T3

The T3, Statement of Trust Income Allocations and Designations, reports income that a trust allocates to its beneficiaries. Most investors receive T3 slips from mutual fund trusts, exchange-traded funds (ETFs), real estate investment trusts (REITs) and income trusts held in non-registered accounts. Beneficiaries of family or testamentary trusts also receive them. T3 slips are due by March 31, which is why some investors must wait to file.

KEY BOXES

• Box 21, Capital gains: reported on Schedule 3; half is taxable.

• Box 23, Actual amount of eligible dividends; Box 49 and 50, taxable amount and dividend tax credit.

• Box 32, Actual amount of non-eligible dividends; Box 39 and 51, taxable amount and credit.

• Box 25, Foreign non-business income; Box 34, Foreign non-business income tax paid: for the foreign tax credit.

• Box 26, Other income: interest and other income, reported on line 13000 (or line 12100 in some software).

• Box 42, Amount resulting in cost base adjustment: a return of capital that is not taxed when received but reduces the adjusted cost base of the units.

• Box 30, Capital gains eligible for deduction; Box 31, Qualifying pension income; Box 35, Eligible death benefits.

RETURN OF CAPITAL

Many funds pay distributions that are partly a return of the investor's own money. Return of capital is not taxed when received. Instead it reduces the adjusted cost base (ACB) of the units, which increases the capital gain (or reduces the loss) when the units are sold. If the ACB falls below zero, the negative amount is an immediate capital gain. Investors must track ACB themselves; brokerages do not always report it accurately.

REINVESTED DISTRIBUTIONS

Distributions that are automatically reinvested in more units are still taxable in the year paid. Reinvested amounts increase the ACB, so failing to add them leads to double taxation when the units are sold.

YEAR-END DISTRIBUTIONS

Funds often pay capital gains distributions in December. Buying a fund shortly before the distribution means paying tax on gains the investor did not benefit from economically, although the ACB rises by the same amount.