I'm trying to accurately track my Adjusted Cost Base for a few different mutual funds, and one of these funds has reported a negative amount for box 42 of the T3. -- this cell reports the Return of Capital (ROC) for the year for that fund.

My understanding, which may be wrong, is that a positive Return of Capital represents dividends paid to me from the part of the investment that was from my own capital. So this gain is not taxable, but I need to reduce the ACB of the corresponding property.

Does a negative Return of Capital represent the case where the fund, overall, has "lost" or had to "dispose" of some of my capital? I would think then, that my ACB should increase as a result.

However the CRA's lingo on the matter is ambiguous (to me):

Any amount reported in box 42, Amount resulting in cost base adjustment, of the T3 slip represents a change in the capital balance of the mutual fund trust identified on the slip. This amount is used when calculating the ACB reported on Schedule 3, Capital Gains (or Losses), for the property in the year of disposition. For more information and an example of the calculation, see Information Sheet RC4169, Tax Treatment of Mutual Funds for Individuals.

If box 42 contains a negative amount, add this amount to the ACB of the units of the trust identified on the T3 slip.

If box 42 contains a positive amount, subtract this amount from the ACB of the units of the trust identified on the T3 slip.

If I read that as a mathematician, it seems to be saying: ACB_new = ACB_old - ABS(box_42)

Does the ACB really go down regardless of the sign of the number in box 42? That seems to conflict with the notion of losses and gains.

Source: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html


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