Understanding Your XEQT Tax Slips: T3, T5, and Filing Made Simple

The first time I sat down to file my taxes after a year of holding XEQT in a non-registered account, I opened my Wealthsimple tax documents expecting something straightforward. What I found was a T3 slip covered in numbered boxes – Box 21, Box 23, Box 25, Box 26, Box 32, Box 42 – most of which contained small dollar amounts that meant absolutely nothing to me. I stared at it the way you’d stare at a restaurant menu written entirely in a language you don’t speak.

My next move was predictable: I Googled “how to read a T3 slip” and ended up on the CRA website, which somehow made things less clear. Then I went to Reddit, where half the answers were “just use Wealthsimple Tax and it auto-imports” and the other half were multi-paragraph explanations about foreign withholding tax treaties that made my eyes glaze over.

It took me the better part of a Saturday to actually understand what each box meant and how to make sure I was not leaving money on the table. This guide is everything I learned – laid out so it takes you 15 minutes instead of five hours. If you hold XEQT in a non-registered account and tax season makes you nervous, this is for you.

Disclosure: I may receive a referral bonus if you sign up through links on this page. This post is for educational purposes only and is not tax advice. Consult a qualified tax professional for guidance on your specific situation.

1. When You DO and DON’T Need to Worry About XEQT Tax Slips

Before we dive into the boxes, let me save some of you a lot of reading. Whether you need to care about XEQT tax slips depends entirely on which account type you hold it in.

TFSA (Tax-Free Savings Account): You do not need to report anything. All investment income – dividends, capital gains, distributions – is completely tax-free inside a TFSA. You will not receive tax slips for XEQT held in your TFSA, and there is nothing to enter on your tax return. This is one of the biggest reasons the TFSA is such a powerful account for XEQT distribution tax efficiency.

RRSP and FHSA: Same deal – mostly. Distributions inside your RRSP are tax-deferred, meaning you do not pay tax on them until you withdraw. You will not get annual tax slips for distributions while the money stays inside the RRSP. The FHSA works similarly, with qualifying home purchase withdrawals being tax-free. No annual tax slips for either.

Non-registered (taxable) account: This is where it gets real. You will receive tax slips, and you must report the income on your tax return. The rest of this guide is primarily for you.

If all of your XEQT is in registered accounts, congratulations – you can stop reading and go enjoy your afternoon. For everyone else, let’s get into it.

2. T3 vs T5: Which Slip Does XEQT Generate and Why?

This is the first thing that confused me, so let me clear it up.

In Canada, there are two main investment income slips:

• T5 – Statement of Investment Income: Issued by banks and companies for interest and direct corporate dividends.
• T3 – Statement of Trust Income Allocations and Designations: Issued by trusts, including mutual fund trusts and ETFs structured as trusts.

XEQT issues T3 slips, not T5 slips. This is because XEQT (iShares Core Equity ETF Portfolio) is structured as a mutual fund trust under Canadian tax law. Most Canadian-listed ETFs are structured this way.

You might also receive a T5 from your brokerage for interest earned on uninvested cash, but that has nothing to do with XEQT. And if you sold XEQT during the year, you will receive a T5008 (Statement of Securities Transactions) – but that covers selling, not distributions. We will get to that in Section 6.

Why T3 Slips Arrive Late

Here’s something that catches people off guard every spring: T3 slips arrive later than almost every other tax document. Your T4 from your employer shows up by the end of February. But your T3 from XEQT? It often does not arrive until mid-to-late March.

The reason is that ETF providers like iShares need time to calculate the final tax character reclassification of distributions for the prior year. During the year, XEQT’s distribution breakdown is estimated. The final, official numbers – how much was eligible dividends, how much was foreign income, how much was return of capital – are not determined until the fund’s year-end accounting is complete. Your brokerage waits for this data before issuing your T3.

