This post has been updated to reflect changes in 2019
If you are the owner of a corporation, you can choose to pay yourself (and other shareholders) dividends instead of a salary, or they can be paid in addition to a salary. If you do decide to pay yourself dividends, it is important to ensure that you prepare the proper documentation for Revenue Canada (CRA) and if you live in Quebec, Revenue Quebec. The documents are due by February 28th of the calendar year following the year in which the dividend was paid. And although no taxes are due at the time of filing with the government, interest and penalties apply for late payment. The documents that need to be filled out and returned to the CRA and MRQ are discussed below:
Completing the T5 Dividend Declaration
Note: This assumes that you are paying income taxes at the small business tax rate i.e. your net profits for tax purposes are less than $500,000. Dividends paid from a company which pays the small business tax rate are referred to as “ineligible dividends” while dividends paid from a corporation who pays the full corporate tax rate are referred to eligible dividends. There is a third type of dividend referred to as a capital dividend
You have to fill out both a T5 slip and complete the following boxes for 2019 (2018 amounts are represented in brackets)
the actual amount of dividends on Box 10 of the slip
the grossed up amount of dividends on Box 11 = amount of Box 20 X 1.15 (2018 = 1.16 Gross Up)
the dividend tax credit on Box 12 = 9.0301% X Box 11 (2018 = 10.0313%)
For example if you pay yourself a dividend of $35,000 : (2018 comparative):
Enter $35,000 on Box 10
Enter $40,250 on Box 11 (2018 = $40,600.00)
Enter $3,634.52 on Box 12.(2018 = $4,072.71)
You will also need to enter the:
payer's name and address
recipient's name and address
Report code – The code in this box indicates that this slip is the original ("O"), an amended ("A"), or a cancelled slip ("C").
Recipient type – The code in this box indicates if the amount was paid to an individual ("1"), a joint account ("2"), a corporation ("3"), an association, trust, club, or partnership ("4"), or a government ("5")
Recipient identification number – If you are an individual (other than a trust),the number in this box is your social insurance number. In all other cases, the number is your CRA issued Business Number which is nine characters
The Quebec equivalent form is the RL-3. The information required is very similar to the T5. Further information can be found at the link below:
T5 Summary and RL3 Summary
The T5 and RL3 summary are no longer required
Efiling the T5 and RL3 Slips
The T5 can be filed electronically to Revenue Canada either in XML format or by using Web Forms for which you will need your account number (this is usually your CRA business number followed by RZ0001)
The RL3 slip can be efiled to Revenue Quebec in XML file format (that has to be certified). In order to do this you must have a transmitter number which you can get by completing the Transmitter Registration Form ED‑430
Payment of a capital dividend does not required T5 dividend slip since the dividend is effectively tax free. Instead the corporation is required to complete election T2054
Payment of dividends should be recorded in the corporation minutes
Both Revenue Canada and Revenue Quebechave fillable dividend forms i.e. the appropriate fields can be entered online and then printed out.
Once completed the T5 slips can also be mailed to the address which can be found on the CRA website depending on your tax centre.
Another copy should be kept for your records.
A third copy should be given to the recipient(s) of the dividends to reflect on their tax return.
The deadline for completion is February 28th after the calendar year in which the dividend was paid.
No taxes are due along with the dividend.
Interest and penalties apply for late filing. Returns filed late are charged a penalty of a $10 per day for which the minimum of $100 and the maximum of $1,000.
Completing the dividend declarations is fairly straightforward however it advisable as always, it is good to get the advice of an accountant.
Ronika Khanna is a Montreal Accountant who helps small businesses achieve their financial goals. Should you need help preparing your T5/RL-1 summaries or for any other accounting or small business tax issues do not hesitate to contact her. To receive regular updates of articles pertaining to small business, accounting, tax and other topics of interest to business owners you can sign up here. You can also follow her on Facebook or Twitter