Oftentimes, the best investment is in yourself. And the best stocks to invest in is your own corporation. If you have already figured out how to invest in your own corporation and now need to paper that dividend payment – remember that corporate T5s are due at the end of February. With this deadline fast approaching, it is important to understand the requirements of filing a T5 slip.
The T5 slip is prepared to tell the CRA and the recipient the amount of investment income that was earned by the recipient in a calendar year. A T5 slip is an information return that is required to be filed by corporations for the payments of dividends made to their shareholders who are residents of Canada. This is required for both eligible and non-eligible types of dividends paid as well as interest paid from fully registered bond or debentures. Dividends include payments in cash or in kind, including stock dividends and all amounts deemed to be dividends.
As we are approaching the deadline – here are some saving graces. You do not have to file a T5 slip if the amount is paid to one recipient with a total amount for the year being less than $50; for the interest part of a blended payment made by an individual; interest from one individual to another; interest one individual pays to another or on interest paid on loans from a banking institution or for capital dividends (that require a separate filing). You also do not have to file a T5 for amounts paid to non-residents of Canada (however, withholdings will be required and a NR4 slip should be filed for dividends issued to non-residents).
It is also important to note a T5 slip is a form to let the CRA know the amount of investment income paid to the recipient. If the dividend has been declared and not paid within the calendar year – the T5 is not required to be completed.
The T5 should be completed based on the calendar year the payment was made – which may differ from what is included on the financial statement of the related corporation. Oftentimes errors are made for when dividends are declared in late December and payment is made the following January – requiring the income to be included in the subsequent year T5.
Owners of their own incorporated business who compensate themselves through dividends are required to file T5s from their company to themselves. The accurate completion of the T5 itself will have an impact on the amount of personal tax the individual is required to pay. Note non-eligible dividends are taxed in Alberta at rates ranging from 15.86% through 42.31% in 2022 (15.86% through 42.31% in 2023) whereas eligible dividends are taxed at a rate of 2.57% through 34.31%in 2022 (2.57% through 34.31% in 2023). The proper preparation would include reviewing the appropriate schedules on the corporate tax return to maximize these tax savings.
The T5 is due the last day of February following the calendar year to which the information return applies – unless this falls on a Saturday or Sunday or public holiday – it that is the case, the T5 is due the next business day. The penalties for late filings and failure to file start at $100 and increase to a maximum of $7,500. Additional interest may also apply. A reasonable effort also has to be made to get the required information for the return or you are subject to a $100 penalty. You can amend, cancel, or add replacement slips should the need arise without penalty.
If you have invested in yourself and formed your own corporation – ensuring proper and timely filings with Shajani CPA will maximize your return on investment.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2023 Shajani CPA.
Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.