# T3 vs T5



## pearl (Mar 5, 2015)

I have ZSP, XIC, XIU and VTI ETFs. I am wondering why the dividend income of ZSP, XIC, XIU goes to T3 while dividend income for VTI goes to T5. Are ZSP, XIC, XIU considered as trust, instead of investment? I am confused. Can anyone help me to understand it? Thanks


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## GreatLaker (Mar 23, 2014)

This sort of explains it


VTI in non-registered - Financial Wisdom Forum



Note that dividend income from non-Canadian securities are taxed as other income, not as dividends.


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## AltaRed (Jun 8, 2009)

ETFs are structurally constructed as trusts which must flow through all of their taxable (before tax) income to investors, in the various types of income that were received by the ETF. Hence the distributions (not dividends) may consist of dividends, interest, capital gains, other income, return of capital, etc. By law, trusts issue T3 tax slips. Corporations on the other hand are entities that pay income taxes and independently decide whether to distribute after tax income to shareholders. They issue T5 tax slips.

Trusts typically are ETFs, Mutual Funds, Income Funds, REITs, etc.The T3 tax slips are issued about this time of year....simply because Trusts don't have to file their income tax filings until the end of March and they typically don't know what all (and what type) of their before tax income is until doing their tax returns.


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## agent99 (Sep 11, 2013)

One thing that puzzles me, is why there is a box 42 for ROC on T3s, but not on T5's. Not sure what the purpose is, but it seems CRA are only interested in Trust ROC?


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## AltaRed (Jun 8, 2009)

Trusts have to flow through return of capital back to shareholders based on income they receive. Corporations don't have to issue anything to shareholders if they don't want too. Corporations deal with it internally as part of their accounting and their own tax returns. They are entirely different business structures.


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## Eclectic12 (Oct 20, 2010)

A T5 form is for certain types of investment income, which does not include RoC. A T3 slip is for a trust that can pay mixed income including RoC.

IOW ... it is by definition.

If you look through the list of income types for a T5 slip, RoC is not on the list.





When do you have to prepare a T5 slip? - Canada.ca


Renseignements s'adressant aux déclarants concernant les situations pour lesquelles un feuillet T5 ne doit pas être produit.




www.canada.ca





The T3 types include distribution of capital that results in change to the adjusted cost base (i.e RoC that is reducing the ACB). When do you have to prepare a T3 slip? - Canada.ca

Something I didn't know before was that the T3 slip can be skipped for $100 or under, which is double the limit for the T5 slip being skipped. The investor still has to report the taxable income, even without a slip.


Cheers


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## agent99 (Sep 11, 2013)

That doesn't explain why the CRA want to know the ROC reported on a T3 and not from a T5. The taxpayer needs to know both because they affect ACB.


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## AltaRed (Jun 8, 2009)

Because there cannot be ROC on a T5. How would it even occur from a corporate entity? 

The only kind of distribution a corporate entity can issue is either BT interest (such as from borrowings from investors like bonds or deposit accounts), or AT dividends, eligible or non-eligible, to shareholders.


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## agent99 (Sep 11, 2013)

Sorry but you are wrong. I have at least 3 or 4 T5s that include ROC. This year and for years before. The slips just don't have a box for ROC, but it is included in the summaries.


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## AltaRed (Jun 8, 2009)

Please provide some examples. I have yet to see that on any T5 Summary in 20+ years of investing in corporate entities. The T5 Guide for Return of Investment Income has no mention of ROC T5 Guide – Return of Investment Income - 2019 - Canada.ca

If you have had such a unique experience, it obviously is not a taxable amount anyway. Simply adjust your own ACB accordingly.


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## Eclectic12 (Oct 20, 2010)

agent99 said:


> Sorry but you are wrong. I have at least 3 or 4 T5s that include ROC. This year and for years before. The slips just don't have a box for ROC, but it is included in the summaries.


Interesting ... I've been receiving T5 forms for close three decades now with _none_ of them listing RoC or listing anything that changes the ACB.

T3 forms that do list RoC and change the ACB, I have been receiving for slightly fewer years.


If you have T5 forms with RoC, can you look up what box were they in?

When I look at the sample slip at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t5/t5-19b.pdf, none of the box descriptions list RoC ... unlike the T3 sample slip. It's all things like dividends, actual amounts of dividends, interest, foreign currency, equity linked notes interest etc.


Now maybe it's the investments I have been buying as I have bought common stock, income/royalty trusts, REITs, ETFs, split share trusts etc.


Cheers


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> T3 forms that do list RoC and change the ACB, I have been receiving for slightly fewer years.
> 
> If you have T5 forms with RoC, can you look up what box were they in?


As I mentioned earlier, the T5 itself, unlike the T3, does not have a box for ROC. However, for each T5, there is a T5/NR4 summary of investment income or a T5 Additional Summary of Investment Income. This latter summary breaks down the distribution into ROC, CG(18), Fgn(15), Non-elig div(10), elig div(24), fgn tax(16), other(14) & cdn interest(13). Numbers in parenthesis are the boxes where that item resides on T5. As you can see, no box for ROC. But ROC does exist for certain types of corporations (e.g split share corporations), and has to be looked for in the Additional Summary for acb use.


