More on the T5008

The purpose of the T5008 information slip is to report the amount paid or credited to an investor for securities disposed of or redeemed during the year.

Firms that issue T5008 slips generally report only the “proceeds of disposition” (box 21) and not the “cost or book value” (box 20) on the slips since the cost is often either not known or tracked by many brokerage firms. Therefore the onus is on the investor — perhaps with your assistance — to track their own tax cost or adjusted cost base of the securities held, in order to accurately report the capital gain or loss on his or her tax return.

Advertisements

T5008. Box 20. Adjusted Cost Base.

If you have disposed of securities you will receive either a T5008 slip, a Statement of Securities Transactions, or a customized statement from your dealer, broker or fund company detailing a list of all your dispositions in that year.

The purpose of the T5008 information slip is to report the amount paid or credited to you (an investor) for securities disposed of or redeemed during the year.

Firms that issue T5008 slips generally report only the “proceeds of disposition” (box 21) and not the “cost or book value” (box 20) on the slips since the cost is often either not known or tracked by many brokerage firms. Therefore the onus is on the investor — perhaps with your assistance — to track their own tax cost or adjusted cost base of the securities held, in order to accurately report the capital gain or loss on his or her tax return.

You should also report all non-registered securities dispositions in that year on Schedule 3 of your personal tax return, even if you don’t get a formal T5008 slip and instead just get a customized capital gains summary from your dealer or fund company.

I recall a case from CRA days which relates to the 5008. Rajah v The Queen, 2005 TCC 637. In this case, it is made very clear that the CRA has the ability, where warranted, to use the information obtained from T5008 filings to audit, reassess and even charge penalties to non-compliant taxpayers.

A little about the case. During 1995, 1996 and 1997, Sahadevan E. Rajah bought and sold “a considerable number” of securities through various securities dealers. Rajah failed to disclose any of his securities dealings on his tax returns for those years, despite certifying in writing that the returns were “correct and complete.”

The CRA was able to obtain information from the T5008 filings that initially reported total proceeds of disposition as $66,766 in 1995, $1,991,811 in 1996 and $228,682 in 1997 (the 1996 amount was later reduced by $432,665 to eliminate a duplication). The CRA then wrote to Rajah asking him to provide supporting monthly brokerage statements, trading slips and his calculations of the ACB for each disposition.

Having received no response, the CRA advised Rajah that they would reassess his filed returns and include the full amount of proceeds in his income for each respective year, without having any evidence as to the appropriate ACB to be used.

The judge was somewhat critical of CRA’s approach, saying that “it must have been obvious… that Rajah] had not obtained the securities sold at no cost. Even a novice assessor must know that… the Income Tax] Act provides [that] ‘a taxpayer’s income for a taxation year… is the taxpayer’s profit… for the year.’ Yet, Revenue made no effort to determine cost or allow for it except by way of demand to Rajah] for documented proof. If this was an attempt to mete out an extra-legal penalty it can hardly be justified.”

After the CRA reassessed Rajah, he filed a notice of objection with the appeals division and submitted to the CRA various brokerage slips establishing the ACB of some, but not all, of the securities that were disposed of in the years in question. The CRA reassessed those years for which they had proof of ACB.

The judge concluded that the onus was on Rajah to establish “on the balance of probabilities that he incurred costs in excess of those allowed” by the CRA’s reassessment. Since Rajah did not provide any additional ACB evidence, the CRA’s reassessments were upheld.

The CRA also imposed gross negligence penalties. Under the Income Tax Act, a gross negligence penalty can be imposed on a taxpayer who has either “knowingly” or “under circumstances amounting to gross negligence” made a false statement or omission in a return.

Given that Rajah’s tax returns failed to disclose any income from the sale of securities, the Judge found that the “failure to refer to the transactions when made by a person with the [Rajah’s] education and experience in the business world can only have been made in circumstances amounting to gross negligence.”

The bottom line… Report all taxable dispositions on your tax return each year or risk being subject to gross negligence penalties on top of the tax and arrears interest that will be owing and ensure you keep meticulous records of your ACB so that you can prove it to the CRA if they ever come knocking.