How are mutual fund distributions taxed in a non-registered account?

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Multiple Choice

How are mutual fund distributions taxed in a non-registered account?

Distributions from a mutual fund held in a non-registered account are taxed in the year they’re paid, and they can come in multiple forms that each have their own tax treatment. The money you receive may include income (from interest and, where applicable, eligible dividends), capital gains, and possibly a return of capital. The income portion is taxed as ordinary income (interest) and as eligible dividends with the corresponding dividend tax credit. The capital gains portion is included in income at a 50% inclusion rate, meaning only half of the gains are taxed. Return of capital isn’t taxed as income in the year it’s distributed; instead, it reduces the fund’s adjusted cost base, which defers taxes until you eventually sell the fund and realize a gain or loss. So the distributions are taxed in the year they’re received, and they’re made up of these components, each with its own tax treatment.

Distributions from a mutual fund held in a non-registered account are taxed in the year they’re paid, and they can come in multiple forms that each have their own tax treatment. The money you receive may include income (from interest and, where applicable, eligible dividends), capital gains, and possibly a return of capital.

The income portion is taxed as ordinary income (interest) and as eligible dividends with the corresponding dividend tax credit. The capital gains portion is included in income at a 50% inclusion rate, meaning only half of the gains are taxed. Return of capital isn’t taxed as income in the year it’s distributed; instead, it reduces the fund’s adjusted cost base, which defers taxes until you eventually sell the fund and realize a gain or loss.

So the distributions are taxed in the year they’re received, and they’re made up of these components, each with its own tax treatment.

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