Why do ETFs issue T3 slips instead of T5 slips?

Most Canadian ETFs are structured as trusts (not corporations), so distributions flow through to unitholders on a T3. Corporate-class mutual funds or ETF corporations issue T5 slips for dividends. The distinction is legal structure, not the type of income. A T3 from an ETF can contain interest, eligible dividends, foreign income, capital gains, and return of capital — all in separate boxes, each taxed differently. The fund handles the allocation proportionally based on units held.

What is return of capital on a T3 and is it taxable?

Return of capital (T3 Box 42) is the portion of a distribution that represents a return of your original investment rather than investment income. It is not taxable when received. However, it reduces your adjusted cost base (ACB) in the fund. When you eventually sell the fund, a lower ACB means a larger capital gain. Return of capital defers tax — it does not eliminate it. Failing to track ACB reductions from T3 Box 42 is a common error that causes under-reporting of capital gains at sale.

Why do T3 slips arrive so late — sometimes after the RRSP deadline?

T3 slips can legally be issued up to 90 days after a trust''s fiscal year-end. For most funds with a December 31 year-end, T3 slips are due by March 31. This is later than the RRSP contribution deadline (early March) and can arrive close to or even after the April 30 tax filing deadline. If you are missing T3 slips, check My CRA Account in late March/early April, or contact your fund provider. You should wait for all T3 slips before filing to avoid a reassessment.

What is the difference between a T3 and a T5?

T3 is issued by a trust (mutual funds, ETFs, REITs, estates). T5 is issued by a corporation or financial institution (bank interest, corporate dividends). The tax treatment of income types is the same — eligible dividends are grossed up and receive the dividend tax credit on both slips; capital gains are reported at 50% inclusion on both. The difference is purely the structure of the entity issuing the slip, not the tax rules applied to the income.

What is designation income on a T3 (Box 49)?

Box 49 is capital gains eligible for the lifetime capital gains exemption (LCGE) — rare on standard investment T3 slips. More commonly, T3 capital gains distributions appear in Box 21 (capital gains) and are reported on Schedule 3. The fund has realized capital gains internally when portfolio managers sell securities; these are flowed through to unitholders proportionally regardless of whether you sold any fund units yourself.

What Is a T3 Slip in Canada?

Q: What is a T3 slip in Canada?

A T3 (Statement of Trust Income Allocations and Designations) reports your share of income allocated to you by a trust. The most common sources are mutual funds, ETFs, REITs, income trusts, and estates. When one of these funds earns income — dividends, interest, capital gains — and distributes it to unitholders, it issues T3 slips showing each holder''s allocation. You report T3 income on your T1 return just like T5 income, but using the T3-specific boxes.

Short Answer

A T3 slip reports income allocated to you from a trust — most commonly Canada mutual funds, ETFs, REITs, or estates. Unlike a T5, a T3 can contain multiple income types (interest, dividends, capital gains, foreign income, return of capital) from a single fund in a single year. T3 slips arrive late — sometimes in late March — which can complicate timely filing.

This page works best with core references T3 slip guide and what a T5 slip is so you can separate trust income from bank and corporate income. For reporting accuracy, add ACB calculation in Canada and how to read your T slips.

T3 Box-by-Box Reference

Box	Description	T1 line	Tax treatment
10	Actual amount of dividends (eligible)	Used for Box 11	N/A — see Box 11
11	Taxable amount of eligible dividends	Line 12000	Gross-up 138%; dividend tax credit applies
12	Dividend tax credit (eligible)	Line 40425	Federal credit = Box 10 × 15.0198%
13	Interest from Canadian sources	Line 12100	Fully taxable
18	Capital gains	Line 17400 (Schedule 3)	50% inclusion (amounts under $250K threshold)
21	Capital gains (designated)	Schedule 3	Same as Box 18 — sometimes a separate line
23	Actual amount of non-eligible dividends	Used for Box 24	N/A
24	Taxable amount of non-eligible dividends	Line 12000	Gross-up 115%
25	Dividend tax credit (non-eligible)	Line 40425
26	Other income	Line 12100	Fully taxable
32	Royalties	Line 12100
33	Foreign income	Line 12100	Convert to CAD; claim foreign tax credit
34	Foreign tax paid	Form T2209	Withholding paid to foreign government
42	Amount resulting in cost base adjustment	Not reported as income	Reduces ACB — note carefully

