According to the Canadian Investment Funds Course, capital gains distributions are the portion of the mutual fund trust’s net realized capital gains that are paid out to the unitholders. Capital gains distributions are not the same as capital gains from selling or redeeming units of the mutual fund trust, which are reported on a T5008 slip. Capital gains distributions are taxable in the year they are received, even if they are reinvested in additional units of the fund. The mutual fund trust will issue a T3 slip to report the amount and type of income that is allocated to each unitholder, including capital gains distributions. The unitholder must report this income on their tax return and pay tax on 50% of the capital gains distributions at their marginal tax rate.
1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)
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