Table of Contents
- 🧾 Reporting Investment Income From Slips & Reports (Canada) — The Ultimate Guide for Beginners
- 📊 Reviewing Capital Gains & Losses (T5008 Guide) — Avoiding Common Traps for Beginners
- 🧾 TOSI (Tax on Split Income) — What Every New Tax Preparer MUST Know
🧾 Reporting Investment Income From Slips & Reports (Canada) — The Ultimate Guide for Beginners
Investment income reporting is a core skill for any tax preparer in Canada — and one of the easiest places to make mistakes. Slips don’t always match what appears on CRA Auto-Fill My Return, and misunderstanding this can lead to double-counting income or missing income entirely.
This beginner-friendly guide breaks everything down so you can confidently handle T-slips and investment reporting for your clients (or yourself!).
📌 What Counts as Investment Income?
Investment income generally includes:
| Type | Slip | What It Covers |
|---|---|---|
| Interest | T5 | Bank interest, GICs, bonds |
| Dividends | T5 | Canadian taxable dividends |
| Trust income | T3 | Mutual funds, ETFs, REITs |
| Capital gains/losses | T5008 + year-end trading reports | Sale of securities |
| Foreign investment income | T5 + T1135 (if applicable) | Dividends, interest, etc. from foreign sources |
📎 Rental income and principal residence rules are reported separately, not as investment income.
⚠️ The #1 Trap: T-Slip Double Counting!
🔍 Why This Happens
Financial institutions often issue one slip summarizing multiple securities, but the CRA Auto-Fill system (AFR) may show those as individual slips — one for each security.
Example:
- Client has 5 mutual funds at TD
- TD issues 1 T3 slip
- AFR shows 5 individual slips
❗ If you enter the downloaded AFR slips and the paper summary slip → you overstated income by 5×!
✅ Best Practice: Reconcile All Slips
Here’s your workflow checklist:
| Step | Task |
|---|---|
| 1️⃣ | Download AFR slips from CRA |
| 2️⃣ | Gather client-provided paper/e-slips |
| 3️⃣ | Compare AFR slips vs. client slips |
| 4️⃣ | Ensure no slip gets counted twice |
| 5️⃣ | Print or review software slip summary |
| 6️⃣ | Compare slips with previous tax year to detect missing data |
🧠 Why Compare to Last Year?
Comparing investment slips year-over-year reveals:
| Scenario | What It Means |
|---|---|
| Slip disappeared | ✅ Maybe sold — check capital gains reporting |
| New slip appears | ✅ New purchase — expect future slips |
| Total slips change | ✅ Ensure no accounts moved or merged |
📥 Missed Slip? Don’t Ignore It.
If a slip is missing:
| Possibility | What to Do |
|---|---|
| Client forgot to provide it | Request slip or statement |
| Security sold | Look for capital gain/loss on Schedule 3 |
| Account closed/moved | Confirm year-end statements |
✨ Tip Box: Mastering Mutual Fund & ETF Reporting
📌 Mutual funds & ETFs often distribute:
- Interest income
- Dividends
- Return of capital (⚠️ reduces ACB!)
- Capital gains
Many beginners only record dividends and miss the return of capital adjustment — leading to incorrect ACB and wrong capital gains later.
🧠 Always use the year-end fund summary or T3 box details.
💡 CRA Auto-Fill — Good, But Not Perfect
✅ Great tool, but still requires human review.
Common AFR issues:
| Issue | Result |
|---|---|
| Duplicate slip entries | ❌ Double counting |
| Missing slips (late filing by banks) | ❌ Under-reporting |
| No capital gains shown for sold securities | ❌ Misses taxable events |
🎯 Never assume AFR = complete. It’s a starting point, not the final source.
