Investment funds and tax consequences

Mutual funds

Mutual funds are a pooling of resources with a common investment objective. Fund managers buy and trade investments in the fund. Any interest, dividends, foreign income and capital gains from these investments, net of management fees and fund expenses, are allocated to unitholders. Annually, you must include in your income, the allocations from a mutual fund to you.

You can also realize capital gains or losses from mutual funds by selling fund units. This gain or loss is the difference between your proceeds of disposition and the adjusted cost base of the units.

Your accountant can help you calculate the gain or loss on disposition of mutual funds units.

Segregated funds

Segregated funds are similar to mutual funds but include an insurance element which guarantees the return of principal on maturity or upon death. Any guarantee paid on maturity of the contract or on your death is taxable as a capital gain. However, this is offset by a capital loss on the disposition of the contract (cost in excess of net asset value).

Exchange traded funds

An exchange-traded fund (ETFs) is similar to a mutual fund because it tracks an index or a commodity. However, like stocks, ETFs experience price changes as they are bought and sold. ETFs are structured as trusts and the income from their investments, net of management fees and other fund expenses, are allocated to the unitholders. You can also realize capital gains or losses from ETFs through the sale or redemption of the units. This gain or loss is the difference between your proceeds and the adjusted cost base of the units.

Your accountant can help you calculate the gain or loss on disposition of ETFs.

Income trusts and real estate investment trusts

Income trusts and publicly traded limited partnerships are classified as specified investment flow-through entities (SIFTs). SIFTs were originally designed to attract investors seeking predictable cash flows. Since 2011, a distributions tax has applied to SIFTs, treating them more like corporations. One important exception to the new SIFT rules is qualified real estate investment trusts (REITs). REITs continue to be flow-through entities for tax purposes.


Your trusted accountant provides tax advice for calculation of gains or losses on disposition of mutual funds units.