Understanding your tax slip

Investment Insight

If you invest in mutual funds, exchange-traded funds (ETFs), and segregated fund contracts, you must report all taxable amounts related to these investments on a tax return each year.

To help you complete your tax return, you’ll receive a tax slip that outlines the taxable amounts.

  • For an investment in a mutual fund trust, ETF, or segregated fund contract, you’ll receive a T3 tax slip.
  • For an investment in a mutual fund corporation, you’ll receive a T5 tax slip. Residents of Quebec will also receive Relevé-16 (RL-16) and Relevé-3 (RL-3) tax slips respectively.

The information in this article will assist you with understanding the information on your investment tax slips and reporting the taxable amounts on your tax return.

A word about flow-through entities

Mutual fund trusts, ETFs, and segregated fund contracts are considered flow-through entities for tax purposes. They flow through taxable income and realized capital gains to investors. This avoids having income taxed within the trust or contract at the top marginal tax rate. 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. In other words, Canadian dividends will be reported as dividends, interest as interest, and so on.

Mutual fund corporations also have flow-through attributes and are considered flow-through entities for tax purposes. A mutual fund corporation can flow through Canadian dividend income and realized capital gains to investors. 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.

A 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.

What types of income are reported?

Distributions or allocations

Depending 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.

Taxable income may consist of Canadian dividend income, interest from Canadian sources, and foreign non-business income.

  • Dividends from Canadian corporations get preferential tax treatment through the gross-up and dividend tax credit mechanism. The grossed-up amount is included on your tax return. The tax you pay is reduced by the dividend tax credit.
  • Interest and other income from Canadian sources are fully taxable and are considered other income. There’s no preferential tax treatment for this type of income.
  • Foreign non-business income is fully taxable and receives no preferential tax treatment. If any foreign taxes were withheld from this income, you may also have a foreign tax credit. Dividends received from foreign corporations aren’t eligible for the dividend tax credit.
  • Capital gains and losses arise when the portfolio manager sells the underlying securities held by the fund and the fund realizes capital gains and losses. Only 50 per cent of the reported amount is taxable.
  •  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). Mutual fund trusts and ETFs can’t flow through capital losses. Any net capital loss must be carried forward by the fund to offset future capital gains.
  • With 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. Mutual fund corporations can’t flow through capital losses. Any net capital loss must be carried forward by the corporation to offset future capital gains.
  • With segregated fund contracts, all realized capital gains and losses are reported on your T3 (RL-16).

Return of capital (ROC) may be reported as part of a distribution from a mutual fund. It represents a return of your original investment and results in a reduction of your adjusted cost base (ACB). As long as your ACB is positive, a distribution that’s identified as ROC is non-taxable. Once your ACB reaches zero (you’ve received the amount of your original investment back), all further distributions that are reported as ROC are taxable as capital gains. You’re responsible for tracking the ACB of your units and reporting any negative balances as capital gains.

  • 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).
  • If a distribution from a mutual fund corporation includes a ROC amount, it’ll be identified in a footnote on your T5 (RL-3) tax slip.
  • Allocations from a segregated fund contract won’t include ROC.

Redemptions or withdrawals

An investment in a mutual fund corporation, a mutual fund trust, ETF, or a segregated fund contract is generally considered to be capital property for tax purposes. As a result, you may realize a capital gain or loss when you dispose of all or part of your investment.

For segregated fund investors, all capital gains and losses that are realized on a withdrawal from your contract will be reported on your T3 (RL-16) tax slip. This means that your tax slip contains both allocations of gains and losses realized by the fund, as well as your gains and losses realized on withdrawals. Acquisition fees (sales charge options) are considered to be capital losses and are also reported on your T3 (RL-16). Capital gains and losses on segregated fund withdrawals can be reported directly to you because the insurer tracks the ACB for each investor.

For mutual fund and ETF investors, a capital gain or loss realized on disposition of units or shares isn’t reported on your tax slips. You must calculate the gain or loss that’s to be reported on Schedule 3 (Schedule G in Quebec) of your tax return. The fund company or your dealer prepares a form T5008 (RL-18 for Quebec residents) to inform Canada Revenue Agency (CRA) — and Revenu Quebec, if applicable — of both the number of units or shares sold and proceeds of the sale; but the fund company or dealer doesn’t report your capital gain or loss. The information that’s on the T5008 (RL-18) can be found on your statements and you should receive a copy of the tax slip. You’re responsible for tracking and validating the ACB of your units (including any ROC adjustments) for purposes of reporting a capital gain or loss on their disposition.

T3 — Statement of Trust Income Allocations and Designations

Mutual fund trusts, ETFs, and segregated fund contracts

Mutual fund trusts/ETFs

Segregated fund contracts

Box on tax slip

 

Line on tax return

Dividends from taxable Canadian corporations

 

 

49

23

Actual amount of dividends

Actual amount of dividend income received — these amounts aren’t entered on your tax return

 

 

50

32

Taxable amount of dividends

Taxable (grossed-up) amount of dividend income — include the total of these amounts on line 12000 of your tax return, and include the taxable amount shown in Box 32 on line 12010 of your tax return

 

 

51

39

Dividend tax credit

Federal dividend tax credit — include the total of these amounts on line 40425 (You may also qualify for a provincial/territorial dividend tax credit. Use the provincial/territorial worksheet and Form 428.)

