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What is a T5 slip? A Comprehensive Guide

What is T5 tax slip

What is a T5 slip?

The T5 slip is a tax form used in Canada to report various types of investment income earned by an individual or entity over  a year. The T5 slip is distributed by corporations, financial institutions, and investment entities. It lists income from investments, including interest and dividends, among other types of earnings.

The T5 slip provides the information required for accurate reporting to the Canada Revenue Agency (CRA) by assisting in the identification and classification of various forms of investment income. Ensuring that individuals and businesses fulfill their tax obligations related to investment income is a crucial aspect of the Canadian tax system.

This guide will provide a thorough understanding of what a T5 slip is, its key components, and how to use it effectively when filing your income tax return.

Who Issues and Receives a T5 Slip?

Issued By:

  • Banks
  • Credit unions
  • Investment brokerage firms
  • Corporations (for dividends)
  • Trusts

 

Received By:

  • Individuals
  • Corporations
  • Partnerships
  • Trusts
  • Anyone who has earned investment income from the above entities may receive a T5 slip.

When do you have to prepare a T5 slip?

1. Interest Income

    If the total interest earned by an individual or entity from all sources exceeds $50 in a calendar year, you must prepare a T5 slip. This includes interest from savings accounts, term deposits, GICs (Guaranteed Investment Certificates), and similar financial products.

2. Dividend Income

If dividends paid to shareholders exceed $50 in a calendar year, you must prepare a T5 slip. This applies to both eligible and other than eligible dividends from Canadian corporations.

3. Capital Gains Dividends

If you distribute capital gains dividends, primarily through mutual funds or investment trusts, you must prepare a T5 slip, regardless of the amount.

4. Foreign Interest and Dividends

When you receive more than $50 in foreign interest or dividends, you must prepare a T5 slip. Note that this includes converting the foreign amounts into Canadian dollars.

5. Other Types of Investment Income

You must prepare a T5 slip for any other type of investment income that exceeds $50 in a calendar year. This can include income from debt obligations, prescribed debt obligations, or certain insurance products under specific criteria.

Things to pay attention to

Your T5 should be  mostly self-explanatory, but some investment products could make you wonder exactly how interest is reported.

For example, interest reporting for an Escalator GIC differs slightly from that of a traditional GIC product. See the following details:

  • Annual interest is earned and paid on escalator products according to a stepped interest rate. Stated differently, the interest rate rises annually on the anniversary.
  • Interest must be reported annually to the CRA for T5 purposes. The average rate of return for the term’s duration, not the interest received in a given year, must be used.

This means that while the interest earned in the early years of your term will appear higher on your T5, the interest earned will be balanced if you hold your Escalator until maturity. Your T5 will be updated the following year to reflect any early redemptions of your Escalator that occur on one of the anniversary dates.

The Market-Linked GIC (MLGIC) is another product for which interest is reported in a slightly different way. This product is reported on the T5 every year because it has an annual minimum rate of return. Additionally, MLGICs may yield a variable return; however, this will not be reported until the end of the term because the return is not paid out until the term matures.

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