What is the difference between the T3, T4, and T5 slips?

When tax season rolls around, Canadians are often overwhelmed with various tax slips issued by employers, financial institutions, and other organizations. The T3, T4, and T5 slips are some of the most common, but they often cause confusion because they serve different purposes and report different types of income.

But before we get to all that, let’s first understand the basics by asking what T-slips are.

What are T-slips?

In Canada, T-slips are official tax documents issued to individuals by employers, financial institutions, trusts, or other entities. They report taxable income or financial activity to both the recipient and the Canada Revenue Agency (CRA). 

Canadians are often required to include the information from their T-slips on their tax return when filing to ensure that all income and taxes are reported accurately.

What is a T3 Slip?

The T3 slip, officially known as the Statement of Trust Income Allocations and Designations, is issued to report income earned from trusts, mutual funds, or estates. If a person is an investor in a mutual fund or a beneficiary of a trust or estate, they are likely to receive a T3 slip.

The T3 slips report interest income, dividend income, foreign income, capital gains from the sale of assets, and even the return of capital, an amount that reduces the adjusted cost base (ACB) of an investment.

What is a T4 Slip?

The T4 slip, also called the Statement of Remuneration Paid, is the most common T-slip issued to Canadians. It reports employment income and other related earnings received from their employer over the course of the year.

The T4 slip reports employment income, such as salaries, wages, and commissions. It also reports taxable benefits, such as a company car or health benefits, and deductions.

The information from the T4 slip must be reported on a taxpayer’s tax return under “employment income.” 

What is a T5 Slip?

The T5 slip, officially called the Statement of Investment Income, is issued to report investment income earned during the year. This slip is primarily for passive income such as interest, dividends, and foreign investment earnings. 

A taxpayer will likely receive this when they earned more than $50 in investment income during the tax year or have financial assets like stocks, bonds, or savings accounts that generate interest or dividends.

The T5 slip covers interest income earned from savings accounts, Guaranteed Investment Certificates (GICs), or bonds. It also reports both eligible and non-eligible dividends from Canadian corporations, foreign income from foreign investments, and foreign taxes paid on foreign income.

Key Differences Between T3, T4, and T5 Slips

To clarify the distinctions between these slips, let’s compare their key features:

Category	T3 Slip	T4 Slip	T5 Slip
Purpose	Reports income from trusts, mutual funds, and estates.	Reports employment income.	Reports investment income.
Issued By	Trust administrators, mutual fund companies, or estate executors.	Employers.	Banks, financial institutions, or corporations.
Type of Income	Trust allocations, capital gains, foreign income, return of capital.	Salary, wages, commissions, taxable benefits.	Interest, dividends, foreign income.
Who Receives It?	Trust or mutual fund beneficiaries, estate beneficiaries.	Employees.	Investors earning passive income.
CRA Tax Category	Passive income from trusts or funds.	Active income (employment).	Passive income from investments.

Practical Examples of Each Slip

For T3

A Canadian citizen invests in a mutual fund that distributes $1,000 in dividends and $500 in capital gains during the year. At tax time, they receive a T3 slip showing these amounts, which you must report as part of your taxable income.

For T4

A taxpayer works full-time for a company and earns $60,000 annually. At tax time, their employer issues a T4 slip showing their total wages, taxable benefits (e.g., a company health plan), and the taxes withheld.

For T5

A US expat living in Canada earns $1,500 in interest from his Canadian savings account and $600 in dividends from US stocks, for which they receive a T5 slip from their Canadian bank. They must report this income on their Canadian and US tax returns, claiming foreign tax credits to avoid double taxation.

How to Handle These Slips During Tax Filing

With knowing the difference between T-slips in Canada, it’s now time to handle these with intent and accuracy to have a smoother tax filing. 

First, taxpayers must verify the accuracy of the information they put on their T-5 slips. In any cases, they can contact the issuer immediately wif they notice discrepancies.

Then they need to include it in their tax return, by using the information from each slip, they can complete the appropriate sections of their tax return. For example:

• Employment income (T4) is reported under “Employment Income.”
• Investment income (T5) is reported under “Interest and Other Investment Income.”
• Trust income (T3) is reported under “Other Income.”

Lastly, retaining T-slips for at least six years is very beneficial in case the CRA requests documentation. 

Conclusion

It is essential to comprehend the distinctions between the T3, T4, and T5 slips in order to properly file taxes and comply with CRA regulations. Each of these slips serves a particular function, and omission of the income on the slips can lead to penalties or audits. For U.S. expatriates residing in Canada, it can be especially complicated to deal with these requirements and the U.S. tax filing obligations. Platforms such as Expat Tax Online are able to offer expert advice that assists expats in knowing how these Canadian tax returns work in conjunction with their U.S. tax returns to meet CRA and IRS requirements.