![]() Allocations from a segregated fund contract won’t include ROC.Īn investment in a mutual fund corporation, mutual fund trust, ETF, or segregated fund contract is generally considered to be capital property for tax purposes.If a distribution from a mutual fund corporation includes an ROC amount, it’ll be identified in a footnote on your T5 (RL-3) tax slip.A mutual fund trust or ETF will report the amount of the distribution that represents ROC in box 42 of your T3 (box M of your RL-16).You’re responsible for tracking the ACB of your units and reporting any negative balances as capital gains. Once your ACB reaches zero (you’ve received the amount of your original investment back), all further distributions reported as ROC are taxable as capital gains. As long as your ACB is positive, a distribution that’s identified as ROC is non-taxable. It represents a return of your original investment and reduces your adjusted cost base (ACB). Return of capital (ROC) may be reported as part of a distribution from a mutual fund. With segregated fund contracts, all realized capital gains and losses are reported on your T3 (RL-16).Any net capital loss must be carried forward by the corporation to offset future capital gains. Mutual fund corporations can’t flow through capital losses. For mutual fund corporations, realized capital gains are first reduced by capital losses realized in the year and the net capital gain is reported on your T5 (RL-3) as a capital gains dividend.Any net capital loss must be carried forward by the fund to offset future capital gains. Mutual fund trusts and ETFs can’t flow through capital losses. With mutual fund trusts and ETFs, realized capital gains are first reduced by capital losses realized in the year and the net capital gain is reported on your T3 (RL-16).Only 50% of the reported amount is taxable. When a portfolio manager sells the underlying securities held by a fund, the fund realizes a capital gain or loss.Dividends received from foreign corporations aren’t eligible for the dividend tax credit. If any foreign taxes are withheld from this income, you may also have a foreign tax credit. Foreign non-business income is fully taxable and receives no preferential tax treatment.There’s no preferential tax treatment for this type of income. ![]() Interest and other income from Canadian sources are fully taxable and are considered other income.The tax you pay is reduced by the dividend tax credit. The grossed-up amount is included on your tax return. Dividends from Canadian corporations get preferential tax treatment through the gross-up and dividend tax credit mechanism.Taxable income may consist of Canadian dividend income, interest from Canadian sources, and foreign non-business income. What types of income are reported? Distributions or allocationsĭepending on what funds your money is invested in, there may be distributions or allocations of income and capital amounts (reduced by management fees and administration expenses) that need to be included on your tax return. Interest income and foreign source income, to the extent they’re taxable, are taxed within the corporation and any after-tax earnings are generally retained in the corporation.Ī mutual fund corporation also acts as a conduit, in that Canadian dividend income and realized capital gains retain their character as they flow through to investors and appear on the T5 (RL-3) tax slip as dividends from Canadian corporations and capital gains dividends respectively. A mutual fund corporation can flow through Canadian dividend income and realized capital gains to investors. Mutual fund corporations also have flow-through attributes and are considered flow-through entities for tax purposes. In other words, Canadian dividends will be reported as dividends, interest as interest, and so on. They act as a conduit, in that income and capital gains retain their character as they flow through to the investors and appear on the T3 (RL-16) in the same way they were realized in the fund. This avoids having income taxed in the trust or contract at the top marginal tax rate. They flow through taxable income and realized capital gains to investors. Mutual fund trusts, ETFs, and segregated fund contracts are considered flow-through entities for tax purposes. ![]() Other continental Europe Wealth and Asset ManagementĪmerica Offshore Wealth and Asset Management United Kingdom Wealth and Asset Management United States Wealth and Asset Management
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