Ella has invested her RRSP in a mutual fund where the distributions are automatically reinvested in the same fund. What will be the consequences of these distributions?
A.
Ella will be sent a T3 form reporting the types of income distributed that year.
B.
Ella’s income from distributions will be taxed at her personal rate in the year received.
C.
Ella will have more mutual fund units worth less each.
D.
Ella will be sent a T5 form reporting the types of income distributed that year.
When mutual fund distributions are reinvested, the investor receives additional units instead of cash. After a distribution, the fund’s net asset value per unit normally falls by approximately the amount of the distribution, so the investor holds more units, but each unit is worth less. Since Ella holds the fund inside an RRSP, the distribution is not currently taxable to her. Tax is deferred until funds are withdrawn from the RRSP. Therefore, she would not receive a T3 or T5 for taxable reporting on those registered-plan distributions. Option B is wrong because taxation does not occur in the year received inside the RRSP. The practical result is more units at a lower unit value.
Contribute your Thoughts:
Chosen Answer:
This is a voting comment (?). You can switch to a simple comment. It is better to Upvote an existing comment if you don't have anything to add.
Submit