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## pearl (Mar 5, 2015)

Thanks everyone for the explanation.


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## AltaRed (Jun 8, 2009)

I do understand what Agent99 is saying, i.e. look at the T5 summaries, not the actual T5 tax slip itself. But as I have said already, I've never seen ROC on a T5 summary for my entire investing life. I don't even know what kind of a business structure other than a trust (T3) that could issue ROC. Perhaps a tax accountant here might know how the workings of a corporate structure could result in ROC transferred to shareholders.

Waiting on Agent99 to provide the names of a few companies/entities that issued ROC along with a T5 tax slip. Maybe some unique royalty structure, or company re-structuring or? Split share companies are not really companies are they? They are financially engineered products like ETFs or CEFs or? that would normally be trusts. We need specific examples to understand any of this.


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## agent99 (Sep 11, 2013)

Read my post above - split share corporation distributions result in T5s (not T3s) and can include ROC. No question about that - I have received them for many years.

My question, was why CRA are only interested in ROC from T3s and not from T5s. But only they can answer that and it doesn't matter anyway so long as we are aware of them and use them for acb adjustment. 

For those who own split share corporation shares (capital or preferred) or maybe others that result in the Additional T5 Summary, make sure you look for ROC there and use it in ACB calculations. There is no Box 42 or equivalent on T5.


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## Eclectic12 (Oct 20, 2010)

agent99 said:


> As I mentioned earlier, the T5 itself, unlike the T3, does not have a box for ROC. However, for each T5, there is a T5/NR4 summary of investment income or a T5 Additional Summary of Investment Income.
> 
> This latter summary breaks down the distribution into ROC, CG(18), Fgn(15), Non-elig div(10), elig div(24), fgn tax(16), other(14) & cdn interest(13). Numbers in parenthesis are the boxes where that item resides on T5. As you can see, no box for ROC. But ROC does exist for certain types of corporations (e.g split share corporations), and has to be looked for in the Additional Summary for acb use.


Sorry ... I was thinking of my T5 forms where at the bottom is "Other info see back ... 15" then a box for amount with $###.## The investor either has to lookup code 15 or match the amount on the details document to know it's Foreign Income.

As the summary documents you are talking about ... the ones I receive don't include RoC.

I have handy my T slips for 2008 through 2019 where there's typically two T5s with two summary documents, up to three T3s with up to three summary documents and for a few years a T5013 for a limited partnership I held. A review of the T5 summary documents has the cash paid split across the following categories:
Eligible dividends from Canadian sources
Other than eligible dividends from Canadian sources
Foreign Income
US non-resident tax withheld

The closest to RoC I can find are my split shares corp T5.

It lists all the cash paid then totals them as "Eligible dividends from Canadian sources. At the bottom of the page is a note.


> * Return of capital is used to calculate adjusted cost base.


There is no number assigned to RoC and there's no entry with the asterisk so it seems to be a reminder that while for this particular tax year all payments are eligible dividends, YMMV in other tax years.


Maybe the RoC in the summary documents are your brokerage's doing?

The way I read the T5 guide that they are supposed to be following, it reads that they are doing it wrong.


Cheers


*PS*
To be clear, for almost all of 2009 through 2019 I have held at least a preferred split share. At times I have also held a capital split share.


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## like_to_retire (Oct 9, 2016)

Eclectic12 said:


> As the summary documents you are talking about ... the ones I receive don't include RoC.


I think the only T5 Investment Summaries that will show any ROC are certain split shares.

ltr


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> The way I read the T5 guide that they are supposed to be following, it reads that they are doing it wrong.
> Cheers


 No, BMOIL are doing it right. Not all splits pay ROC, but some do. And it only gets shown on the T5 Additional summary. Not on T5 itself.

I think this another discussion that has come to and end


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## Eclectic12 (Oct 20, 2010)

Fair enough ... though I have a theory why CRA hasn't noticed and/or does not care presently.

Assuming this is specific to split share investments - they are a niche, small AUM type investment. As well, IIRC something like half of the split share wound up during the '08/'09 financial crises so there's likely less AUM (i.e. 60+ become about 32 or so).


Plus as has been posted many times, it's up to the investor to get the ACB right from CRA's POV.


Cheers


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## Eclectic12 (Oct 20, 2010)

Hmm ... apparently I'm only allowed to edit ten posts in seven days. Not sure why there would be such a restriction.

Going back to my theory that the split share market is too small ... the largest from an article two years ago was said to have bought up other split share ones as well as sold shares to end up with 750 million AUM. I'm pretty sure the ETFs and MFs dwarf this but haven't checked.

If I am reading their documents correctly, the largest one pays only eligible dividends ... making for fewer ones that would be publishing RoC.

Cheers


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