Step by Step Guide for Business Owners to Prepare the T5 Slip
The T5 slip, formally known as the Statement of Investment Income, is a CRA prescribed tax document that Canadian corporations must issue to shareholders when dividends are paid out of the corporation. If you are an incorporated business owner in Canada who paid dividends to yourself or other shareholders during the tax year, preparing and filing the T5 slip accurately and on time is a mandatory CRA compliance obligation.
A missed T5 filing, an incorrectly reported dividend amount, or a late submission all carry CRA penalties that are entirely avoidable with the right process in place.
What Is a T5 Slip and Who Needs to File One?
The T5 slip reports investment income paid to Canadian residents, and for incorporated business owners the most common reason to issue a T5 is the payment of dividends from the corporation to its shareholders.
Any Canadian corporation that pays dividends to a shareholder during the calendar year must prepare a T5 slip for each recipient and file a T5 Summary with the CRA. This applies to incorporated professionals, small business owners, and holding companies that pay dividends as part of their owner manager compensation strategy. If your corporation paid no dividends during the year and distributed income entirely through salary, no T5 is required. However, if you used a salary and dividend split, which is one of the most common owner manager compensation structures covered in a Calgary year end tax planning review, the dividend portion triggers a T5 filing obligation regardless of the amount paid.
The T5 also applies to interest income paid by a corporation to a non arm’s length lender, such as a shareholder loan where the corporation pays interest back to the shareholder, and to certain royalty payments. For most incorporated small business owners in Calgary, dividends are the primary reason a T5 is issued each year.
Eligible Dividends vs Non Eligible Dividends on the T5 Slip
Before preparing your T5 slip, you need to determine whether the dividends you paid are eligible dividends or non eligible dividends, because each type is reported in different boxes and carries a different tax treatment for the shareholder.
Eligible dividends are paid from income that was taxed at the general corporate tax rate, which in Alberta is a combined rate of 23%. These dividends attract a higher gross up and a more generous dividend tax credit for the shareholder, reducing the personal tax payable on the dividend income. Non eligible dividends are paid from income that benefited from the small business deduction, taxed at the combined Alberta small business rate of 11%. Non eligible dividends carry a lower gross up and a smaller dividend tax credit.
The distinction matters significantly for your shareholder’s personal tax filing. A shareholder receiving eligible dividends reports the grossed up amount as income and claims the federal dividend tax credit to offset the tax, approximating the corporate tax already paid. For Calgary business owners whose corporations earn income at different tax rates, designating dividends correctly as eligible or non eligible is a critical step that affects both the T5 slip preparation and the shareholder’s Calgary personal tax filing for the same year. Getting this wrong can result in the shareholder either overpaying personal tax or triggering a CRA reassessment.
Step by Step Process to Prepare the T5 Slip
Preparing a T5 slip correctly requires attention to the specific boxes, amounts, and designations the CRA requires. The steps below walk you through the complete process from dividend declaration to CRA submission.
Step 1: Declare the Dividend Formally
A dividend must be formally declared by the corporation’s board of directors before it is paid, and the declaration must be documented in writing. Prepare a directors resolution that records the dividend declaration date, the amount per share, the class of shares, the record date, and the payment date.
This documentation is not filed with the CRA but must be retained in your corporate minute book as evidence that the dividend was properly authorized. Without a formal declaration on record, the CRA may reclassify the payment as a shareholder loan or a benefit rather than a dividend, which carries significantly worse tax consequences for both the corporation and the shareholder.
Step 2: Determine the Dividend Type and Calculate the Gross Up
Once the dividend is declared and paid, determine whether it is an eligible or non eligible dividend and calculate the grossed up amount that will be reported on the T5 slip. For non eligible dividends paid in 2024, the gross up rate is 15%. A $10,000 non eligible dividend is reported as $11,500 of taxable dividend income on the T5 slip.
For eligible dividends, the gross up rate is 38%. A $10,000 eligible dividend is reported as $13,800 of taxable dividend income. The grossed up amount is what goes into the relevant box on the T5 slip and what the shareholder reports on their personal T1 return. The corresponding dividend tax credit offsets a portion of the personal tax owing on that grossed up amount, so the net tax result approximates integration between the corporate and personal tax systems.
Step 3: Complete the T5 Slip Boxes
With the dividend type and gross up calculated, complete the relevant boxes on the T5 slip for each shareholder who received a dividend payment during the calendar year. Box 10 reports actual non eligible dividends paid. Box 11 reports the taxable amount of non eligible dividends after the 15% gross up. Box 12 reports the dividend tax credit for non eligible dividends, calculated as 9/13 of the gross up amount. Box 24 reports actual eligible dividends paid.
Box 25 reports the taxable amount of eligible dividends after the 38% gross up. Box 26 reports the dividend tax credit for eligible dividends, calculated as 6/11 of the gross up amount. Every shareholder who received dividends gets their own T5 slip with their name, address, and Social Insurance Number recorded in the recipient information section.
Step 4: Prepare the T5 Summary
The T5 Summary aggregates all T5 slips issued by the corporation for the calendar year and is filed with the CRA alongside the individual slips. The summary reports the total number of T5 slips filed, the total actual dividends paid, the total taxable dividend amounts, and the total dividend tax credits across all recipients.
The T5 Summary must match the totals across all individual T5 slips exactly. Any discrepancy between the summary and the individual slips triggers a CRA follow up that delays processing and may result in a request for additional information. Your Calgary corporate tax accountant provider typically prepares both the individual slips and the T5 Summary together as part of your annual year end corporate filing package.