The Return of Capital Problem (Box 42)

Box 42 is not reported as income. But it silently erodes your adjusted cost base (ACB):

Year	Distribution received	Box 42 (return of capital)	ACB adjustment
Start	$10,000 invested	—	ACB = $10,000
Year 1	$600 distribution	$200 Box 42	ACB = $9,800
Year 2	$600 distribution	$150 Box 42	ACB = $9,650
Year 3	$600 distribution	$180 Box 42	ACB = $9,470
Sale	Sold for $11,000	—	Capital gain = $11,000 − $9,470 = $1,530

Without tracking Box 42 adjustments, you would incorrectly calculate a capital gain of $1,000 instead of $1,530. The $530 difference is under-reported capital gains.

Action: Keep a spreadsheet or use your brokerage’s ACB tracking tool. Update it every year when you receive T3 Box 42 amounts.

Why T3s Arrive Late: The Filing Calendar

Document	Deadline
T4 (employment)	February 28
T5 (investment income)	February 28
T3 (trust income)	March 31 (90 days after December 31 year-end)
T1 filing deadline	April 30
Self-employed T1 deadline	June 15 (balance still due April 30)

T3 slips from large mutual funds arrive in mid-to-late March. If you file in early February, you may miss T3 income, triggering a CRA reassessment and a balance owing with interest.

Best practice: Wait for T3 slips — check My CRA Account in late March before filing. If a T3 arrives after you’ve already filed, file an amended return (T1-ADJ) for the year the T3 relates to.

Fund Types That Issue T3 Slips

Fund type	Issues T3?	Notes
Canadian mutual funds (trust structure)	✅ Yes	Most common T3 source
Canadian ETFs (trust structure)	✅ Yes	E.g., iShares, Vanguard Canada, BMO ETFs
Real Estate Investment Trusts (REITs)	✅ Yes	Mix of income types incl. return of capital
Income trusts	✅ Yes	Less common post-2011 tax change
Corporate-class mutual funds	❌ No — T5 instead	Structured as corp, not trust
US-listed ETFs (held in Canada)	❌ No T3	No Canadian slip — report foreign income manually
Estates/testamentary trusts	✅ Yes	Distributed to beneficiaries

ETF T3 Income Components: Example

A balanced Canadian ETF might issue a single T3 containing contributions from multiple box types:

T3 component	Example amount	Box
Eligible dividends (Canadian stocks)	$82.00	Box 10/11
Interest income (bond portion)	$145.00	Box 13
Capital gains (portfolio turnover)	$28.00	Box 21
Foreign income (US/international)	$64.00	Box 33
Return of capital	$15.00	Box 42 — ACB reduction

Each component is taxed at its own rate — the T3 breaks them out precisely for this reason.

Reinvested Distributions (DRIPs) Still Require Reporting

If you are enrolled in a Distribution Reinvestment Plan (DRIP), your distributions are automatically reinvested as new units rather than paid in cash. This does not exempt the income from tax:

The full distribution amount appears on your T3
You still report and pay tax on it in the year distributed
The reinvested amount increases your ACB in the fund
Failing to track DRIP reinvestments into your ACB causes double taxation at sale

Bottom Line

A T3 is a multi-component income slip from a trust — most often a mutual fund or ETF. Report each box on its designated T1 line; Box 42 (return of capital) is not income but must be tracked as an ACB reduction. Wait until late March before filing your return to ensure all T3 slips are received. For ETF investors, the T3 is the primary documentation for your annual investment income reporting obligation.

→ Back to: Complete Canadian Tax Guide