I don't currently have any Fidelity funds in my portfolio. Also, as a Canadian, I can readily buy ETFs traded on US exchanges, but I can't buy US mutual funds… or, if there is a method to do that, it is not obvious or commonly done. So, all my mutual funds are from Canadian mutual fund companies; conversely, some of the ETFs I hold are traded on Canadian exchanges and some trade on US exchanges.

My portfolio involves two unrelated (self-directed) brokers, more than 10 fund management companies that shift with time, trading in two countries on multiple markets in each country, and two base currencies. It is perhaps not surprising I bump into a few things you don't see in a portfolio held with one firm that is both fund manager and broker.

I do envy the simplicity of your approach ;-)