So much fun… Really. Organizations who issue tax slips, tax returns or contribution receipts have been working hard perfecting their processes since the end of the last tax reporting season and have been working through the summer putting any necessary changes in place and gearing up for the next tax season – which all begins next month in November for many top organizations.
Since issuing organizations are gearing up, so should you, the investor, start getting ready to file your income tax returns and to do that, it really helps if you have an idea as to which slips your investment(s) will generate and when you can expect them.
Of course, even if you do get all your slips, as expected, there could always be amended returns sent to you as well resulting from an error or late directional change from the company / fund. Even the CRA likes make changes to their tax forms, or to the calculations contained therein and there is nothing you, nor your tax preparer can do, let alone the poor folks issuing your tax slips. You have a slip, assume it to be correct and file to the CRA with it only to find out it’s incorrect when another version comes, with a letter, to be used instead.
Take 2010, for example… The CRA changed the dividend tax rate by something like 0.0007% and they did that 5 days before they expected T5 slips to have been received by holders and in actual fact, most of the T5’s were already issued with the incorrect rate before the CRA realized what they had done.
Since the CRA determined that the rate change would be adjusted internally, there was a communication fired out industry-wide notifying those who received T5’s that no further actions would be taken on the holder side and that they should not need to go back to their bank, financial institution or transfer agent to have it amended. I remember a few individuals demanding their slips being amended for a total change of $7.00. But this is what you do – with a smile when you’re in that industry.
Back to the topic.
One of the most common frustrations during tax preparation time comes from those holders who are eager to file but are unsure of what they are getting and when, roughly, it should arrive.
Keeping tabs on due dates can be quite difficult, especially if you’re getting them from an organization which has not fully embraced social media and are unable to provide you with a timeline, or expected dates per slip depending on what you should be receiving.
For example, T4 and T5 tax slips must be mailed out by February 28th whereas, tax slips for mutual funds, flow-through shares, limited partnerships and income trusts are not due until March 31st.
When there are late deadlines, like March 31st, a lot of pressure is then placed on your accountant as it creates a heavy backlog in April, when accountants must rush through the preparation of personal tax returns for their clients – sadly unable to give each return the care and oversight that they deserve.
I just don’t understand why all slips are not made available on the web or by email all by say March 10th in order to allow time for issuing organizations to prepare better their processes to allow for additional oversight and for time to correct errors. This way organizations preparing the slips will have to begin auditing the slips traditionally due in February for errors and get the March ones completed – have them all merged together in the same file and made available sooner rather than later for the holder. In addition, with a fixed deadline, the CRA or MRQ would then know when they can or cannot change slips or information on slips.
Let’s look a little closer at some issues and potential solutions;
Year-end trading summaries
Banks and brokerages use year-end trade summaries to report proceeds and commissions on each sale. However, the proceeds reported are sometimes net of commissions, which can lead investors to erroneously deduct the reported commission number a second time. In addition, many banks issue multiple slips for each investment account, but send a consolidated summary of the slips to the CRA, which causes havoc when there is a missing slip or a question regarding one of them.
By keeping track of the totals or having them all come in March would allow the issuing organization time to audit and compare the slips to the summary before issuing to ensure they balance.
Another solution is for the issuing organization to make the slips available on their investor website and then holders can wait for the year-end summary to post – which of course would balance – and then before a holder does anything with their slips they can be comfortable that they balance.
An additional bonus would be for the issuing organization to also provide the calculations behind the slips on the website so that if there is a discrepancy, the holder can look to see how the slips were calculated and they can also learn more about how taxes are calculated. It’s a win-win situation. Accurate reporting and teaching the holder more about taxes.
Gain and loss reports
Many privately managed bank funds prepare gain and loss reports for clients. However, where there are US stock sales, often the cost reflects the US dollar purchase amount at the current year’s exchange rate, rather than at the time of purchase.
Traditionally, the onus is on the holder to figure out the historic exchange rate and the issuing organizations can and should assist by making this information available on their website for ease of balancing. They should also make sure that there is accurate and complete documentation on their website and on all reports indicating the rate used and the rate needed for reporting.
T3 and T5013 tax slips
These are the two main slips which have a mailing deadline of March 31st because the trust/partnership has to finalize their books and prepare their tax returns in order to know the breakdown of the distributions so that the individual holders can then have their tax returns rushed to them – a high risk process indeed. So once the T5’s have been received and accounted for, issuing organizations like transfer agents have only a month or less to then prepare the T3 and T5013 slips.
Let’s be honest here, it’s more like 2-3 days, due to the complexity of the partnership returns and one way around this is to ensure that any issuing organization is capable to preparing T5013’s by themselves, or that they have an organization capable of preparing them in an expedited manner. In addition, the partnership should be contacted to let them know that the quicker they get their books in order, the quicker the rest of the slips can be prepared. If enough people come forward, I guarantee it will get done faster.
When reviewing your slips before filing your tax return, keep in mind a few small differences;
T4’s vs. T4A’s – A T4 is issued by your employer and reflects the income you earned during the year, as well as showing the amount of deductions you had removed from your pay, such as; CPP, Employment Insurance (EI) and tax. A T4A, on the other hand, is issued by a pension plan administrator and reflects the pension income you received from a pension source. T4As will not have figures listed for CPP or EI contributions since these are not deducted from pension income.
The T5 investment income slip – identifies the various types of investment income that residents of Canada have to report on their income tax and benefit returns. T5’s are NOT issued to report income paid to non-residents of Canada, however, if you earned US interest on your investments, it will show up on your T5, with a note at the bottom saying that the interest is in US dollars.
It’s not always clear to the holder that this figure needs to be converted at the average exchange rate for the year, as set out by the CRA. T5 slips also have both eligible and ineligible dividend boxes, which holders can accidentally reverse on their returns.
Investment loan interest
Most banks do not issue receipts for interest on investment loans unless specifically requested, resulting in a missed deduction for the client. Borrowers should request receipts well in advance of the tax-filing deadline to ensure they arrive in time.
All in all, it’s best to keep track of investments you have and to check off when they are expected and when they are received in order to ensure you can file at your earliest convenience or reach out and ask your issuing organization / bank / transfer agency to step up and find a solution.
It’s never to early.
Even in October.