Every March Canadians focus their attention on gathering their various T-Slips in preparation for filing their income tax returns. These little slips cause a lot of confusion for investors; here is a quick overview of the most common T-slips investors may receive.  

Canadians who invest in Mutual Funds, ETFs or Segregated fund contracts, must report all taxable income related to these investments when held in a Non-Registered Account. Investors will receive a T3 slip for investments in a mutual fund trust, ETF or segregated fund contract. For investments held in a mutual fund corporation (commonly known as Corporate Class) investors may receive a T5 tax slip.

Taxable income that is reported via T3s and T5s may include Canadian Dividend income, interest income, foreign non-business income and capital gains.

Flow-Through Entities – Mutual Funds, ETFs and Segregated funds are all considered flow-through entities for tax purposes. This means, they pass the taxable investment income earned (within the fund) on to unit holders. These types of investments act as a conduit; whereas the investment income retains its character when it flows through to investors. In other words, when investors report this investment income on their tax return, dividends are reported as dividends, interest as interest and capital gains as capital gains. By forwarding this income to investors, it avoids the income from being taxed at the highest marginal tax rate within the fund (ultimately saving most investors money).

T5008 – Investors that sold their mutual funds, ETFs or securities will not see their capital gain or loss on a T-slip, instead, they will have to calculate it themselves with the information provided on their T5008. This T-slip provides both the number of units sold and the proceeds of the sale but does not calculate your capital gain or loss for you. This slip simply informs CRA that you sold units, but it is up to you to report the amount on your tax return.

T4RSP or T4RIFF – Many investors are surprised when they receive a T4RSP/RIFF after withdrawing money from their registered account. Funds withdrawn from your RRSP or RRIF is taxed the same way as regular employment income, and much like the T4 you would receive from an employer, financial institutions must issue T4RSP/RIFF when funds are withdrawn, and you are required to report this income on your tax return.

60J or 60L – If you rolled your RRSP/LIRA into a RIFF/LIF in 2020 do not be surprised to receive a T4RRSP for the full amount that was transferred. However, you will receive an offsetting 60j contribution receipt from the new RIFF account, eliminating any tax liability.

RESP T4A – When redeeming money from your RESP for your child’s education, if part of the proceeds included some of the government grant and/or growth from the investments, your child will be issued a T4A and must include this income on their tax return. You as the parent will not be taxed.

As always, I recommend you use a qualified professional to help with financial matters, including the preparation of your tax return.  I do not prepare tax returns myself, but I do work side by side with someone who does, if you need a name of a good accountant give me a call.

Have a great week,

Tracey

Source: Manulife Investment Management, Article Understanding your tax slip, posted 10-20-20. MT03-11-22

This service is not affiliated to Security Financial Services. Tax return preparation is not conducted through Security Financial nor is it the business of Security Financial.

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