Stocks, Bonds etc. -> Investing Tax Issues -> Mutual funds

Tax treatment of income from investments in mutual funds

This information is regarding mutual funds which are held outside of RRSPs or other registered accounts.

Why do I have a capital gain on my T3 information slip, when my mutual fund lost money?

Mutual funds allocate their realized capital gains to unit holders.  Thus, if they have sold some investments at a gain during the year, they are allocating capital gains to you, even if the value of the mutual fund units went down.

How do I calculate the capital gain when I sell my mutual funds?

If you hold mutual funds in a non-registered account, you must keep track of your ACB, or "adjusted cost base" for each mutual fund.  Most mutual fund companies provide information on how to calculate the ACB.  The ACB of your investment in one mutual fund will be the total of:

1. the total that you paid to purchase your units, including any commission,

2. plus the amount of all reinvested distributions or dividends,

3. less the "return of capital" component of any distributions,

4. less the ACB of any previously sold units.

When you sell some or all of your units, your capital gain or loss is:

1. the net proceeds received, after commissions or fees,

2. less the ACB of the units sold  (=ACB of total units x # of units sold divided by total # of units prior to sale)

Tax tip:    Keep good records so that you can calculate the ACB of your mutual funds. 

See the CRA publication RC4169 Tax treatment of mutual funds for investors.