Taxes and Investing: Orientation

April 4th, 2019 by Potato

This is not a detailed how-to post, instead this is a quick orientation to taxes and filing involved with investing.

First off, there are tax shelters: if you’re doing all of your investing inside an RRSP or TFSA, you don’t have any worries: other than any RRSP contributions (which you get receipts for) or withdrawals, you don’t have anything to report on your taxes. Not only are your investments growing tax free inside those accounts, you don’t have to do any detailed tracking or reporting.

If you’re out of RRSP and TFSA room and are investing in a taxable or “non-registered” account, you’ve got some things to know.

On timing: you’re likely not going to be able to file your taxes until April: some tax slips (i.e., T3s) aren’t due until the end of March.

You’re going to have the responsibility to learn about and report your situation for your taxes (and hey, self-promotion time, I’ve got a course that includes a great module on that). Things to watch out for:

First (and easiest) is income that gets reported on a T-slip. Dividends and interest payments. In this case you need to get a T3 or T5 from your financial institution or brokerage — if it didn’t come in the mail, be sure to log in to your account in April and look for an electronic version to download. It might also be auto-populated in the handy new myCRA feature that connects to your tax software of choice. Reporting this is a snap: you copy the amounts from each box on the tax slip into the corresponding box in your tax software for your return.

Second is interest or other income that did not get reported on a T-slip. The biggest culprit is savings accounts: your bank only has to send you a T-slip when the interest for the year is over $50, but every dollar of interest is taxable even if you don’t get a slip. You’ll have to go through your statements, add up those pennies of interest yourself, and then report it (look for line 121).

Third, and the one that seems to cause the most grief, is capital gains. You only report realized capital gains — you don’t have to pay tax or report when the value of your investments goes up, only when you sell it (or transfer it into a TFSA/RRSP, which is called a deemed disposition). You will get a tax slip in many cases (a T5008), but this will more often than not be wrong or be missing information. So this one you might choose to set aside in favour of your own calculation that you report on schedule 3 (and you’ll have to do this anyway to verify that your T5008 is correct unless you have a lot of faith in your brokerage). You’ll need to know your adjusted cost base (ACB) to report your gains, which requires tracking over all the years you’ve held the investment — this post and spreadsheet will help with that.

There are some other rare things to be aware of, for example if you have more than $100,000 CAD (cost basis) in foreign investments, you’ll have to fill out a T1135, which is separate from your overall tax return.

Tax software: While you can pay more for “premium” tax software that includes a “wizard” to guide you through reporting your investment income, it’s not necessary. The forms are included in all tax packages, including SimpleTax [affiliate link*], Turbotax standard/online, etc.

* – it’s pay-what-you-like, which includes free, so it’s weird to have an affiliate link, but if you do choose to pay and you use my link, I’ll get a portion.

And disclaimer: filing your taxes correctly is your responsibility, including verifying anything you read on a Potato-powered blog. Hire an accountant if you’re not sure — and note that I am not an accountant.

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