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.

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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.

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.

T5008

The CRA Guide for T5008’s explains how to prepare this form, to account for the Return of Securities Transactions.  This form reports purchases and sales of securities.  Transactions are reported to all persons; individuals, corporations, partnerships, trusts, or ANY other person residing in or outside Canada.

Who has to file a T5008 Information Return?

  • every trader or dealer in securities who buys a security as principal (for their own account) or sells a security as an agent or nominee for any vendor;
  • every person in the business of buying and selling precious metals in the form of certificates, bullion, or coins who makes a payment to another person for a sale of precious metals by that other person;
  • every person who, as a nominee or agent for another person, gets the proceeds of a sale or other transaction carried out in the name of the nominee or agent;
  • every person who makes a payment to, or acts as a nominee or agent for, an individual resident in Canada for the disposition or redemption of a debt obligation in bearer form; and
  • every person (other than an individual who is not a trust) who acquires, redeems, or cancels a security issued by that same person, except when the transactions involve the following:
    • exchanges of shares for new shares in the course of a reorganization of the capital of a corporation (section 86), if no consideration other than the new shares is receivable;
    • securities disposed of when a partnership ends [subsection 98(3)];
    • securities transferred when a new partnership is formed from a predecessor partnership [subsection 98(6)];
    • convertible property (section 51), that is, when a corporation’s shares, bonds, debentures, or notes are exchanged for shares of the same corporation and no consideration other than the new shares is receivable;
    • redemptions, cancellations, or acquisitions of securities made during an amalgamation (section 87); or
    • exchange of capital property that is a convertible debt obligation for another debt obligation under section 51.1.

Note
If cash or some other consideration totalling $200 or less is received instead of a fractional interest in shares during an exchange to which section 51 or 87 applies, you do not need to report the transaction. If the cash or other consideration is more than $200, you have to report the entire exchange transaction. 

You do not need to file a T5008 information return for:

  • a purchase of a security by one trader or dealer in securities from another, other than a non-resident trader or dealer in securities;
  • a sale of a security by a trader or dealer in securities for another trader or dealer in securities;
  • a sale of currencies or precious metals in the form of jewellery, works of art, or numismatic coins;
  • a sale of precious metals if you ordinarily produce or sell precious metals in bulk or commercial quantities;
  • a redemption, acquisition, or cancellation of a debt obligation by the issuer or agent when:
    • the debt obligation was issued for its principal amount;
    • the redemption, acquisition, or cancellation satisfies all of the issuer’s obligations;
    • there are no disproportionate payments of principal and interest to any person with an interest in the debt obligation; and
    • an information return other than a T5008 information return is required as a result of the redemption, acquisition, or cancellation;
  • a sale of securities by a trader or dealer in securities on behalf of a person who is exempt from tax under section 149 (for example, municipalities, registered charities, non-profit organizations, and registered retirement savings plans);
  • transactions reported under section 202 or 204 of the Income Tax Regulations;
  • a deemed disposition of a security; or
  • the expiry or exercise of an option, right, or warrant.

When is it due?

You have to file your T5008 information return on or before the last day of February following the year to which the information return applies.  For example, if you are filing a T5008 information return for 2009, it has to be filed on or before the last day of February, 2010. If this date falls on a Saturday, Sunday, or statutory holiday, your information return is due on the next business day. Note that several provinces and territories have their own unique holidays. Therefore, due dates may be affected depending on where you reside. For a list of public holidays, visit www.cra.gc.ca/duedates.

Cessation of Business:

If you end your business or activity, you have to file a return for the year or part of the year no later than 30 days after the date the business or activity ended.

You can send recipients an electronic copy of their T5008 slips. The recipient must have consented in writing or by email to receive the slips electronically.

Send the recipients’ copies of the T5008 slips to their last known address or deliver them in person. You have to do this on or before the day you have to file the T5008 information return.

CRA Tax Question: T5008. Divorce. Court Order.

In the process of managing the processing of 2 million tax slips for my employer, the world’s largest transfer agent, the following question came across my desk:

A husband and wife divorced during the year and the husband did not make his child support payments as required by court order.  As a result, family court here in Canada passed a judgement stating that any stock he held be removed from his name and either cashed in so those funds could be given to his wife, or the stock be transferred to his wife so that she may cash them in as she needs them.

So here is the question:

Who gets the T5008?  Him or her?

Note:  Traders or dealers in securities have to file a T5008 information return to report purchases of securities as principal for their own account, and sales of securities they make as an agent or nominee, for any vendor.

Issuers of securities and their agents or nominees use this (T5008) information return to report redemptions, acquisitions, or cancellations of securities.

Might this be considered a deemed disposition?

Deemed dispositions

You do not have to report deemed dispositions on a T5008 slip, in certain circumstances, the Income Tax Act considers that a property has been disposed of, even though no real compensation in the form of money or other consideration has been received.

Some examples of when a deemed disposition may occur are:

  • transfers of property to a trust;
  • gifts of property (that is, the name of the beneficial owner of the property is changed);
  • the owner dies; or
  • the owner ceases to be a resident of Canada.

In this guide, “sale” generally refers to a transaction where the ownership of property is transferred from one person or entity to another for a sum of money or other consideration. In the case of a deemed disposition, ownership of the property is not transferred for money or other consideration. In addition, a deemed disposition is not a purchase, redemption or cancellation of a security. Consequently, a deemed disposition is not considered for the purposes of Income Tax Regulation 230 and a T5008 slip is not required.

Answer to follow…