Return of Capital

Return of capital (ROC) is a type of distribution from a fund that isn’t income, dividends, or capital gains. It’s your own money being returned to you. Instead of paying you from the fund’s earnings, the fund is giving back a portion of what you originally invested.

How it works

When a fund makes a distribution, it can be made up of several components: dividends, interest, capital gains, and return of capital. The ROC portion is not taxable in the year you receive it. Instead, it reduces your adjusted cost base (ACB), which is the amount the government considers you to have paid for the investment.

For example, if you bought units at $20 each and received $1 per unit in return of capital, your ACB drops to $19. When you eventually sell, your capital gain will be calculated from that lower ACB, which means you’ll owe more tax at that point. You’re not avoiding tax. You’re deferring it.

Why it matters

Return of capital can be confusing because it looks like income on your statement, but it isn’t. If you don’t track it properly, you might overestimate your investment returns or miscalculate your taxes when you sell.

Some funds use return of capital intentionally as part of their distribution strategy. It isn’t necessarily a red flag, but it’s worth understanding what you’re receiving. Check your T3 tax slip at year-end to see the breakdown of your distributions. For a deeper look, see our return of capital guide.