Interest, Investment Income and Carrying Charges

What This Note Covers

  • The main Canadian tax slips and forms commonly used for personal investment income.
  • How to report interest, dividends, capital gains, and carrying charges on a T1 return.
  • Practical filing rules that matter when slips arrive late or are incomplete.

Main Investment T Slips And Forms

T5

  • T5 Statement of Investment Income is the most common slip for non-registered investment income.
  • It usually reports:
    • interest from bank accounts, GICs, bonds, and similar products,
    • Canadian dividends,
    • some foreign income,
    • some capital gains dividends from mutual funds.
  • Common use on the return:
    • interest and other investment income: line 12100,
    • taxable Canadian dividends: line 12000 and sometimes line 12010,
    • dividend tax credit: line 40425,
    • some capital gains amounts: Schedule 3.

T3

  • T3 Statement of Trust Income Allocations and Designations is common for mutual funds, ETFs structured as trusts, REITs, and other trusts.
  • It can include:
    • interest income,
    • Canadian dividends,
    • capital gains,
    • return of capital information,
    • foreign income and foreign tax paid.
  • Important point:
    • T3 is often more complex than T5 because one slip can contain several income types.
    • A return of capital amount can affect your ACB and should be tracked for a later sale.

T5008

  • T5008 Statement of Securities Transactions reports securities you sold, redeemed, or otherwise disposed of during the year.
  • This is mainly for:
    • stocks,
    • ETFs,
    • mutual funds,
    • bonds,
    • other securities sold through a broker.
  • Important rule:
    • T5008 is not your final tax calculation.
    • The amount in box 20 may not be your correct ACB.
    • You must keep your own adjusted cost base records and calculate the real capital gain or loss yourself.
  • Common use on the return:
    • Schedule 3, then flow to taxable capital gains.

T5013

  • T5013 Statement of Partnership Income applies if you invested through a partnership or limited partnership.
  • It may report:
    • partnership income,
    • rental income,
    • investment income,
    • capital gains,
    • carrying charges,
    • foreign tax information.
  • This is less common for basic retail investing, but important for private placements and partnership structures.

T4PS

  • T4PS Statement of Employee Profit-Sharing Plan Allocations and Payments is not a standard retail investment slip, but it can still contain investment-related amounts.
  • It may include:
    • taxable Canadian dividends,
    • capital gains,
    • employee profit sharing allocations.

T1135

  • T1135 Foreign Income Verification Statement is not an income slip, but it is important for investing.
  • If you are a Canadian resident and the total cost amount of specified foreign property was more than CAD 100,000 at any time in the year, you may need to file T1135.
  • This is a reporting form, not a tax slip.

Which Forms Matter Most For Typical Personal Investing

  • Most common: T5, T3, T5008.
  • Sometimes relevant: T5013, T4PS.
  • Extra reporting form for larger foreign holdings: T1135.

Filing Rules For Investment Income

1. Report Income Even If You Did Not Receive A Slip

  • You still have to report taxable investment income even if:
    • the slip is missing,
    • the amount is under the issuer’s slip threshold,
    • the slip arrives late.
  • Example:
    • you may not receive a T5 for small amounts, but the income is still taxable.

2. T3 And T5013 Often Arrive Later

  • Most slips are usually issued by the end of February.
  • T3 and T5013 slips may not arrive until the end of March.
  • This is one reason many investors wait until they have all brokerage slips before filing.

3. Interest Income Is Taxed As Ordinary Income

  • Interest is generally fully taxable.
  • Common examples:
    • savings account interest,
    • GIC interest,
    • bond interest,
    • foreign interest,
    • some other fixed income amounts.
  • Usually reported on line 12100.

4. Interest Can Be Taxable Before Cash Is Paid Out

  • For items like GICs or compound investments, interest may need to be reported as it is earned, even if you do not receive cash that year.
  • This is important for multi-year GICs and similar products.

5. Canadian Dividends And Foreign Dividends Are Not Treated The Same

  • Canadian dividends from taxable Canadian corporations can qualify for the dividend gross-up and dividend tax credit.
  • They are commonly reported through T5, T3, T4PS, or T5013.
  • Foreign dividends do not qualify for the Canadian dividend tax credit.
  • Foreign investment income is generally reported on line 12100.

6. Capital Gains Are Not The Same As T5008 Proceeds

  • When you sell a security, tax is based on:
    • proceeds of disposition,
    • minus adjusted cost base,
    • minus selling costs.
  • T5008 often gives proceeds and sometimes a book value, but you still need to verify the ACB.
  • Do not rely blindly on broker book value if you had:
    • transfers between brokers,
    • DRIPs,
    • reinvested distributions,
    • return of capital,
    • partial sales,
    • foreign currency transactions.

7. Keep Your Own ACB Records

  • For non-registered investments, maintain your own ACB tracking.
  • This matters especially for:
    • repeated buys and sells,
    • ETF and mutual fund distributions,
    • trust return of capital amounts from T3,
    • account transfers between institutions.

8. Joint Accounts Usually Follow Contribution, Not Just Name On The Account

  • If an investment is jointly held, income is generally reported based on who contributed the money.
  • This matters for spouses, family accounts, and attribution issues.

9. Foreign Amounts Must Be Reported In Canadian Dollars

  • Foreign income, foreign tax paid, and foreign capital gains must be converted to CAD.
  • Use an acceptable exchange rate method and apply it consistently.

Carrying Charges And Interest Expense

What Usually Qualifies

  • Common deductible amounts on line 22100 include:
    • investment management or custody fees for taxable accounts,
    • certain investment advice fees,
    • interest paid on money borrowed to earn investment income,
    • certain accounting fees for preparing a return where business or property income is involved,
    • repayment of tax refund interest previously included in income.

What Usually Does Not Qualify

  • Common non-deductible items include:
    • commissions paid to buy or sell securities,
    • fees related to RRSP, RRIF, TFSA, FHSA, PRPP, or similar registered plans,
    • interest on money borrowed where the investment can only produce capital gains,
    • personal borrowing not linked to earning investment income.

Key Interest Deductibility Rule

  • Interest on borrowed money is usually deductible only if the borrowed money was used to earn income from business or property, such as interest or dividends.
  • If the only expected return is capital gains, the interest is generally not deductible.
  • Keep clear tracing records showing where the borrowed funds went.

Practical Filing Checklist

  • Wait for T5, T3, T5008, and any year-end brokerage tax package before filing.
  • Review T5008 against your own trade history and ACB records.
  • Review T3 carefully for:
    • capital gains,
    • foreign income,
    • foreign tax paid,
    • return of capital.
  • Report small amounts even if no slip was issued.
  • Separate registered and non-registered account activity.
  • Track deductible carrying charges only for taxable investment accounts.
  • Check whether foreign holdings trigger T1135.

Quick Summary

  • T5 reports common investment income.
  • T3 reports trust and many fund distributions.
  • T5008 reports securities sold, but does not replace your own capital gain calculation.
  • T5013 applies to partnership investments.
  • T4PS can contain certain investment-related amounts.
  • T1135 is a foreign asset reporting form, not an income slip.
  • Main filing rules:
    • report all taxable income even without a slip,
    • keep your own ACB,
    • treat interest, dividends, and capital gains differently,
    • claim carrying charges only when they meet CRA rules.

Sources