T3 – Trust Income

If you’ve received a T3 slip at tax time, you might wonder why. While not as common as T4s or T5s, the T3 Statement of Trust Income Allocations and Designations is important for reporting income from trusts, mutual funds, or estates.

At Optimize, we use your T3 to better understand your investment income and tax exposure. This helps support smarter planning, especially when non-registered accounts or trust and estate distributions are involved.

The Foundation of the T3 Slip

The T3 form reports income from trusts or similar investment vehicles that are required to distribute earnings to beneficiaries. You might receive a T3 slip if you:

Hold units in mutual funds or exchange-traded funds (ETFs) that are structured as trusts.
Are a named beneficiary of a family trust or testamentary trust.
Receive income from an estate during its administration period.

Each T3 slip shows the type and amount of income allocated to you during the tax year. This could include:

Interest income
Dividends (eligible and non-eligible)
Capital gains
Foreign income
Return of capital
Other trust income

The amounts reported on your T3 slip are included in your personal tax return (T1) and are taxed based on the nature of each income type.

Why the T3 Matters in Your Financial Plan

Even though you do not issue or prepare T3 slips yourself, receiving one is a signal that you are participating in a trust-based investment. This matters for several reasons:

It reflects investment income earned outside registered accounts, which is generally taxable.
It may highlight tax-efficient income streams, such as capital gains or eligible dividends.
It can help you understand why your tax bill may be higher than expected in years when distributions rise.
It shows how your portfolio is structured, especially if you hold mutual funds, ETFs, or pooled investment products.

Learn how to read a T3 form to better understand the details and terminology used throughout your return.

Tip: Keep all your T3 slips organized and accessible. They often arrive later than other tax slips, sometimes in March or April, which can delay tax filing if they are missing.

Investment Income Through a Trust Lens

Many pooled investment vehicles, such as mutual funds and ETFs, are structured as trusts. This means that when the fund earns income or realizes capital gains, it must pass that income along to you. The T3 slip is how that income is reported to you and to the Canada Revenue Agency.

The T3 may also include:

Return of capital: This is not taxable income, but it reduces your adjusted cost base, which will affect capital gains when you sell.
Capital gains distributions: These are different from capital gains you realize by selling an investment. Even if you did not sell, you may owe tax on gains realized within the trust.

Understanding this can help explain why your investment income may fluctuate year to year, even if you did not change your portfolio.

Important: If you receive T3 slips from a trust or estate, let us know. Income from these sources may trigger unique tax planning opportunities or obligations, especially if you are a beneficiary of a family trust or a recently settled estate.

Learn How to Read a T3

Understanding your T3 isn’t just about reporting income — it’s about seeing how income from trusts and managed investments flows into your tax return and shapes your financial picture. Reading it carefully helps you see where your income comes from, how it’s taxed, and what that means for planning around registered accounts, tax efficiency, and estates.

At Optimize, we believe that understanding your tax slips empowers smarter long-term decisions. This article breaks down the T3 into clear sections so you can face tax season with clarity, not confusion.

Identification and Basic Information

Think of this section as the cover page of your trust income. It tells the CRA who received the income, who issued it, and for what time period.

Recipient’s name and address
Confirms who received the income and where CRA will associate it on your personal return.

Payer’s name and account number
Identifies the trust, estate, or investment fund issuing the slip.

Tax year and reporting period
Tells you which calendar year the slip applies to. This is usually January to December, but some trusts report off-calendar.

Trust Income Breakdown (Boxes 21 to 26)

This section outlines the types of income distributed by the trust or investment fund — each with different tax treatments. These figures flow into specific lines of your T1 return.

Box 21 – Capital gains
Represents your share of capital gains earned and distributed by the trust. Taxed at 50 percent of the reported amount.
Box 22 – Capital gains eligible for deduction
Rare, but may apply to gains from qualified small business shares or farm property. Deductible in specific cases.
Box 24 – Other income
Income that doesn’t fall under other categories, often taxed as regular income.
Box 25 – Foreign income
Income earned outside Canada. May be subject to foreign tax and is reported in Canadian dollars.
Box 26 – Other income from Canadian sources
Includes trust-related rental, royalty, or business income that must be fully reported.

Important: Different types of trust income are taxed in different ways. Understanding which box applies can help you report correctly and avoid overpaying tax. It also helps Optimize tailor your investment strategy.

Income Allocations and Dividends (Boxes 30 to 42)

These boxes explain how specific types of income are categorized or reclassified for tax reporting. They may determine eligibility for dividend tax credits or capital gains treatment.

Box 30 – Dividend income from taxable Canadian corporations
Taxed at a lower rate due to the dividend tax credit. Reported on Line 12000 of your T1.
Box 32 – Foreign non-business income
Includes foreign interest or dividends. A foreign tax credit may be claimed if tax was withheld.
Box 34 – Actual amount of eligible dividends
The full amount of dividends before the gross-up is applied on your return.
Box 39 – Capital gains from mutual funds
Distributions of capital gains earned by mutual funds held in non-registered accounts.
Box 42 – Amount resulting in a capital gain
Technical classification that often affects how trust redemptions or fund reorganizations are taxed.

Taxes Paid and Refundable Amounts (Boxes 50 to 52)

These values help you claim credits or confirm whether tax was already paid on your behalf.

Box 50 – Foreign tax paid
If income was earned abroad, this box shows how much was withheld by the foreign government. May be claimed as a credit.
Box 51 – Income tax deducted
If the trust withheld any tax at source, it’s reported here and applied to your return.
Box 52 – Refundable capital gains tax
Applies mostly to mutual fund trusts. This amount may offset your tax or affect your adjusted cost base.

Tip: If your T3 slip was issued from a joint account or on behalf of an estate, make sure the amounts are split correctly between individuals. Otherwise, CRA will assume all the income belongs to the person named on the slip.