Canada Revenue Agency
www.cra.gc.ca
Common menu bar links
How is the income from mutual funds taxed?
In most situations, income from mutual funds is taxed in two ways:
- While you own the shares or units, you are taxed on the distributions that are flowed out to you. If you own units of a mutual fund trust, the trust will give you a T3 slip, Statement of Trust Income Allocations and Designations. If you own shares of a mutual fund corporation, the corporation will give you a T5 slip, Statement of Investment Income. This income can be capital gains, capital gains dividends, dividends, foreign income, interest, other income, or a combination of these amounts.
- When you redeem (or cash in) the units or shares, you are taxed on the capital gain, if any. This is because your mutual fund investment is considered capital property for tax purposes. You will get either a T5008 slip, Statement of Securities Transactions, or an account statement from the mutual fund.
Note
You cannot claim a capital gains deduction for capital gains from mutual funds. However, if you filed Form T664 or T664 (Seniors), Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, for any of your units or shares, the unused balance of your exempt capital gains balance (ECGB) that expired after 2004 can only be added to the adjusted cost base (ACB) of your units and shares. For more information, see Exempt capital gains balance (ECGB).
