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Which of the following statements about capital gains distributions from mutual fund trusts is correct?
Capital gains from mutual fund trusts are deferred until the investor exits the mutual fund.
Capital gains distributions from a mutual fund trust are reported annually on a T3.
Capital gains distributions are not a disposition and are therefore not taxable.
Capital gains from mutual fund distributions are 100% taxable.
B is correct because capital gains distributions from a mutual fund trust are reported annually on a T3 slip, which shows the amount and type of income received from the trust. Capital gains from mutual fund trusts are not deferred until the investor exits the mutual fund (A), as they are realized and distributed by the trust every year. Capital gains distributions are considered a disposition and are therefore taxable ©, as they increase the investor’s adjusted cost base (ACB) and reduce the capital gain or increase the capital loss when the investor sells the mutual fund units. Capital gains from mutual fund distributions are 50% taxable (D), not 100%, as only half of the capital gain is included in the investor’s taxable income.
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