Get Ready to File your Personal Income Tax Return (T1). Make Sure You Have All Your Slips Accounted For!

Ready to file your Personal Tax (T1) Return here in Canada to the Canada Revenue Agency (CRA)?

Are you chomping at the bit to get your refund?

Before you push forward and get that return in, make sure to check that you have received all the tax slips you should be getting?

Then check again.

If you forget a tax slip – T3, T5, T4, T4A, etc – the CRA does not accept the argument that you just “forgot it”, but rather they believe that you have willingly omitted the slip in order to reduce the amount of income that you are reporting, so you end up paying less taxes.

The penalty for missing slips can be quite steep.

Forget to include slips year over year and the penalty increases.

At inTAXicating, we encourage our clients to keep track of slips expected and slips received through a spreadsheet, or a program such as QuickBooks  based on the slips received in the previous year, and any transactions in the current year which will result in the generating of a tax slip.

In the inTAXicating Personal Tax Spreadsheet, we take tax slip tracking a little bit further by identifying which member of the family the slip belongs to, when it was received the previous year and which institution produced the slip.

Remember that slips produced by institutions are also sent to the Canada Revenue Agency (CRA) so they know what you should be filing before you do unless you keep track.

Then take this list, and staple it to a box or file folder which is kept in the house / place of business for all potential tax-related materials for the year.  At tax time, it’s an easy checklist to make sure all is in order and that when filing, everything is included.

If, however, you have forgotten to include a slip, the Canada Revenue Agency (CRA) will eventually use their copy of the slip notify and re-assess you if you have not had the time to amend your return.

If you don’t get to the CRA first, the next thing you know, you likely will have a balance owing and along with the penalty for missing the slip, the debt is accruing interest.  It can easily escalate from there!

A little organization will reduce the amount of penalties and interest paid to the CRA.  As the Tax Manager for Computershare Trust Company of Canada / Computershare Investor Services, I was responsible for the preparation, filing and submission of tax slips to the millions of investors Computershare kept track of, so I understand more than anyone the importance of getting slips out to the holders on time, and accurately, and then to the government on time and without penalty.

Here is a list of the slips you could receive and the date they have to be mailed to the holder and to the CRA.

RRSP – If you were one of the many who used the March 1st deadline to make your contribution for the previous year, then you would be receiving that slips beginning March 15th.  All other RRSP contributions which were made prior to the 60-day extended period saw their tax slips mailed beginning at the turn of the calendar.  They are T4RSP slips and RL2’s for residents of Quebec.

T5 / RL3 and NR4’s begin to get mailed around January 15th.

T4RIF / RL2 withdrawals from a RRIF, are mailed the 3rd week of February.

T5/RL3 for investment interest income coming from a mutual fund are mailed the 3rd week of February.

T3 / RL16 reporting dividend income from mutual funds are mailed by the 3rd week of February.

Receipt of contribution from an estate rolling over funds to a spouse produce a T4RSP / T4RIF / RL2 – issued for receipt of contributions from an estate rolling over funds to a spouse – sent  out the first week in February

T4A / RL1 are issued for RESP withdrawals and are produced and mailed the first week in February.

NR4’s showing income for non-residents of Canada are mailed the 3rd week in February.

If during the year you received Employment Insurance (EI), Old Age Security (OAS) or Canada Pension Plan (CPP) payments, you can follow this 3-step process from the government website to make sure everything is in order and get your tax slips online directly from Service Canada.

Happy filing.

inTAXicating Tax Services for all your tax needs and specializing in providing solutions to your tax problems.

info@intaxicating.ca

 

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Tax Season in Canada… When can you expect to see your slips, receipts and returns?

Tax time in Canada.

April 30th for most Canadians and June 15th for self-employed Canadians.

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 slips sent to you as well resulting from an error or late directional change from the company / fund.  Even the CRA sometimes are required to 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.

Due Dates

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.

Final Review:

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.

Mailing to Supressed Holders – CRA and MRQ.

Have you ever wondered if you are required by law to mail out a tax slip to an individual / entity even though in doing so you know it will be returned by the post office marked as “undeliverable”.

These Q&A’s below may help you get a cleared picture of your legal requirements;

Q1: Is there a requirement to mail tax forms to suppressed holders?

A1: Yes. There is no statutory exception to this requirement. The forms specifically mentioned included; the T5, T5008, T4, T4PS, T4RSP, T4RIF, RSPR, T3, NR4, T5013 and T101.

Q2: Will the government excuse you from mailing to suppressed holders if the issuer/client advises you not to mail them / their clients?

A2: No, the obligation to mail is yours, because you make the payment (e.g. dividend or interest). In fact, if there were a penalty charged for failing to provide a tax slip, it would be on you, not the entity or person advising you.

The Income Tax Act does not specifically say “you must mail to suppressed holders”.  Rather, it states that if you make a payment, you have to send out a tax form.   The Income Tax Act does not make a distinction between suppressed holders and other holders. (Note, even though we do not actually “make a payment” – in that we do not send out a cheque to a suppressed holder – the analysis is the same.)

Q3: Is the requirement to mail absolute regardless of the dollar amount, or is there a dollar amount threshold? For example, don’t have to mail unless the aggregate amount paid to a holder is greater than $50.00.

A3: There is a $50 threshold for T5 reporting (that is, the CRA does not require that a T5 be prepared if the amount of the payment was less than $50).  For the other tax forms, there is no threshold.

Q4: What about prior tax years?  Do we have to mail these prior years’ tax forms if requested?

A4: There is nothing in the Income Tax Act which would alleviate the responsibility to provide prior year forms and failing to provide one may result in a complaint and subsequent audit.

Q5: What is the situation with respect to suppressed holders under the Quebec income tax regime, the MRQ?

A5: Similar to the Federal Income Tax Act, under the Quebec income tax regime (a) there is a requirement to mail the tax forms and (b) you are not excused from mailing if the issuer/client advises you not to mail.

Bottom line… Mail!

CRA – Filer Identification Number coming January 2010.

Filer Identification Number (FIN) change
 
Starting in January 2010, the Canada Revenue Agency (CRA) will be processing information returns using the Business Number (BN) in order to simplify filing and processing.
 
 
In the future, the FIN will be converted to the BN. If you are required to file either the T5, T5007, T5008, T5013 or the RRSP contribution receipts, you will be asked to file your returns and receipts using the BN instead of the FIN.
 
The CRA will be notifying all filers of their new converted BN by letter. If you have not received your BN by December 2009, please call 1-800-959-5525 (English).
 
If you are filing these returns on behalf of others then you might want to give them some notice that you will be requiring this number and they should contact you once they receive it.  Failing to put this number on a return will be subject to a fine.

What’s coming down the pipe…

It’ s been hard getting to post here because I want to add technical content, but in my tax group, we’ve been dealing with smaller, less technical issues, such as discrepancies from the CRA, a change in T5 reporting resulting in FN numbers being given to businesses which transfer agents will need in order to report on their behalf, more QI stuff and changes to the online W-8BEN form. 

All fun, just different.