2014-0532941E5 T5 reporting obligations

Principal Issues: Who is responsible for issuing T5 slips in respect of interest paid on debentures through agents?

Position: T5s need to be issued when interest is paid to creditor's agent and when interest is paid by creditor's agent to creditor.

Reasons: Application of section 201 of the Regulations.

Author: Friedlander, Lara G.
Section: 215(1), 215(2), 201(1)(b) and 201(2) of the Regulations

XXXXXXXXXX                                                                                                                                   2014-053294
                                                                                                                                                            L. Friedlander

August 15, 2014

Dear XXXXXXXXXX:

Re:  T5 Reporting Requirements

This is in response to your email of May 26, 2014 concerning T5 reporting requirements.

A corporation resident in Canada (“Opco”) has issued interest-bearing debentures (the “Debentures”).  The Debentures are fully registered.  Interest is payable on the Debentures annually.  The Debentures are not debt obligations in respect of which subsection 12(4) of the Act would apply and are not “indexed debt obligations” as defined in subsection 248(1) of the Income Tax Act (the “Act”).  Payments are made by Canco through a bank (the “Bank”) that acts as Opco’s paying agent.  The Bank is resident in Canada for purposes of the Act.

The Debentures were initially purchased by brokers (the “Brokers”) who then sold them to their clients (the “Clients”) who are members of the public.  Each Broker and each Client who holds a Debenture is a resident of Canada for purposes of the Act.  Opco does not have, and is not able to obtain, the identity of the Clients who hold the Debentures.  The Brokers are acting as agents for their Clients throughout the period that the Clients hold the Debentures.

When interest is paid on the Debentures, the payments are made from Opco to the Bank, then from the Bank to the Brokers, and then from the Brokers to their Clients.

You have asked whether Opco has an obligation to issue T5 slips to the Bank when it transfers interest to the Bank or when interest is transferred by the Bank to the Brokers, and whether the T5 slips should be in the name of the Bank or the Brokers.  You have also asked whether the Brokers have the obligation to issue T5 slips to their Clients.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002.  Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we have provided some general comments below.

Subparagraph 201(1)(b)(i) of the Income Tax Regulations (the “Regulations”) provides that every person who makes a payment to a resident of Canada of interest on a fully registered bond or debenture shall make an information return in prescribed form in respect of the portion of such payment for which an information return has not previously been made.  The information return consists of the T5 slip and the T5 summary.

When Opco pays interest amounts to the Bank in the Bank’s capacity as agent for Opco, the Bank is not making a payment to the Bank of interest as the Bank is not the beneficial owner of a Debenture nor is it acting as agent for such beneficial owner.  Rather, the Bank, in its capacity as agent for Opco, is acting on behalf of Opco.  Accordingly, no T5 slips need to be issued in respect of this transfer.

When interest amounts are paid by the Bank to the Brokers, there has been a payment of interest on the Debentures.  Accordingly, a T5 slip and summary are required.  It is not necessary for both Opco and the Bank to file a T5 in respect of the payment made to the Brokers. 

The name of the payee recorded on the T5 slip should be the relevant Broker.  The 2013 T5 Guide states that where a payment is made to a registered holder of an investment such as a broker or the trustee of an RRSP, the T5 slip should be made out to the registered holder, not the ultimate beneficial holder of the investment. 

T5 slips will also have to be issued when interest is paid by the Brokers to their Clients.  Subsection 201(2) of the Regulations provides that every person who receives, as nominee or agent, for a person resident in Canada, a payment to which subsection 201(1) of the Regulations applies shall make an information return in prescribed form.  The Brokers are acting as agents for their Clients who are receiving interest on the Debentures.  Accordingly the Brokers have an obligation to provide T5 slips under subsection 201(2) of the Regulations.

We trust that these comments will be of assistance.

Yours truly,

G. Moore
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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