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If you have an investment account, you are likely to receive investment income. Interest, foreign interest, dividends, foreign income and other income are usually reported on a T slip. Common slips include:
- T5 – Statement of Investment Income
- T3 – Statement of Trust Income Allocations and Designations
- T5013 – Statement of Partnership Income
It is important to note that you may not receive a T slip if the amount is less than $50 (for a T5), the investment is held outside of Canada or one was erroneously missed by the issuer. However, you are still obligated to report this income on your tax fillings.
It is important to compile a complete set of data. Note while you may only have one account with a brokerage, CRA may have a separate T slip for each investment. Where slips are missed in multiple years, CRA will assess penalties.
Multiple investors on a slip
Where there are multiple names on T slips, there may be more than one owner. However, the income should be split according to who contributed the funds. If this is not done appropriately, CRA may attribute the income back to the individual with the higher marginal tax rate on the slip.
Dividends are issued to investors of a corporation after that corporation has paid corporate tax and are not deducted on a corporate tax return. As such, dividends are taxed at a lower rate compared to salaries or interest income.
Generally, where the corporation paid the general corporate tax rate (23% in Alberta), those dividends would be taxed as eligible dividends based on the taxpayer’s marginal tax rate. Where the corporation paid the small business tax rate (11% in Alberta), those dividends would be taxed as non-eligible dividends based on the taxpayer’s marginal tax rate. Dividends and their eligibility are detailed on a T5 slip. These slips are due from the issuer at the end of February.
If you have received a dividend from a family business, special consideration should be made to the new tax on split income rules TOSI. These rules risk those dividend being taxed at the highest marginal tax rate, however there are mitigating factors for this not to be the case.
Interest income is deductible to a corporation, where a corporation made that payment. As such, interest income is taxed at the recipient’s general marginal tax rate. Interest income often is detailed on a T3 slip. These slips are not due from the issuer until the end of March.
Term deposits should also be considered. Where investments are made for more than a year with a set interest rate, that interest is added to the investment each year and paid out to the investor at the end of the term. The tax on the interest would be due annually.
The prescribed rate of interest is a tool often used for income splitting between spouses. The spouse that lends these funds would receive interest income that should be included in their income (and the spouse that pays that interest should receive a deduction).
If you received refund interest from the CRA, note this is taxable interest income. A slip would not be issued for this, however details may be available on your notice of assessment.
Partnerships are not taxable entities. Rather, the tax attributes of these investments flow through to the taxpayer. As such, if the investor is an individual – they will pay tax at their marginal tax rate (and a corporation at the corporation’s tax rate). It is important to understand that if a partnership is in a loss position – these losses also flow through to the investor and are deducted against that investors other income. The details of partnership income are included on a T5013 slip. These slips are not due from the issuer until the end of March.
Capital gains are taxed at half the rate regular income is. Capital gains are not always reported on a T slip. Proper supporting documentation will include a realized gain/loss summary along with support for the cost price, sale price and related costs for the investment.
If you are a Canadian resident, income from an investment outside of Canada needs to be recorded on your tax return. The currency the funds were received in need to be considered as well as any foreign tax paid on that income. The foreign tax paid may qualify for a foreign tax credit on your return.
Where investment income is earned, related expenses could be deducted. These may include a deduction for accounting, brokerage, management and legal fees. If you have borrowed funds to invest, the related interest could also be deducted.
What to provide to your accountant?
Provide your accountant with all the relevant information or put them in contact with your investment advisor. This information may include the following:
- Realized gain loss summary
- T slips (T5, T3, T5013 etc.)
- Income slips (T4RIF, T4RSP etc.)
- Contribution slips
- December investment statements
- Investment/management fee summary
- Foreign property details for T1135
The tax filing process also provides an occasion to strategize for tax planning opportunities. Shajani LLP Chartered Professional Accountants have a team of Calgary Accountants, Edmonton Accountants and Red Deer Accountants ready to assist you in your personal tax filings and tax planning strategy. Consider using us to file your tax returns.
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. © 2021 Shajani LLP.
Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.