22 January 2014 External T.I. 2014-0517121E5 - T5 Information Slip Reporting Requirements

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether an amount paid as a bonus or incentive payment for holding a balance in an account should be reported on a T5 information slip.

Position: A question of fact - in this case, likely yes. However whether or not amounts are reportable on a T5, they would, nonetheless, be taxable income to the recipient.

Reasons: Payments appear to meet the definition of interest and therefore fall under the specific investment income amounts reportable under section 201 of the Income Tax Regulations.

XXXXXXXXXX
2014-051712
Andrea Boyle, CGA

January 22, 2014

Dear XXXXXXXXXX:

Re: T5 Information Slip Reporting Requirements

We are writing in reply to your email dated January 7, 2014 regarding investment income.

You asked whether an amount paid by a credit union to a member as an incentive or promotional bonus for holding a balance and savings in an account should be reported on a T5 information slip. In the proposed deposit product, the bonus or incentive payment would be based on a percentage of the balance held in the account on certain predetermined anniversary dates and would be deposited in the account at those times.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Unless otherwise specified, all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

Section 201 of the Income Tax Regulations requires certain types of investment income to be reported on a T5 information slip. However, as indicated in T4015 T5 Guide - Return of Investment Income, the Canada Revenue Agency administratively provides that no T5 slip is required when the total amount paid to a recipient for the year is less than $50.

Whether a payment falls under any of the categories of investment income requiring the issuance of a T5 information slip is a question of fact to be determined by taking into account all of the facts and circumstances surrounding the transactions.

Under paragraph 12(1)(c) of the Act, there shall be included in computing the income of a taxpayer for a taxation year as income from a business or property any amount received or receivable by the taxpayer in the year as, on account of, in lieu of payment of or in satisfaction of, interest to the extent that the interest was not included in computing the taxpayer's income for a preceding taxation year.

"Interest" is not defined in the Act; however, as indicated in Interpretation Bulletin IT-533, Interest Deductibility and Related Issues, interest for tax purposes is generally accepted to mean an amount that has met the following three criteria:

• the amount must be calculated on a day-to-day accrual basis,
• the amount must be calculated on a principal sum (or a right to a principal sum), and
• the amount must be compensation for the use of the principal sum (or the right to the principal sum).

In the proposed deposit product, it appears that the bonus/premium is determined based on a percentage, the deposit must be in place for a stipulated period of time, and there is a balance on which the payment is calculated. Therefore, in our view, the amount of the bonus/premium payable can be calculated on a day-to-day basis.

Since the amount will be paid based on a percentage of a balance deposited, it would be calculated on a principal sum. The bonus is being paid as "an incentive for holding a balance and savings in the account". The result of leaving the money on deposit is that the credit union would have use of the deposited money. The bonus payments can therefore be viewed as compensation for the use of the principal sum or the right to the principal sum.

In our view, it appears that the bonus or incentive amounts as described would be interest income and such amounts should be reported on a T5 information slip when amounts paid to a recipient exceed the CRA administrative threshold.

It should be noted that the proposed payments would be taxable investment income in the hands of the recipient, even if a taxpayer does not receive an information slip for the amounts, and should be included in income by a recipient.

We trust our comments will be of assistance.

Yours truly,

G. Moore
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch