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As with any investment, there are tax considerations related to the purchase and sale of mutual funds. Here is what you need to know:

  • If you sell a mutual fund investment and the proceeds exceed your adjusted cost base, you realize a capital gain. Realized capital gains must be reported for tax purposes in the year of sale. Capital gains are also taxed more favourably than interest, dividend and foreign income. Under current tax rules, only 50% of a capital gain is taxable.

  • If you sell a mutual fund investment and the proceeds are less than your adjusted cost base, you realize a capital loss. Most capital losses can be applied against capital gains to reduce the amount of taxes payable. If you have no realized capital gains in the year a capital loss is realized, the capital loss can be carried back and applied against taxable capital gains from any of the previous three years. You are also allowed to carry the capital loss forward indefinitely to offset gains in future years.

In general, you can calculate your capital gain or capital loss using the following formula:

Capital gain
(or capital loss)
Proceeds from sale
of an investment
Adjusted Cost Base
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If you switch between mutual fund trusts in a non-registered account, you are deemed to have sold units of one fund and purchased units in another. If the units you sold are worth more than what you originally purchased them for, the switch will generate a capital gain. If the units you sold are worth less than what you originally paid, the switch will generate a capital loss.

When switching between funds, keep in mind that you are required to keep track of your capital gain and include its taxable portion in your taxable income in the year of sale. Speak to your financial advisor to understand the implications before switching your investments.

In order to assist in your annual tax reporting for these transactions, your fund company or investment dealer will issue a statement of your mutual fund transactions (also known as T5008/Relevé 18) at the end of the year. This report lists any investments in your account that were sold or redeemed during the calendar year.

Your advisor or qualified tax specialist can help you to better understand how your investments are taxed.

Disclosure

Last reviewed: January 1, 2023


Publication date: August 2021


This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes, as of the date noted only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Past performance is no guarantee of future results. Interest rates, market conditions, tax rulings and other investment factors are subject to rapid change which may materially impact analysis that is included in this document. You should consult with your advisor before taking any action based upon the information contained in this document. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information.


The strategies and advice in this document are provided for the general guidance and benefit of our unitholders based on information that we believe to be accurate, but we cannot guarantee its accuracy or completeness. Readers should consult their own professional legal, financial and tax advisors when planning to implement a strategy. This will ensure that their own circumstances have been considered properly and that action is taken on the basis of the latest available information. Interest rates, market conditions, special offers, tax rulings and other factors are subject to rapid change.
This document is not to be construed as an offer to sell or a solicitation of an offer to buy any securities.

Taxes and selling or switching mutual funds | RBC GAM

Understanding the tax implications of selling or switching mutual funds