Taxing Times

Q. My accountant wants me to get either a T3 or a T5 tax slip in order to complete the preparation of my 2005 income tax report. What are these forms and where do I get them? – Julia J.

A. Taxable income generated through investment in mutual funds and segregated funds are reported by March 31st each year on T3 or T5 slips in accordance with CRA regulations. A T3 slip is issued when a distribution from a mutual fund trust or a segregated fund allocation is made to a Canadian resident. A T5 supplementary slip is issued when a dividend from a mutual fund corporation (MFC) is paid to a Canadian resident. T5s are also issued to GIC clients. Separate T5s will be issued for MFC dividends, GIC interest and mutual fund rebates (MFRs). If you haven’t received the forms by the due date, check with your financial advisor or institution to see if one is expected. You may have had an investment that did not generate reportable income in which case a tax slip will not be issued.

Q. I understand that I can split income with my spouse. Why would one do this and how do I go about it? – Haviva B.

A. Income splitting involves structuring your affairs to move income into the hands of a lower-income family member who will pay less tax. A spousal RRSP allows a higher-income spouse to contribute to the RRSP of a lower-income spouse. At retirement, this can help shift more income to the spouse who is expected to be in a lower tax bracket. Alternatively, another possibility is a spousal loan. As long as a prescribed rate of interest is paid, (at the moment it is of 4%), a spousal loan can be an effective way to transfer assets from a spouse in a higher tax bracket to a spouse in a lower tax bracket.

Q Is there a way for me to deduct the interest on my mortgage? – George J.

A. Tax deductible loan interest can be a great tax-saver. One strategy is to convert all or part of your mortgage debt into an investment or business loan. For example, if you have unregistered investments, you could sell some or all of these investments to pay off your mortgage, then take a loan for the same amount to repurchase the investments. This will effectively replace your non-deductible mortgage debt with a deductible investment loan.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member CIPF.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.