If you invest in ETFs, mutual funds, or dividend stocks outside a registered account, you'll receive T3 and T5 slips. Here's exactly what to do with them.
The T5 is the more common slip for straightforward investment income directly from your bank or broker.
A T5 (Statement of Investment Income) is issued by your bank, broker, or financial institution for income earned directly from your account — not through a trust or fund structure. You'll receive a T5 for:
T5 slips are typically available in late January or early February. Your bank or broker provides them through your online account portal or by mail. Many tax software programs (TurboTax, SimpleTax/Wealthsimple Tax) can auto-import your T5s directly from CRA's My Account if you use the Auto-fill my return feature.
T3s come from funds and trusts — and they arrive later than T5s. Don't file before they arrive.
A T3 (Statement of Trust Income Allocations and Designations) is issued by investment vehicles structured as trusts — which in Canada includes almost all ETFs and mutual funds, as well as REITs and income trusts.
T3s cover the same income categories as T5s (interest, dividends, capital gains), but they also report something T5s don't: return of capital (ROC). This matters a great deal — more on that below.
Common T3 issuers include:
By law, T3 slips must be mailed or made available by March 31 of the year following the tax year. In practice, many arrive in late February or early March. ETFs and mutual funds must calculate and allocate the fund's income across all unitholders for the entire prior year before they can issue slips — a complex calculation that takes time.
Don't file your taxes before all your T3s arrive. If you file in early February and then receive T3s in March, you'll need to file an amended return (T1-ADJ) — which is annoying and delays any refund. Wait until you've received all slips from all your investment accounts before submitting.
Each type of income from these slips is taxed differently. Here's where everything goes.
Fully taxable as regular income. Enter on Schedule 4, Line 12100. No special treatment — taxed at your full marginal rate.
Enter on Schedule 4, Line 12000. Grossed up by 38% on your return, then the dividend tax credit applies — reducing your effective tax rate significantly compared to interest.
Enter on Schedule 4, Line 12000. Grossed up by 15%, smaller dividend tax credit than eligible dividends. Typically paid by private corporations or certain foreign dividends re-characterized.
Enter on Schedule 3. Only 50% (or 66.67% above $250K) is included in income. The most tax-advantaged common form of investment income.
Enter on Schedule 4, Line 12100. Taxed as regular income, but you can claim a foreign tax credit for withholding tax already deducted (T5 Box 16 / T3 Box 34).
Not taxable now — but reduces your ACB. Do NOT enter as income. Track it carefully (see below).
Tax software tip: Wealthsimple Tax (SimpleTax), TurboTax, and H&R Block's online software all have guided T3 and T5 entry screens. If you use CRA's Auto-fill my return, many slips will be imported automatically — but verify that all slips are present before filing, especially T3s from small or specialized funds.
This is the tax trap that catches investors off guard. Return of capital is not income today — but it will cost you later if you ignore it.
Return of capital (ROC) distributions appear in Box 42 of your T3 slip. They're not taxable in the year you receive them. But here's the critical part: ROC reduces your adjusted cost base (ACB).
Your ACB is what you paid for your investment. When you eventually sell, your capital gain is calculated as: Proceeds minus ACB. If your ACB has been quietly reduced by years of ROC distributions that you never tracked, your calculated capital gain will be larger than you expect — and you may under-report it, which can result in CRA penalties and interest.
You buy 1,000 units of a Canadian REIT ETF for $20/unit. Your ACB is $20,000. Over five years, the fund pays out $1,500 in cumulative return of capital distributions. Your ACB is now $20,000 − $1,500 = $18,500. You sell for $24,000. Your capital gain is $24,000 − $18,500 = $5,500 — not $4,000 as you might have assumed if you ignored the ROC. The tax difference on that $1,500 of "forgotten" ACB reduction could be hundreds of dollars.
REITs are especially ROC-heavy. Many Canadian REITs pay large return of capital components as part of their regular distributions — sometimes 50% or more of distributions are ROC. If you hold REITs in a non-registered account, ACB tracking is essential. In a TFSA or RRSP, ACB doesn't matter because there's no capital gains calculation on sale.
Each year when you receive a T3 with a Box 42 amount:
See our dedicated guide on ACB tracking for Canadian dividend and ETF investors for step-by-step instructions and tool recommendations.
If you want to simplify ACB tracking entirely, holding your ETFs and REITs inside a TFSA or RRSP eliminates the problem — no ACB calculation required for registered accounts.
Simple rule: Hold ROC-paying investments (REITs, some bond ETFs, certain income-focused funds) in your TFSA or RRSP whenever possible. Save non-registered room for investments with more predictable, ACB-friendly income like pure growth ETFs such as XEQT or VEQT.
| Factor | T5 Slip | T3 Slip |
|---|---|---|
| Full name | Statement of Investment Income | Statement of Trust Income Allocations |
| Issued by | Banks, brokers (direct income) | Mutual funds, ETFs, REITs, trusts |
| Typical arrival | January–February | February–March (deadline: March 31) |
| Reports interest | Yes | Yes |
| Reports Canadian dividends | Yes | Yes |
| Reports capital gains | Yes (Box 18) | Yes (Box 21) |
| Reports return of capital | No | Yes (Box 42 — affects ACB) |
| Tax schedule | Schedule 4 (+ Sched 3 for cap gains) | Schedule 4 + Schedule 3 |
For more on tax strategies related to investment income, see our guides on tax-loss harvesting for ETF investors, the superficial loss rule, and the 2024 capital gains inclusion rate change.
Return of capital can silently increase your future tax bill. Learn to track your adjusted cost base correctly.
ACB Tracking Guide → Tax-Loss Harvesting →This article is for educational purposes only and does not constitute tax or financial advice. Tax rules and slip formats can change. Always verify current CRA requirements at canada.ca and consult a qualified tax professional for your specific situation.