Which of the following statements about distributions from Canadian mutual funds, as reported on a T3 slip, is TRUE?

Question: Which of the following statements about distributions from Canadian mutual funds, as reported on a T3 slip, is TRUE?

Answer options: ✅ Return of Capital (ROC) distributions are tax-deferred, reducing the Adjusted Cost Base (ACB) of the units.

• Eligible dividends are taxed at the investor's marginal tax rate without any gross-up or dividend tax credit.
• Capital gains distributions are fully taxable to the investor, even if the investor reinvests them.
• Foreign income distributions are typically free of Canadian tax for individual investors.

Correct answer: Return of Capital (ROC) distributions are tax-deferred, reducing the Adjusted Cost Base (ACB) of the units.

Explanation: Return of Capital (ROC) is tax-deferred as it is considered a return of the original investment, thereby reducing the ACB. Eligible dividends receive preferential tax treatment with a gross-up and dividend tax credit. Capital gains distributions are taxable, with 50% being included in income. Foreign income is generally taxable to Canadian residents.