| Interest Income | This is interest received from fixed-income securities, like bonds, T-bills, commercial paper, and other money market instruments. These securities make a payment at regular intervals. Derivatives used for non-hedging purposes may also be accounted as income. |
Distributions from this source are fully taxable at the individual's marginal tax rate. |
| Foreign Income | Foreign income consists of interest and dividends paid from foreign sources. | Distributions from this source are fully taxable at the individual's marginal tax rate. There may also be withholding tax at the source of foreign portfolio holdings for which a foreign dividend tax credit may be available. |
| Canadian Eligible Dividends | Eligible dividends are dividends received from publicly traded Canadian corporations and Canadian-controlled private corporations that elect to pay an eligible dividend. |
Eligible dividends received are grossed up by 38% and added to an individual's taxable income. Federal and Provincial governments then allow for an enhanced dividend tax credit equal to 15.0189% (Federal) plus a provincial dividend tax credit percentage of the grossed-up dividend, which reduces actual tax payable. |
| Canadian Non-Eligible Dividends | Non-eligible dividends can be received by any type of Canadian corporation but are generally paid from Canadian-controlled private corporations. |
Non-eligible dividends received are grossed up by 15% and added to an individual's taxable income. Federal and Provincial governments then allow for a dividend tax credit equal to 9.0301% (Federal), plus a provincial dividend tax credit percentage of the grossed-up dividend which reduces actual tax payable. |
| Capital Gains | Net capital gains are realized when assets are sold for more than they were purchased for. | 50% of net capital gains are taxable at the individual's marginal tax rate. |
| Return of Capital (ROC) | This is simply part of one's original investment being returned. This occurs by design, when a fund is committed to making a distribution but may not have earned sufficient income and/or realized capital gains to fund it, or as part of a specific investment strategy. |
ROC is not immediately taxable, as it is not income generated by the fund. It does however reduce the individual's adjusted cost base (ACB), thereby potentially increasing the capital gain or reducing the capital loss when the investment is ultimately sold. |