Exam IFC Topic 1 Question 186 Discussion

Actual exam question for CISI's IFC exam
Question #: 186
Topic #: 1

Which statement about a net capital loss incurred by a mutual fund trust is CORRECT?

A. A net capital loss is passed on to the unit holders by the mutual fund in the year it occurs. B. A net capital loss is permitted to be carried forward by the mutual fund for up to 3 years. C. A net capital loss is permitted to be carried forward indefinitely by the mutual fund. D. A net capital loss is permitted to be carried back indefinitely by the mutual fund.

Suggested Answer: C Vote an answer

A net capital loss is the excess of allowable capital losses over taxable capital gains in a taxation year. A mutual fund trust is a type of investment fund that is structured as a trust and distributes its income and capital gains to its unit holders. A mutual fund trust cannot pass on its net capital losses to its unit holders, as it can only distribute its net income and net realized capital gains. However, a mutual fund trust can carry forward its net capital losses indefinitely and use them to offset its taxable capital gains in future years. This reduces the amount of tax payable by the mutual fund trust and increases the amount of distributions available to its unit holders. A mutual fund trust cannot carry back its net capital losses to previous years, as this option is only available to corporations12. References:
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.3: Taxation of Mutual Funds, page 7-103
* Capital Losses and Deductions - Canada.ca1
* Mutual Fund Trusts - Canada.ca2

by Derrick at Oct 12, 2025, 08:15 AM

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