Throughout the year, the Redwood Global Equity Fund generated the following outcomes: . $1.00 per unit of interest income from Canadian treasury…

The net capital gain for the fund is calculated by summing all capital gains and subtracting all capital losses ($7.75 + $6.50 - $2.00 = $12.25). A mutual fund trust can flow through its net realized capital gains to its unitholders. In Canada, capital gains are taxed favorably; only 50% of the net capital gain (the taxable capital gain) is included in the unitholder's income for tax purposes. The character of the income (i.e., as a capital gain) is maintained when it is distributed to the unitholder.

A. Foreign dividends are not eligible for the Canadian dividend tax credit mechanism; they are taxed as regular income in the hands of the unitholder.
C. Mutual fund trusts cannot distribute or flow through capital losses to unitholders. The trust must use losses to offset its own gains.
D. Mutual fund trusts are flow-through entities. They distribute income, including foreign source income, to unitholders who are then responsible for paying the tax.

- IFSE Institute, Canadian Investment Funds Course (CIFC), Chapter 12: Taxation of Mutual Funds, Section on "How Mutual Fund Distributions are Taxed". This section details that net realized capital gains are flowed through to unitholders and that only 50% is taxable. It also clarifies that foreign income is flowed through but does not qualify for the dividend tax credit, and that capital losses cannot be distributed.