A client, Maria, owns units in Fund A and receives a distribution of $100. The fund provides a T3 slip indicating that $70 of this is Canadian dividend income and $30 is capital gains. How will this distribution generally be treated for tax purposes in Maria's non-registered account?

Question: A client, Maria, owns units in Fund A and receives a distribution of $100. The fund provides a T3 slip indicating that $70 of this is Canadian dividend income and $30 is capital gains. How will this distribution generally be treated for tax purposes in Maria's non-registered account?

Answer options: ✅ Both the $70 Canadian dividend and $30 capital gain are taxable income, potentially benefiting from dividend tax credits and 50% capital gains inclusion respectively.

• The entire $100 distribution is considered capital gains and is 50% taxable.
• The entire $100 distribution is treated as regular income and fully taxable.
• The distribution is tax-exempt as long as it is reinvested into the fund.

Correct answer: Both the $70 Canadian dividend and $30 capital gain are taxable income, potentially benefiting from dividend tax credits and 50% capital gains inclusion respectively.

Explanation: Distributions from mutual funds reported on a T3 slip are categorized and taxed according to their nature. Canadian dividends may qualify for the dividend tax credit, and capital gains are 50% taxable.