An investor received a $1,000 distribution from their mutual fund holdings. The T3 slip indicates that $400 is Canadian interest income, $300 is foreign income, and $300 is a Return of Capital. How does this impact the investor's taxable income and ACB?

Question: An investor received a $1,000 distribution from their mutual fund holdings. The T3 slip indicates that $400 is Canadian interest income, $300 is foreign income, and $300 is a Return of Capital. How does this impact the investor's taxable income and ACB?

Answer options: ✅ $700 is added to taxable income ($400 interest + $300 foreign income), and ACB is reduced by $300 (ROC).

• $1,000 is added to taxable income, and ACB remains unchanged.
• $700 is added to taxable income, and ACB is increased by $300.
• $400 is added to taxable income, and ACB is reduced by $600.

Correct answer: $700 is added to taxable income ($400 interest + $300 foreign income), and ACB is reduced by $300 (ROC).

Explanation: Canadian interest income and foreign income are fully taxable and included in the investor's taxable income. A Return of Capital is not immediately taxable but reduces the investor's Adjusted Cost Base (ACB). So, $400 (interest) + $300 (foreign income) = $700 is taxable, and ACB is reduced by $300.