Kate has mutual fund investments in XYZ Mutual Fund Trust and STU Mutual Fund Corporation. Over the years, she bought units in XYZ Mutual Fund Trust and reinvested her distributions from the trust to buy more units.
On June30 of the year, Kate redeemed 200units from XYZ Mutual Fund Trust at a price of $17.42 per unit, for a total of $3,484. Her redemption fees were $70. Kate records her redemption and her reinvested distributions, and she recalculates her ACB for XYZ Mutual Fund Trust as shown in Chart1.
For the year, Kate received the following information slips:
- a T3slip from XYZ Mutual Fund Trust showing capital gains (reinvested distributions) of $750 in box21 and a return of capital of $500 in box42
- a T5slip from STU Mutual Fund Corporation showing capital gains dividends of $330 in box18 and a taxable amount of eligible dividends of $200 in box25
Step 1 – Capital gains resulting from the redemption
The first step Kate takes is to calculate her ACB. Chart1 shows how she does this.
The average cost of the units at the time of redemption is $15.20 per unit. She calculates the ACB for the redeemed units by multiplying the number of units redeemed by the average cost per unit (200 ×$15.20=$3,040). To calculate her proceeds of disposition, Kate multiplies the number of redeemed units by the redemption price (200×$17.42=$3,484).
Step 2 – Completing Schedule3
When she completes her income tax and benefit return for the year, Kate records her ACB ($3,040), proceeds of disposition ($3,484), and redemption fee of $70 on Schedule3, under the heading "Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares." To determine her capital gain (or loss) on this transaction, she subtracts the ACB and redemption fee from the proceeds of disposition [$3,484–($3,040+$70)]. In this example, her gain is$374.
Kate also reports the capital gain of $750 from the T3slip on line17600 of Schedule3 and the capital gains dividend of $330 from her T5slip on line17400 of Schedule3. Kate does not report the amount of $500 from box42 of the T3slip on Schedule 3 or as income on her income tax and benefit return. Thisbox42 amount does result in an adjustment to her ACB as shown in Chart 1.
Kate's total capital gains on line19700 are $1,454 ($374+$750+$330). To calculate her total taxable capital gains, she multiplies this amount by 50%, for a result of $727. This is the amount she will enter on line19900 of Schedule3 and line12700 of her return.
The appropriate areas of Schedule3 are reproduced, as Kate would have completed them. Kate records her redemption and any future buys or reinvested distributions, and she recalculates her ACB as shown in Chart 1.
If, instead of a capital gain, Kate had a capital loss of $1,454 on line19700, 50% or $727, would be her net capital loss. Kate would file Schedule3 with her return to register her loss. She can use this net capital loss to reduce taxable capital gains in any of the threeprevious years or in any future year.
Step 3 – Completing the Federal Worksheet
Kate completes "Line 22100 - Carrying charges, interest expenses, and other expenses" of the Federal Worksheet, and includes the $200 from box 25 of the T5 slip on line 8 under the section "Lines 12000 and 12010 - Taxable amount of dividends from taxable Canadian corporations."