📂 Key Forms You Must Understand
| Form | Purpose |
|---|---|
| T3 | Trust income (funds, REITs, ETFs) |
| T5 | Dividends & interest |
| T5008 | Security dispositions |
| Capital Gains Schedule (Schedule 3) | Report gains & losses |
| T1135 | Foreign property > $100,000 |
🧮 Pro Tip: Always Review Account Activity
Especially when:
✔ Multiple brokerage accounts
✔ Transfers between institutions
✔ New investments or switched funds
✔ Accounts closed mid-year
Cross-check with:
- Year-end investment statements
- Trade summaries
- Realized gain/loss reports
📘 Example Workflow For a New Client
1️⃣ Download CRA AFR data
2️⃣ Request all T3/T5/T5008 slips
3️⃣ Request annual investment summary from financial institution
4️⃣ Match AFR vs client documents
5️⃣ Compare with last year’s slips
6️⃣ Confirm capital gains from trading activity
7️⃣ Enter slips only once — avoid duplicates
🚀 Final Takeaways
✅ AFR helps — but never trust blindly
✅ Compare slips to client docs & last year
✅ Watch for summary vs. individual slip reporting
✅ Always check for capital gains if slips disappear
✅ Reconcile mutual fund/ETF distributions & ROC impacts
🟦 Pro Tax-Preparer Tip Box
📁 Create a checklist for every investment client:
- ☐ AFR download completed
- ☐ Slips cross-checked
- ☐ Previous year slips reviewed
- ☐ Sale transactions confirmed
- ☐ ROC & ACB adjustments checked
- ☐ T1135 rules considered
🎯 You’re Now Equipped!
By mastering slip reconciliation, you avoid:
- ❌ Double-counting income
- ❌ Missing taxable gains
- ❌ Triggering CRA reassessments
You now have a system that experienced tax pros use daily.
📊 Reviewing Capital Gains & Losses (T5008 Guide) — Avoiding Common Traps for Beginners
Reporting capital gains and losses correctly is one of the most critical skills in Canadian personal tax preparation. Mistakes here can lead to:
❌ Double-taxation
❌ CRA reassessments
❌ Missed deductions
❌ Angry clients
This guide will help you confidently handle T5008 slips, realized gain/loss reports, and capital gains reporting — without falling into common traps.
📘 Capital Gains vs. Unrealized Gains
| Type | Meaning | Report on Tax Return? |
|---|---|---|
| Realized Gains/Losses | Asset sold | ✅ Yes — Schedule 3 |
| Unrealized Gains/Losses | Asset still held; value has changed | ❌ No — do NOT report |
📎 Only report gains once a sale/disposition has happened.
📂 Your Primary Document: Realized Gain/Loss Report
Most investment institutions provide a Realized Capital Gain/Loss Report.
This includes:
- 🧾 Each security sold
- 💰 Proceeds (sell price)
- 💸 Adjusted Cost Base (ACB)
- 📉 Realized gain or loss per transaction
- 🌎 Currency (CAD/USD/etc.)
✅ This report is usually the most accurate source
✅ Often preferred over multiple slips
✅ Helps prevent double-reporting
💡 Always scan this report for accuracy — do not just blindly enter numbers.
⚠️ ACB (Adjusted Cost Base) Red-Flags to Watch For
Bad ACB = wrong tax result.
🚨 Common Warning Signs
| Issue | Why it happens | Your action |
|---|---|---|
| ACB shows $0 or $1 | Securities transferred between institutions | Verify historic ACB; request records |
| ACB looks too high | Institution used FMV at transfer-in instead of original cost | Adjust using client’s purchase records |
🧠 If ACB looks wrong → contact advisor or client for support documents
💱 Watch Foreign Currency Transactions!
When investments are in USD or other currencies:
✔ Convert proceeds to CAD
✔ Convert ACB to CAD
✔ Report gain/loss in CAD
Also ties into T1135 foreign asset reporting if foreign property > $100,000 CAD.
🌎 Use Bank of Canada average rates unless statement specifies FX rate used.
🚨 Understanding the T5008 Slip — Biggest Trap Area!