What this means for filing:

• The CRA filing deadline for most Canadians is April 30
• Your T3 might not arrive until mid-to-late March
• If you file early, you will not have your T3 and will need to amend later
• My recommendation: do not rush to file in February if you hold XEQT in a non-registered account – wait until you have all your slips

3. Reading Your XEQT T3 Slip: Box by Box

This is the section I wish I’d had three years ago. Your T3 slip will have a lot of boxes. Most will be empty or zero. Here are the ones that typically have amounts for XEQT holders, and what each one means.

Box 21 – Capital Gains

This represents capital gains allocated to you by the fund. When XEQT’s underlying ETFs sell securities at a profit during the year – as part of rebalancing or index reconstitution – those gains flow through to you.

How it’s taxed: Only 50% of this amount is added to your taxable income (the standard inclusion rate). You report it on Schedule 3. For the full picture, see my capital gains tax guide.

Typical for XEQT: Usually a small amount – the underlying index ETFs do not trade frequently.

Box 23 – Eligible Dividends (from Canadian Holdings)

This is the eligible dividend income from XEQT’s Canadian equity holdings – primarily from XIC (iShares Core S&P/TSX Capped Composite Index ETF), which holds the big banks, Shopify, and the energy giants.

How it’s taxed: Eligible dividends get the most favourable tax treatment available. The amount is “grossed up” by 38% on your return, then you receive the eligible dividend tax credit, which significantly reduces the tax owed. The effective rate on eligible dividends is substantially lower than on regular income.

Where to report: Line 12000 of your return, with the dividend tax credit claimed on your provincial and federal returns.

Box 25 – Foreign Non-Business Income

This is income from foreign (non-Canadian) sources – primarily dividends from US and international stocks held through XEQT’s underlying ETFs like ITOT (US equities), XEF (international developed markets), and IEMG (emerging markets).

How it’s taxed: At your full marginal tax rate as regular income. No dividend tax credit for foreign dividends. However, you may claim a foreign tax credit to offset withholding taxes already paid at the source (more on that in Section 4).

Where to report: Line 12100 of your return.

Box 26 – Eligible Dividend Income

This box contains the taxable amount of eligible dividends – the grossed-up figure. If Box 23 shows the actual eligible dividend amount, Box 26 shows that amount after the 38% gross-up. Your tax software handles the relationship between these two boxes automatically.

Box 32 – Foreign Business Income

Similar to Box 25, but specifically for income from foreign business sources. For most XEQT investors, this box is either zero or very small.

Box 42 – Return of Capital

Return of capital (ROC) is not taxable income in the year you receive it. Instead, it reduces your adjusted cost base (ACB). The fund is returning some of your invested capital, so there is no new income to tax right now. But the lower ACB means you will owe more capital gains tax when you eventually sell.

ROC is not a bad thing – it is tax-efficient because it defers taxation into the future. But you must track it for your ACB calculations. I covered this in detail in my return of capital guide.

Box 34 – Foreign Taxes Paid (for the Foreign Tax Credit)

This is the one people miss, and it costs them real money. Box 34 shows the foreign withholding taxes already deducted from your XEQT distributions by foreign governments. When XEQT receives dividends from US or international stocks, those countries withhold a portion as tax (the US withholds 15% on dividends paid to Canadian accounts, for example).

Why it matters: You can claim a foreign tax credit on your Canadian return using Form T2209 to avoid being taxed twice on the same income. Do not skip this box.

Quick Reference Table

4. How to Enter Your T3 on Your Tax Return (Schedule 4, T2209)

If you are filing with tax software – and you should be – the process is surprisingly simple.

Step 1: When your software asks you to enter tax slips, select “T3 - Statement of Trust Income.” Enter the amounts from each box exactly as they appear on your slip. The software maps them to the correct lines automatically.

Step 2: For Box 34 (foreign taxes paid), the software will generate Form T2209 (Federal Foreign Tax Credits) automatically. The idea is simple: foreign governments already took a cut of your income, and Canada does not want to tax you again. The credit reduces your federal tax owing dollar-for-dollar (up to a limit). Most provinces have an equivalent form as well.

Step 3: If Box 21 has a value, the software includes it on Schedule 3 (Capital Gains or Losses), automatically applying the 50% inclusion rate.