Interest from Canadian sources

 

 

26

Other income

Total amount of interest and other income distributed or allocated and classified as “other income” — include on line 13000 of your tax return

Foreign income

 

 

25

Foreign non-business income

Gross amount of foreign non-business income — include on line 12100 of your tax return and on line 43300 of Form T2209

 

 

34

Foreign non-business income tax paid

Non-business income tax paid to a foreign country, used to calculate your foreign tax credit — include on line 43100 of Form T2209

Enter your foreign tax credit from Form T2209 in line 40500.

Capital gain

 

 

21

Capital gains

This is your net capital gains related to distributions from mutual fund trusts and ETFs, as well as allocations from segregated fund contracts, or realized on dispositions and withdrawals from your segregated fund contracts. Include this amount on line 17600 of Schedule 3. Only 50% of this amount is taxable. A taxable net capital gain is included on line 12700 of your tax return.

N/A

Capital loss

 

 

37

Insurance segregated fund capital losses

This is your total segregated fund capital loss realized for the year. It includes allocated losses, as well as any losses realized on dispositions and withdrawals. Include this amount on line 17600 of Schedule 3.

N/A

Return of capital

 

 

42

Amount resulting in cost base adjustment

This amount represents a return of capital and results in a reduction of your ACB. It’s not reported on your tax return as long as your ACB is positive. Once your ACB reaches zero, this amount is to be treated as a capital gain.

Quebec RL-16 — Trust Income

Mutual fund trusts, ETFs, and segregated fund contracts

Mutual fund trusts/ETFs

Segregated fund contracts

Box on tax slip

 

Line on tax return

Dividends from taxable Canadian corporations

 

 

C1

C2

Actual amount of dividends

Actual amount of dividend income received — include the amount in Box C1 on line 166 and in Box C2 on line 167 of your Quebec tax return

 

 

I

Taxable amount of dividends

Taxable (grossed-up) amount of dividend income — include on line 128 of your Quebec tax return

 

 

J

Dividend tax credit

Quebec dividend tax credit — include on line 415 of your Quebec tax return

Interest from Canadian sources

 

 

G

Other income

Total amount of interest and other income distributed or allocated and is classified as “other income” — include on line 130 of your Quebec tax return

Foreign income

 

 

F

Foreign non-business income

Gross amount of foreign non-business income — include on line 130 of your Quebec tax return

 

 

L

Foreign non-business income tax paid

This amount gives entitlement to the foreign tax credit with regard to non-business income. Complete form TP-772-V, Foreign Tax Credit.

Capital gain

 

 

A

Capital gains

This is your net capital gains related to distributions from mutual fund trusts and ETFs, as well as allocations from your segregated fund contracts, or realized on dispositions and withdrawals from your segregated fund contracts. Include this amount on line 22 of Schedule G. Only 50% of this amount is taxable.

N/A

Capital loss

 

 

A

Insurance segregated fund capital losses

Where this amount is indicated in parentheses, it’s your net segregated fund capital loss realized for the year. It includes allocated losses, as well as any losses realized on dispositions and withdrawals. Include this amount on line 22 of Schedule G.

N/A

Return of capital

 

 

M

Cost base adjustment of capital

This amount represents a return of capital and results in a reduction of your ACB. It’s not reported on your tax return as long as your ACB is positive. Once your ACB reaches zero, this amount is to be treated as a capital gain.

T5 Tax Slip — Statement of Investment Income

Mutual fund corporations

Box on tax slip

 

Line on tax return

Dividends from taxable Canadian corporations

24

10

Actual amount of dividends

Actual amount of dividend income received — amounts aren’t entered on your tax return

25

11

Taxable amount of dividends

Taxable (grossed-up) amount of dividend income — include the total of these amounts on line 12000 of your tax return, and include the taxable amount shown in Box 11 on line 12010 of your tax return

26

12

Dividend tax credit

Federal dividend tax credit — include the total of these amounts on line 40425 (You may also qualify for a provincial/territorial dividend tax credit. Use the provincial/territorial worksheet and Form 428.)

Capital gain

18

Capital gains dividends

This is your net capital gains related to distributions from mutual fund corporations. Include this amount on line 17400 of Schedule 3. Only 50% of this amount is taxable. A taxable net capital gain is included on line 12700 of your tax return.

Return of capital

Footnote

Amount resulting in cost base adjustment

This amount represents a return of capital and results in a reduction of your ACB. It’s not reported on your tax return as long as your ACB is positive. Once your ACB reaches zero, this amount is to be treated as a capital gain.

Quebec RL-3 Tax Slip — Investment Income

Mutual fund corporations

Box on RL-3 tax slip

 

Line on tax return

Dividends from taxable Canadian corporations

A1

A2

Actual amount of dividends

Actual amount of dividend income received — include the amount in Box A1 on line 166 and in Box A2 on line 167 of your Quebec tax return

B

Taxable amount of dividends

Taxable (grossed-up) amount of dividend income — include on line 128 of your Quebec tax return

C

Dividend tax credit

Quebec dividend tax credit — include on line 415 of your Quebec tax return

Capital gain

I

Capital gains dividends

This is your net capital gains related to distributions from mutual fund corporations. Include this amount on line 22 of Schedule G in your Quebec tax return. Only 50% of this amount is taxable.

Return of capital

Footnote

Cost base adjustment of capital

This amount represents a return of capital and results in a reduction of your ACB. It’s not reported on your tax return as long as your ACB is positive. Once your ACB reaches zero, this amount is to be treated as a capital gain.

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. 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.

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Tax, Retirement & Estate Planning Services Team

Tax, Retirement & Estate Planning Services Team

Manulife Investment Management

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