A T5008 Statement of Securities Transactions reports:
- ✅ Proceeds of disposition
- ❌ Often NO ACB shown
- ❌ Sometimes does not show gain/loss
This means:
⚠️ If you enter the T5008 as-is without checking ACB → CRA assumes ACB = $0
➡️ Client gets taxed on full sale amount 😱
🧮 RULE: Choose ONE Source for Capital Gains Data
You may see both:
📄 T5008 slips
📊 Broker Realized Gain/Loss Summary
Do NOT enter both!
| Method | When to Use |
|---|---|
| Realized Gain/Loss Report | ✅ Most accurate; preferred |
| T5008 slip data | ✅ If complete & includes ACB details |
| Both | ❌ Never — you will double count gains |
🎯 If T5008 & Realized Gain/Loss match → pick one system and stick to it
📥 CRA Auto-Fill My Return — Use With Caution
AFR will often import multiple T5008 slips but won’t confirm ACB accuracy.
❗ NEVER rely on AFR alone
❗ AFR entries + manual entry = double-reporting danger
Checklist after AFR download:
| Task | Why |
|---|---|
| 📝 Compare AFR T5008 to broker reports | Identify duplicates |
| 📎 Remove one source if both exist | Prevent double counting |
| 🔍 Confirm ACB values | Avoid wrong taxable gains |
🧠 Example Scenario
A client sells Canadian Tire stock:
T5008 slip shows:
- Proceeds = $10,000
- ACB = blank
If you enter only this slip:
CRA assumes capital gain = $10,000 🚨
But what if original purchase was $7,000?
Correct taxable gain = $3,000 ✅
You must verify the ACB from investment reports.
⭐ Tax-Pro Workflow Cheat Sheet
Before filing, do this:
| Step | Action |
|---|---|
| 1️⃣ Gather all investment statements | |
| 2️⃣ Pull CRA AFR slips | |
| 3️⃣ Compare AFR vs. broker gain/loss report | |
| 4️⃣ Confirm ACB accuracy (especially transfers!) | |
| 5️⃣ Ensure only one set of gain data is filed | |
| 6️⃣ Convert foreign currency amounts | |
| 7️⃣ Review Schedule 3 summary |
📦 Important Note Box
📦 Never report Unrealized Gains
Enter only the realized gains from sales. Unrealized numbers on annual portfolio statements are not taxable.
🟦 Pro-Tip Box
✨ Dividend reinvestment affects ACB!
Reinvested dividends increase ACB — missing this leads to overstated capital gains later.
🎯 Final Takeaways for New Tax Preparers
✔ Use realized gain/loss report as primary source
✔ Verify ACB accuracy — especially after account transfers
✔ Be careful with T5008 slips — they often lack ACB
✔ Choose one method only to avoid double-counting
✔ Check for foreign currency conversions
✔ Always review and reconcile 🤓
Mastering these steps prevents:
- CRA reassessments
- Double-taxation
- Missed deductions
And builds client trust. ✅💼
🧾 TOSI (Tax on Split Income) — What Every New Tax Preparer MUST Know
When preparing personal tax returns for Canadian clients, one of the most confusing and high-risk areas you’ll face with investment income is TOSI — Tax on Split Income.
Even though it often originates from corporate or family trust income, YOU, the personal tax preparer, are responsible for applying TOSI on the personal tax return if required.
This guide will help you confidently handle TOSI rules as a beginner tax preparer.
📌 What is TOSI?
TOSI = Tax on Split Income
It is designed to stop income-splitting with family members who did not meaningfully contribute to a business.
When TOSI applies:
🔥 The income is taxed at the highest marginal tax rate
🚫 Regular deductions do not apply
✅ Limited credits are allowed
🧠 Key Concept
If a taxpayer receives certain income from a private corporation or family trust, you must check if TOSI applies — regardless of age.
Before 2018, TOSI mainly applied to minors.
Now:
👨👩👧👦 Adults can be caught too!
