Comparing the taxation of mutual funds, exchange traded funds and segregated fund contracts

Dividends, distributions and allocations

Mutual Fund Corporation
Manulife Corporate Classes
Mutual Fund Trusts
Manulife Funds
Exchange Traded Funds
Manulife ETFs
Segregated Fund Contracts
Manulife Segregated Funds
Dividends

Distribution

Distribution Allocation

Interest and foreign income in excess of expenses are taxed within the mutual fund corporation (the “Corporation”). Any after‑tax earnings are generally retained in the Corporation. Canadian dividend income and capital gains will normally be flowed through to shareholders as ordinary and capital gains dividends, respectively. The Corporation does not distribute capital losses.

Funds must distribute both taxable income and realized capital gains. Funds do not distribute capital losses.

Funds must distribute both taxable income and realized capital gains. Funds do not distribute capital losses.

Funds are deemed to have allocated taxable income and realized capital gains or losses. Segregated fund contracts do not make distributions.

Capital losses realized by a class are netted against capital gains realized by other classes in the Corporation. Any net capital loss is then carried forward to offset capital gains in future years. Any net capital gains are reduced by an approximate amount of capital gains realized on redeemed shares before they get distributed to the remaining shareholders of the Corporation.

Capital losses are netted against capital gains in the fund. Any net capital loss is then carried forward to offset gains in future years. Any net capital gains are reduced by an approximate amount of capital gains realized on redeemed units before they get distributed to the remaining unitholders.

Capital losses are netted against capital gains in the fund. Any net capital loss is then carried forward to offset gains in future years. Any net capital gains are reduced by an approximate amount of capital gains realized on redeemed units before they get distributed to the remaining unitholders.

Capital gains and/or losses realized by the fund are first allocated to investors who redeemed units. Remaining capital gains or losses are allocated to remaining policyholders.

Investors may choose to receive dividends in cash or reinvest them by buying additional shares. The tax consequences are the same.

Investors may choose to receive distributions in cash or reinvest them by buying additional units. The tax consequences are the same.

Investors receive income (i.e. interest, dividends and foreign income) as cash distributions. Capital gains are automatically used to purchase additional units. These are immediately consolidated with the investor’s other units.

Allocations cannot be paid in cash like distributions. A request for a partial withdrawal must be made.

The share value will decrease by the amount distributed per share.

The unit value will decrease by the amount distributed per unit.

The unit value will decrease by the amount of cash distributed per unit.

No additional units are purchased and there is no change in the unit value because of the allocation.

An investor does not receive any dividends if the shares are sold before the distribution date.

An investor does not receive any distributions if the units are sold before the distribution date, except for a money market fund and dollar‑cost averaging fund which are determined daily.

An investor does not receive any distributions if the units are sold before the ex‑dividend date.

Investors will receive capital gains and/ or losses for units redeemed in the year and allocations for units held on an allocation date¹. For a money market fund and dollar‑cost averaging fund, allocations are determined daily.

Redemptions

Mutual Fund Corporation
Manulife Corporate Classes

Mutual Fund Trusts
Manulife Funds

Exchange Traded Funds
Manulife ETFs

Segregated Fund Contracts
Manulife Segregated Funds

Investors sell the shares to realize capital gains or losses.

Investors sell the units to realize capital gains or losses.

Investors sell the units to realize capital gains or losses.

Investors redeem from the contract to realize capital gains or losses.

Capital gains or losses realized on the disposition of shares are not shown on the T5².

Capital gains or losses realized on disposition are not shown on the T3³.

Capital gains or losses realized on disposition are not shown on the T3³.

Capital gains or losses realized on disposition are shown on the T3. Box 37 of a T3 shows the realized capital losses⁴.

Investors must calculate the gain or loss and report it on their tax return.

Investors must calculate the gain or loss and report it on their tax return.

Investors must calculate the gain or loss and report it on their tax return.

Acquisition fees (front‑end loads and back‑end loads) are deemed to be capital losses and are also reported in Box 37 of the T3.

The number of shares sold and proceeds from the sale are reported on Form T5008 and on the client statement. While these forms show a “cost”, that amount may not accurately represent the ACB of the shares and the investor must calculate and report the resulting capital gain or loss.

The number of units sold and proceeds from the sale are reported on Form T5008 and on the client statement. While these forms show a “cost”, that amount may not accurately represent the ACB of the units and the investor must calculate and report the resulting capital gain or loss.

The number of units sold and proceeds from the sale are reported on Form T5008 and on the client statement. While these forms show a “cost”, that amount may not accurately represent the ACB of the units and the investor must calculate and report the resulting capital gain or loss.

Note that segregated fund dispositions are not reported on a T5008 – they are already incorporated in the T3 slip. Investors should not report gains and losses based on their client statement as this double‑counts these transactions.


Mutual Fund Trust/Corporation

Exchange Traded Fund (Capital Gains)

Segregated Fund Contract

Day

Unit/Share Value

No. of Units/Shares

Day`

Unit Value

No. of Units

Day 

Unit

No. of Units

1

$11

10

1

$11

10

$11 10

Market Value = No. of Units/Shares x Unit/Share Value 10 x $11 = $110


After a $1 Distribution/dividend

After a $1 Capital Gain Distribution

After a $1 Allocation

Day

Unit/Share Value

Day

Unit Value

Day

Unit

2

$10

2

$11

2

$11

2

Reinvested distribution/dividend buys 1 unit/share ($10/10) 

2

Market Value = $110 (10 x $11)  after immediate consolidation of units⁵

2

Market Value = $110 (10 x $11)

2

Market Value = $110 (11 x $10) 11 x $10)

 

In all instances

  • The investor’s T3 or T5 reports $10 in distributions, allocations or dividends ($1 x 10)
  • The investor’s market value = $110

1 Allocations for Manulife segregated funds are generally determined annually as at December 31 except for Manulife PensionBuilder where allocations are determined quarterly on March 31, June 30, September 30, and December 31, each year. 2 A T5 is used to report dividends distributed by the Corporation. 3 A T3 is used to report distributions. 4 A T3 is used to report allocations. 5 Capital gains distributions initially reduce the NAV and are used to purchase more units like in the mutual fund trust/corporation example. However, an immediate consolidation of units results in the investor having the same number of units and NAV as prior to the capital gains distribution. As a result, the ACB will increase by the amount of the capital gains distribution. For more information on ETF Taxation see Exchange Traded Fund Taxation – Déjà Vu All Over Again (MK33539).

The commentary in this publication is for general information only and should not be considered investment or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. The Manufacturers Life Insurance Company is the issuer of insurance contracts containing Manulife Segregated Funds and the guarantor of any guarantee provisions therein. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts as well as the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs). Investment objectives, risks, fees, expenses and other important information are contained in the ETF facts as well as the prospectus, please read before investing. Manulife Funds and Manulife ETFs are managed by Manulife Investments, a division of Manulife Asset Management Limited. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. Manulife, Manulife Investment Management, the Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.

MK1668E 04/21

Tax, Retirement & Estate Planning Services Team

Tax, Retirement & Estate Planning Services Team

Manulife Investment Management

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