Return of capital

Return of capital (ROC) is defined as a distribution received from an investment which is not classified as income but rather as a return of a portion of your investment (capital). These distributions are not taxable.

For retail investors, you may receive a ROC from Income Trusts, Real Estate Investment Trusts (REITs) and mutual funds.

The ROC amount must be used in calculating the adjusted cost base (ACB) of the security, which must be reduced by the amount of the ROC. This results in the capital gain being greater when the investment is eventually sold. Return of capital cannot reduce ACB below zero.

The ROC amount will be reported to you in Box 42, “Amount resulting in cost base adjustment” of your T3 tax slip