Michael invested $5,000 into a mutual fund and later bought an additional $3,000 worth of units. He then received a distribution of $200 which reduced his Adjusted Cost Base (ACB) because it was a Return of Capital (ROC). Subsequently, he sold all his units for $9,500. What is Michael's capital gain or loss for tax purposes?

Question: Michael invested $5,000 into a mutual fund and later bought an additional $3,000 worth of units. He then received a distribution of $200 which reduced his Adjusted Cost Base (ACB) because it was a Return of Capital (ROC). Subsequently, he sold all his units for $9,500. What is Michael's capital gain or loss for tax purposes?

Answer options: ✅ Capital Gain of $1,700

• Capital Gain of $1,500
• Capital Gain of $1,300
• Capital Loss of $200

Correct answer: Capital Gain of $1,700

Explanation: Michael's total investment is $5,000 + $3,000 = $8,000. The ROC of $200 reduces his ACB to $8,000 - $200 = $7,800. His capital gain is the proceeds of disposition minus the ACB: $9,500 - $7,800 = $1,700.