Step 5: File with the CRA and Distribute to Shareholders
The T5 Summary and all T5 slips must be filed with the CRA and a copy must be provided to each shareholder recipient by the last day of February following the calendar year in which the dividends were paid.
For dividends paid in 2024, the T5 filing deadline is February 28th, 2025. This deadline is firm and carries an automatic late filing penalty if missed. The penalty for late filing starts at $100 and escalates based on the number of slips filed late and the duration of the delay. T5 slips can be filed electronically through CRA My Business Account or through certified tax software, which is the faster and more reliable option for most incorporated business owners. Paper filing is available but adds processing time and increases the risk of manual errors.
Common T5 Slip Errors Calgary Business Owners Make
Even business owners who understand the T5 process make avoidable errors that result in CRA follow up letters, reassessments, and penalties. The most common mistakes include misclassifying non eligible dividends as eligible dividends, which results in an incorrect dividend tax credit for the shareholder and a CRA adjustment when the error is discovered.
Forgetting to include the shareholder’s SIN on the slip is another frequent issue that causes processing delays. Failing to prepare a formal directors resolution before the dividend payment leaves the corporation vulnerable to the CRA reclassifying the payment as a shareholder benefit rather than a dividend, which is a far more expensive outcome for everyone involved.
Dividend amounts that do not align with the corporation’s retained earnings position also attract CRA scrutiny. Before declaring a dividend, reviewing your Calgary financial statements to confirm the corporation has sufficient retained earnings to support the distribution is a necessary step that protects the integrity of the T5 filing. Business owners who are also managing tax deductions for small businesses in Canada alongside their dividend planning will find that an organized set of year end financials makes both tasks significantly more straightforward.
How T5 Slips Connect to Your Broader Corporate Tax Obligations?
The T5 slip does not exist in isolation. It connects directly to your corporate tax return, your personal tax filing, and your year end financial statements in ways that require all three to be prepared consistently and accurately.
The dividends reported on T5 slips reduce your corporation’s retained earnings on the balance sheet and affect the refundable dividend tax on hand account, known as RDTOH, which determines how much refundable tax the corporation recovers when dividends are paid. For corporations that have accumulated significant passive income and are managing their RDTOH balance as part of a broader Calgary corporate tax planning strategy, the T5 filing is the mechanism that triggers the RDTOH refund and must be coordinated with the T2 corporate return to produce the correct result.
At the personal level, every T5 slip issued to a shareholder feeds directly into that shareholder’s Calgary personal tax return for the same year. The grossed up dividend amount increases the shareholder’s total income, which affects their eligibility for income tested credits, their marginal tax rate calculation, and potentially their EI repayment obligation if their net income exceeds the clawback threshold. Calgary Tax Consulting coordinates the T5 preparation, the T2 corporate return, and the shareholder’s personal T1 return together to ensure all three documents are consistent, accurate, and filed on time without gaps or conflicts between them.
Conclusion:
The T5 slip is a straightforward document when the underlying dividend declaration, gross up calculation, and box assignments are handled correctly from the start. Declare the dividend formally, determine the type, calculate the gross up, complete the correct boxes, prepare the summary, and file everything with the CRA by February 28th. Every step in the process has a direct impact on what the shareholder reports on their personal return and what the corporation recovers through its RDTOH account.
For incorporated business owners in Calgary managing both their corporate and personal tax obligations simultaneously, the T5 filing is one of several year end tasks that need to be completed in the right sequence to produce the right outcome across all returns. Staying organized throughout the year with clean records in your accounting software, as covered in our blog on Best Accounting Software for Small Business in Canada, makes the T5 preparation process significantly faster and less prone to the errors that attract CRA attention.
Frequently Asked Questions
Q. When is the T5 slip filing deadline in Canada?
A. T5 slips and the T5 Summary must be filed with the CRA and provided to each recipient by the last day of February following the calendar year in which the dividends were paid. For 2024 dividends, the deadline is February 28th, 2025. Missing this deadline triggers an automatic late filing penalty starting at $100.
Q. What is the difference between eligible and non eligible dividends on a T5 slip?
A. Eligible dividends are paid from income taxed at the general corporate rate and carry a 38% gross up with a higher dividend tax credit for the shareholder. Non eligible dividends are paid from income that benefited from the small business deduction and carry a 15% gross up with a smaller dividend tax credit. Correctly identifying which type applies to your dividend payment is essential before completing the T5 slip.
Q. Do I need to issue a T5 if I paid myself a salary from my corporation?
A. No. A T5 slip is only required when dividends are paid. Salary payments to shareholder employees are reported on a T4 slip, not a T5. If you used a combination of salary and dividends, you need both a T4 for the salary portion and a T5 for the dividend portion issued to the same shareholder.
Q. Can I file T5 slips electronically with the CRA?
A. Yes. T5 slips and the T5 Summary can be filed electronically through CRA My Business Account or through certified tax software. Electronic filing is faster, more reliable, and reduces the risk of manual errors compared to paper filing. Corporations filing more than 50 information returns are required to file electronically under CRA rules.
Q. What happens if I miss the T5 slip filing deadline?
A. Missing the February 28th T5 filing deadline results in an automatic late filing penalty. The penalty starts at $100 for late filings and increases based on the number of slips filed late and the number of days the filing is overdue. Repeated late filing in prior years results in higher penalties for subsequent late filings under CRA’s escalating penalty structure.