A mutual fund distributes capital gains to its unitholders. For a unitholder holding these units in a non-registered account, what is the tax treatment of these distributed capital gains?

Question: A mutual fund distributes capital gains to its unitholders. For a unitholder holding these units in a non-registered account, what is the tax treatment of these distributed capital gains?

Answer options:

• They are taxed as regular interest income.
• They are taxed at the unitholder's marginal tax rate for eligible dividends. ✅ They are included in the unitholder's income at 50% of the gain.
• They are tax-exempt if reinvested in additional units of the same fund.

Correct answer: They are included in the unitholder's income at 50% of the gain.

Explanation: In Canada, capital gains distributions from mutual funds held in non-registered accounts are treated the same as individual capital gains, meaning 50% of the gain is included in the unitholder's income and taxed at their marginal tax rate.