Step 4: Review the summary. Your T3 income should appear in the appropriate sections: capital gains on Schedule 3, dividends on the dividend income line (with gross-up and credit applied automatically), and foreign income on the interest and other income line.

How much is the foreign tax credit worth? For a $50,000 non-registered XEQT position, the credit might be $50-$150 per year. Not life-changing, but there is no reason to leave it unclaimed.

5. Using Wealthsimple Tax to Auto-Import Your Slips

If you use Wealthsimple as your brokerage (as I do), there is a major convenience: Wealthsimple Tax can auto-import your tax slips directly from the CRA.

1. Sign up for Wealthsimple Tax – it is free, no hidden tiers
2. Connect your CRA My Account using the Auto-fill feature
3. Your T3, T5, and T5008 slips are pulled directly from the CRA database and pre-populated
4. Review the numbers, then file electronically through NETFILE

This eliminates the most error-prone part of filing – manually typing in box values and hoping you put them on the right line.

What to Double-Check Even When Auto-Imported

Auto-import is excellent, but it is not infallible. Here is what I verify every year:

• Timing: If you auto-fill in early March, your T3 might not be in the CRA system yet. Re-import in late March to catch late-arriving slips.
• Amended slips: Occasionally brokerages issue amended T3 slips. If an amended version comes after you filed, you may need to adjust your return.
• Multiple accounts: If you hold XEQT in non-registered accounts at two different brokerages, make sure you have a T3 from each.
• Return of capital and ACB: Auto-import handles the slip perfectly, but it does not adjust your ACB for return of capital. That is your responsibility.
• Foreign tax credit: Confirm that Form T2209 was generated. In Wealthsimple Tax, check under the “Tax Summary” or forms list.

6. Capital Gains from Selling XEQT (Separate from Distributions)

Everything above covers the tax slips from holding XEQT – the distributions the fund pays you throughout the year. But there is a completely separate tax event when you sell XEQT units.

When you sell XEQT at a price higher than your adjusted cost base, you realize a capital gain. This is reported on Schedule 3 – separate from the T3 distribution capital gains. For the complete breakdown on capital gains tax, see my capital gains tax guide.

How to Calculate Your Adjusted Cost Base (ACB) with Reinvested Distributions

Your adjusted cost base is the average cost of all XEQT units you own, adjusted over time:

Here is a simplified example:

When you sell those 50 shares: proceeds of $1,750 minus ACB of $1,519 ($30.38 x 50) = capital gain of $231. Only half – $115.50 – is taxable at your marginal rate.

Why ACB Tracking Matters and How to Do It Simply

The most common mistake is forgetting to reduce your ACB by the return of capital amount each year. Over 10 or 15 years, the cumulative ROC can be meaningful. If you never adjust, your ACB is artificially high, and you will understate your capital gain when you sell.

Simple tracking options:

• AdjustedCostBase.ca – a free website where you enter transactions and it calculates your running ACB automatically, including ROC adjustments
• Wealthsimple’s built-in tracking – provides ACB and gain/loss reports in the app, though always verify against your T3 slips
• A simple spreadsheet – columns for date, transaction type, shares, price, and running ACB totals

Set a calendar reminder each March. When your T3 arrives, note the Box 42 amount and subtract it from your running ACB. Five minutes per year.

7. Common Mistakes and Myths

After spending time in Canadian investing communities and making some of these mistakes myself, here are the ones I see most often.

“I’m being double-taxed on dividends”

You are not. When the T3 slip shows eligible dividends (Box 23), your tax software grosses up the amount by 38% and then applies the dividend tax credit. The gross-up increases your reported income, which makes people think they are being overtaxed. But the dividend tax credit offsets this. The net result is that eligible dividends are taxed at a lower effective rate than employment income. It is a feature of the Canadian tax system, not a bug.

“Return of capital means I’m losing money”

No, it does not. Return of capital in ETFs is a normal part of how trust-structured funds distribute income. It often occurs because of timing differences between when income is earned inside the fund and when it is distributed. ROC is actually tax-advantageous because it defers your tax liability into the future. It is not a red flag. For the full explanation, read my return of capital guide.

