First up, what is a T5 tax slip?
A T5 tax slip identifies any interest income you’ve earned throughout the year on non-registered investments. You’ll need to submit your T5 when you file your income tax return.
Not everyone receives a T5
T5’s are only issued in situations where you’ve earned at least $50 of interest income throughout the year. Additionally, interest earned within registered investments (RRSP, TFSA, etc.) won’t trigger a T5 since that interest is tax sheltered and doesn’t need to be reported as income.
Things to pay attention to
For the most part your T5 is pretty self-explanatory but, there are certain investment products that might cause you to wonder how exactly interest is reported.
For example, with an Escalator GIC, interest is reported a little differently than a traditional GIC product. Here are few things to know:
- Escalator products earn and receive interest annually based on a stepped interest rate. In other words, the interest rate increases each year on the anniversary date. We offer them in either a 3- or 5-year option.
- For T5 purposes, CRA requires interest to be reported annually, based on the average rate of return for the entire length of the term, not the actual interest received in a given year.
What this means is, your T5 will show a higher amount of interest earned in the early years of your term but if you hold your Escalator to maturity, the amount of interest earned equals out. If you end up redeeming your Escalator early, on one of the anniversary dates, your T5 will be adjusted accordingly the following year to reflect this.
Another product where interest is reported a little differently is the Market-Linked GIC (MLGIC). Since this product pays an annual minimum rate of return, it’s reported on the T5 each year. MLGIC’s also have the potential of earning a variable return, but that isn’t paid out until the term matures, so that amount won’t be reported until the end of the term.
We recommend that you consult with your tax professional if you have questions about how this affects your personal tax situation.