Principal Issues: Would the CRA be prepared to remove the requirement to file T5 slips in a particular situation?
Position: No.
Reasons: Not necessary.
October 12, 2010 2010-037193
Requirement to file T5 slips
Consider the example of a hybrid security that is a bond, with only certain coupons having been detached, that is acquired on January 1, 20X0 by a resident of Canada. The principal amount of the bond is repayable on December 31, 20X5. The first interest coupon (not detached) is paid to the bondholder on December 31, 20X3. Pursuant to subsection 12(9), the taxpayer must annually report deemed interest, which is calculated in accordance with the provisions of I.T.R. section 7000.
At the time of the first interest payment (of the non-detached coupon) on December 31, 20X3, a portion of the interest has already been taxed as deemed interest in previous taxation years. However, it appears that under I.T.R. subsection 201(1), the issuer or financial institution that holds the client's security as agent must report on a T5 slip the full amount of the interest that is paid. However, it appears that under I.T.R. subsection 201(1), there would be no requirement for the issuer or agent to report on a T5 slip the deemed interest that is calculated and included in computing income under I.T.A. subsection 12(9) and I.T.R. subsections 7000(1) and (2).
Requiring a T5 slip to be filed only for the interest that is actually paid can be confusing to taxpayers and misleading to both taxpayers and the CRA. A taxpayer who would include in income the full amount of interest received, without adjusting to subtract deemed interest that was taxed in a previous taxation year, would be subject to double taxation. In addition, the income tax return, of a taxpayer who made an adjustment for deemed interest that was included in income in a previous taxation year but not reported on a T5 slip, could be erroneously adjusted on initial assessment because the amount of interest reported did not equal the amount of interest on the T5 slip.
Question
Would the CRA be prepared to consider removing the requirement to issue T5 slips where the interest is actually paid and deemed interest has been calculated and included in computing income under subsection 12(9), and I.T.R. subsections 7000(1) and (2)?
Response
First, it seems pertinent to clarify that the obligation to file T5 slips is not limited to interest that is paid.
The issuer of debt obligations from which a portion of the coupons have been detached can be required to file T5 slips by virtue of I.T.R. subsection 201(4) in respect of amounts required to be included in computing the income of taxpayers by virtue of subsection 12(4). Subsection 12(4) applies in respect of individuals and trusts (other than trusts of which a corporation or partnership is a beneficiary).
In addition, a person or partnership that holds, as nominee or agent for taxpayers resident in Canada, debt obligations from which a portion of the coupons have been detached can be required to file T5 slips under I.T.R. subsection 201(4.2) in respect of amounts that must be included in computing the income of taxpayers under subsection 12(4).
The presumption in subsection 12(9) with respect to deemed interest is applicable for the purposes of subsection 12(4).
Second, it should be noted that when interest is paid, the amount of interest to be included in Box 13 of the T5 slips is not necessarily the amount paid in the case of individuals and trusts (other than trusts of which a corporation or partnership is a beneficiary).
The T5 slips specifically state on the back (in the section called "How to complete this form"): Before completing T5 slips, see Publication T4015, T5 Guide - Return of Investment Income. The CRA T5 Guide provides information and instructions for preparing T5 slips.
The T5 Guide, in its instructions for "Box 13 - Interest from Canadian sources" on the T5 slip, states that the interest to be included in Box 13 is interest that has not previously been reported. Where there has been an interest payment, the amount of interest to be included in Box 13 does not include the portion of the payment for which T5 slips have already been filed by virtue of I.T.R.section 201 for a taxpayer's previous taxation years.
Consequently, it appears to us that your request is not justified in practice with respect to individuals and trusts (other than trusts of which a corporation or partnership is a beneficiary).
Furthermore, the problem you have raised does not usually exist in the case of corporations that are subject to the application of subsection 12(3).
Finally, it should also be noted that T5 slips are not required to be filed for bearer bonds. For more information on the information returns to be filed for bearer bonds, see Guide T4091, T5008 Guide – Return of Securities Transactions, and Guide RC4268, Handbook on Security Transactions – A Summary of the Reporting Requirements Under the Income Tax Regulations.
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