Next to actually paying your taxes, the most frustrating thing about tax-time is waiting for all your T-slips to arrive.
If you jumped on high interest rates for guaranteed investment certificates, then you’re now waiting for T5 slips to document your interest income. T5s are also used to report dividend income, while T3s are used to report distributions from mutual funds and exchange-traded funds. All of these examples apply to non-registered accounts, naturally.
Wondering when your T slips will arrive? In recent days, I noticed some helpful direction from two financial players. If your bank or investment dealer isn’t doing something similar, reach out to ask for a change in policy.
The first communication about T slips was an e-mail from an online bank that helpfully provided timeframes for T5s – they’ll be posted online at the end of February. Slips for contributions to registered retirement savings plans in the last 10 months of 2023 will arrive by early February, while RRSP contributions made in the first 60 days of 2024 will arrive in the last week of March.
The second communication was provided by an online broker on its landing page for clients after they log in. T5 slips are coming the week of Feb. 26, while T3 slips arrive the week of March 25. Direction like this is helpful because it saves you logging into your account repeatedly to see if your slips can be downloaded.
Given how records are kept electronically these days, you have to wonder why it takes banks and investment companies so long to churn out these slips. But never mind that for now. It’s helpful to at least know when these slips are coming so you can get your tax return completed as expeditiously as possible without missing anything.
The Canada Revenue Agency receives copies of your T slips, so they know what to expect when you file your taxes. If you omit a slip in your return and thus don’t report your full income, you could be penalized.
One final note about T-5s: Banks don’t typically issue them for amounts less than $50. You’re still required to report the income, though.
-- Rob Carrick, personal finance columnist
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The Rundown
Short sales on the TSX: What bearish investors are betting against
Larry MacDonald is back with his monthly highlights, which this week include a look at how investors are easing up on their bets against the TSX 60 index. He also reports on the remarkable success of activist short sellers over the past three years. The only bet that went wrong was Brookfield Infrastructure.
With Tesla faltering, the Magnificent Seven look vulnerable
We’re down to the Magnificent Six. After Tesla released disappointing quarterly financial results this week, the sinking stock diverged further from the pack of big tech companies that dominated the stock market last year. Does Tesla offer a warning sign of what’s at stake for this narrow group of outperformers? David Berman has some thoughts.
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As China’s markets stumble, Japan rises toward record
This year was set to be a tumultuous one for global markets, with unpredictable swings as economic fortunes diverge and voters in more than 50 countries go to the polls. But as the New York Times reports, there’s one unforeseen reversal already underway: a change in perception among investors about China and Japan.
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Thursday’s analyst upgrades and downgrades
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Why this money manager is reducing cash in his portfolios and buying more stocks
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Ask Globe Investor
Question: I have three self-directed investment accounts: a registered retirement income fund, a tax-free savings account and a non-registered account. All three currently hold some cash, which I want to put back into the market. I am considering investing some of that cash in the Magnificent Seven technology stocks. For Canadian income tax purposes, which of my three accounts would be best?
Answer: In a TFSA, there are no taxes on capital gains, which is the main objective of investing in tech stocks. What’s more, while you would still face a 15-per-cent withholding tax on U.S. dividends in a TFSA, only three of the Magnificent Seven – namely, Apple Inc. AAPL-Q, Microsoft Corp. MSFT-Q and Nvidia Corp. NVDA-Q – pay any dividends at all, and their yields are tiny. So the amount of withholding tax would be minimal. For these reasons, a TFSA would be a perfectly acceptable place to invest in big tech.
In a non-registered account, on the other hand, you will face capital gains tax when you sell stocks that have appreciated. You’ll also face a 15-per-cent withholding tax on U.S. dividends, as well as Canadian income tax on foreign dividend income, although you can usually claim a foreign tax credit for the tax withheld (which is not the case with a TFSA). What softens the blow somewhat is that, in a non-registered account, only 50 per cent of capital gains are included in income.
As for your RRIF, there are no Canadian income taxes on capital gains or dividends and no withholding taxes on U.S. dividends, thanks to the Canada-U.S. tax treaty.
Keep in mind, however, that a RRIF consists of pre-tax dollars. If you have, say, $500,000 of assets in a RRIF and your marginal tax rate is 40 per cent, the theoretical after-tax value of your RRIF is effectively $300,000 (60 per cent of $500,000).
Similarly, if you were to invest, say, $50,000 of your RRIF money in the Magnificent Seven, at a tax rate of 40 per cent that would be economically equivalent to investing just $30,000 in your TFSA or non-registered account, both of which are funded with after-tax dollars. In other words, a dollar invested in a RRIF will effectively give you less exposure to the Magnificent Seven than a dollar invested in a TFSA or non-registered account.
There are a lot of moving parts here, including whether you have other investments that might generate even greater tax savings by parking them in your TFSA or RRIF instead of using your finite registered account space for your tech investments.
Finally, while many tech stocks have produced fabulous returns in recent years, remember to maintain a diversified portfolio and not get too overweight in any one sector lest the trend stops being your friend.
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
What’s up in the days ahead
John Heinzl will look at some tax pitfalls of contributing to stocks to your TFSA.
Fed, earnings and economic data to test U.S. stocks at record highs
Over to the Fed: World market themes for the week ahead
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
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Compiled by Globe Investor Staff
Rob Carrick