IFIC Mutual Funds Licensing Practice Exam · Question
Which of the following statements about a Return of Capital (ROC) distribution from a mutual fund is most accurate for a non-registered account?
A Return of Capital (ROC) distribution is not taxable when received; instead, it reduces the investor's Adjusted Cost Base (ACB). This deferral of tax means tha
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Question: Which of the following statements about a Return of Capital (ROC) distribution from a mutual fund is most accurate for a non-registered account?
Answer options: ✅ ROC reduces the investor's Adjusted Cost Base (ACB) of their mutual fund units.
- ROC is fully taxable in the year it is received.
- ROC increases the investor's ACB, as it represents a further investment.
- ROC is a tax-exempt distribution that has no impact on future tax events.
Correct answer: ROC reduces the investor's Adjusted Cost Base (ACB) of their mutual fund units.
Explanation: A Return of Capital (ROC) distribution is not taxable when received; instead, it reduces the investor's Adjusted Cost Base (ACB). This deferral of tax means that a larger capital gain (or smaller capital loss) will be realized upon the eventual disposition of the units.
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