Forgetting to adjust ACB for return of capital

This is a quiet mistake that compounds over the years. Every year you receive a T3 with a Box 42 amount and do not reduce your ACB, you are building up an error. When you eventually sell, your capital gain calculation will be wrong. Track ROC adjustments every year – it takes five minutes.

Filing before your T3 arrives

I’ve seen this every year in online forums: someone files in February, gets their refund, then receives a T3 in late March and has to amend. If you hold XEQT in a non-registered account, wait until you have your T3 before you file. The deadline is April 30 – there is no benefit to filing early if you are missing slips.

Ignoring the foreign tax credit

If Box 34 on your T3 has a value and you do not claim the foreign tax credit (Form T2209), you are leaving free money on the table. This is not an aggressive tax strategy – it is a straightforward credit the government expects you to claim.

Confusing T3 capital gains with your own selling

The capital gains in Box 21 of your T3 are gains the fund realized internally – they are not from you selling shares. If you also sold XEQT during the year, that is a separate calculation using your ACB and proceeds. Both amounts end up on Schedule 3, but they come from different sources. Do not double-count.

8. Putting It All Together

XEQT tax slips look intimidating the first time you see them. The T3 has too many boxes, the T5008 does not give you the one number you actually need, and the whole process feels disproportionately complicated for someone who is just holding one ETF.

But once you break it down, the annual tax work is genuinely minimal:

• Know which boxes matter – 21, 23, 25, 26, 34, and 42
• Enter them into your tax software (or let Wealthsimple Tax auto-import)
• Claim your foreign tax credit (Form T2209 – do not skip this)
• Track your ACB every year, adjusting for return of capital
• Wait for your T3 before filing – do not rush

And if you want to avoid the tax slip dance altogether, the simplest move is to hold your XEQT inside a TFSA or RRSP where none of this applies. For most Canadians, maxing out registered accounts before using a taxable account is the smartest approach – something I covered in detail in the XEQT tax implications guide.

Either way, do not let tax complexity scare you away from investing. A 30-minute annual filing routine is a tiny price to pay for decades of compounding wealth.

FAQ: XEQT Tax Slips and Filing

Does XEQT generate a T3 or T5 slip?

XEQT generates a T3 slip. This is because XEQT is structured as a mutual fund trust. T5 slips are issued by banks for interest and direct corporate dividends. Most Canadian ETFs, including XEQT, issue T3 slips.

When will I receive my XEQT T3 slip?

Typically in late March for the prior tax year. T3 slips arrive later than most other tax documents because ETF providers need to finalize the tax character reclassification of distributions.

Do I get a tax slip for XEQT in my TFSA?

No. TFSA income is completely tax-free. No slips are issued, and you do not report anything on your tax return.

What is the foreign tax credit and should I claim it?

The foreign tax credit (Form T2209) compensates you for taxes already withheld by foreign governments on your investment income. If Box 34 on your T3 has a value, you should absolutely claim it.

Do I need to report return of capital (Box 42) as income?

No. Return of capital is not income. You do not include it on your tax return. Instead, reduce your adjusted cost base by the Box 42 amount. This affects your capital gain calculation when you eventually sell.

What if I reinvested all my distributions through DRIP?

Reinvesting does not change your tax obligation. The distributions are still taxable in the year paid, regardless of whether you received cash or reinvested. Your T3 reflects the total distributions. The reinvested amount also increases your ACB, which prevents double-taxation when you sell.

Related Reading on Just Buy XEQT

• What Is XEQT?
• XEQT Tax Implications: A Canadian Investor’s Guide
• Capital Gains Tax and XEQT
• XEQT Distribution Tax Efficiency by Account
• XEQT Return of Capital Explained
• XEQT in a Non-Registered Account: Tax Basics

This article is for educational purposes only and does not constitute financial or tax advice. Tax rules can change, and your personal situation may differ from the examples shown. Always consult a qualified tax professional before making decisions based on the information in this guide. The author is not a financial advisor or tax professional.