What the T3 is
A T3 (Statement of Trust Income Allocations and Designations) reports amounts flowed out to you from a trust — and for investors that means ETFs, mutual fund trusts, and REITs. It splits your distribution into components — capital gains, eligible dividends, foreign income, other income, and return of capital — each taxed differently. It is not the same as a T5008, which reports your sales.
Box 21 — capital gains
Box 21 is the capital gains the fund realized inside itself and passed through to you. You report it on Schedule 3 as a capital gain even though you didn’t sell anything — the fund’s trading generated it. Only the taxable portion is included, the same as any other capital gain.
Box 42 — return of capital
Box 42 is return of capital: not income, not taxed this year, but a reduction to your ACB. High-yield ETFs and REITs often distribute meaningful ROC. Track it, or your cost base stays too high and your eventual capital gain is understated.
Why T3s complicate filing
T3 slips arrive late — often near the end of March, after many people have already gathered their other slips. And the box amounts are aggregate dollars; converting them into a per-unit ACB adjustment against the units you actually held on each distribution date is manual work the slip doesn’t do for you.