💡 Income Commonly Caught by TOSI
| Source | Example |
|---|---|
| 👨👩👧 Family business dividends | Dividends paid to spouse/child who isn’t active in business |
| 📑 Family trust distributions | T3 for dividends to a beneficiary |
| 🏢 Private company dividends | T5 from a numbered company |
| 💵 Certain partnership income | From related business not supported by labour or capital contribution |
⚠️ T3 and T5 slips do not indicate whether income is subject to TOSI
You must assess it.
📄 Where TOSI is Calculated
| Form | Purpose |
|---|---|
| T1206 | Calculates TOSI and related tax |
| T1 Return | Removes income from regular return and deducts it (then tax from T1206 applies) |
Think of T1206 as a mini tax return inside the T1 for split income.
🚫 Deductions NOT Allowed Against TOSI Income
If TOSI applies, the taxpayer cannot use typical deductions to reduce that income.
No RRSP deduction ✔️
No child-care deduction ✔️
No carrying charges ✔️
No moving expenses ✔️
Example
| Situation |
|---|
| Client receives $100,000 dividend subject to TOSI |
| Client contributes $70,000 to RRSP to “offset” income ❌ |
Result:
The $100,000 is taxed at the highest rate anyway
The RRSP deduction only applies to other income, not the TOSI amount
✅ Credits Allowed on TOSI
Only specific credits can apply against TOSI:
| Credit | Allowed? |
|---|---|
| Dividend tax credit related to that split income | ✅ |
| Disability tax credit | ✅ |
| Foreign tax credit on split income | ✅ (rare in personal returns) |
| All other credits | ❌ |
🧑💼 Your Role as a Tax Preparer
You must identify situations where TOSI may apply.
But you are NOT expected to determine corporate eligibility rules.
Your steps:
1️⃣ Identify possible TOSI income
2️⃣ Ask the client whether it is subject to TOSI
3️⃣ If unclear, tell client to get confirmation from the corporation/trust accountant
4️⃣ Document client’s confirmation (email/file note)
5️⃣ File according to client instructions
✉️ Template Email to Client
Subject: Clarification Needed: Possible TOSI Income
Hi [Client Name],
You received income from a private company/trust. This income may be subject to Tax on Split Income (TOSI) unless you meet certain exception criteria.
Please confirm whether this income is subject to TOSI or contact the accountant for the company/trust to clarify.
Once confirmed, please reply so we can file your return correctly.
Thank you,
[Your Name]
✅ Protects you
✅ Client is responsible for confirming
✅ Paper trail for CRA
🔍 Red Flags for TOSI Exposure
| Situation | Action |
|---|---|
| T5 from numbered company | Verify if family business |
| T3 from family trust | Ask if involved in the business |
| Dividend to spouse/child/relative | Check business involvement |
| Client not active in business | TOSI likely applies |
🛑 Avoid This Rookie Mistake
❌ Never assume a dividend from a private corporation is NOT subject to TOSI
Always ask. Always document.
💼 Practice Tip Box
📂 Keep a standard TOSI questionnaire in your client onboarding forms
Ask:
- Did you receive dividends from a private corporation?
- Are you involved in the business (hours worked, capital contributed)?
- Did a trust distribute income to you?
⭐ Quick Summary
| Rule | Meaning |
|---|---|
| TOSI taxes certain income | Highest marginal rate |
| Applies to adults too | ✅ since 2018 |
| Personal preparer is responsible | ✅ |
| Corporate accountant must confirm | ✅ |
| RRSP & other deductions don’t reduce TOSI | ❌ |
| Credits allowed (limited) | ✅ DTC + dividend credit |
🎯 Final Message for New Tax Preparers
TOSI is complex — but your role is clear:
✅ Identify potential TOSI income
✅ Get client or corporate accountant confirmation
✅ Document everything
✅ Apply T1206 when required
This protects you AND ensures accurate filing.
Leave a Reply