How to Pay Dividends
Content
How to Pay Dividends: Completing the T5 Slip and Summary
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:
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. These are referred to
as "dividends other than eligible dividends".
T5 Slip
You have to fill out both a T5 slip and complete the following boxes
•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 1.25
•the dividend tax credit on Box 12 = 13.33% X Box 11
For example if you pay yourself a dividend of $20,000 you would:
•Enter $20,000 on Box 10
•Enter $25,000 on Box 11
•Enter $3,332.50 on Box 12.
You will also need to enter the:
•year,
•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 9 characters Business Number.
The Quebec equivalent form is the RL-3. The information required is very similar to
the T5.
•RL-3 Slips
•RL-3 Guide
T5 Summary
The summary is fairly straightforward and is basically an aggregation of all the
dividend slips. After entering the name, business number, address etc. of the
corporation you need to indicate:
•how many slips were filed
•add up the amounts per the boxes and indicate them on the appropriate line
The Quebec equivalent summary can be found at RL-3 Summary
Other Notes:
•Payment of dividends should be recorded in the corporation minutes
•The CRA has fillable dividend forms i.e. the appropriate fields can be entered
online and then printed out.
•Once completed the T5 slips and T5 summary should be mailed to the address
indicated on Page 2 of the summary.
•Another copy should be kept for your records.
•A third copy should be given to the recipient(s) of the dividends to maintain with
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.
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:
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. These are referred to
as "dividends other than eligible dividends".
T5 Slip
You have to fill out both a T5 slip and complete the following boxes
•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 1.25
•the dividend tax credit on Box 12 = 13.33% X Box 11
For example if you pay yourself a dividend of $20,000 you would:
•Enter $20,000 on Box 10
•Enter $25,000 on Box 11
•Enter $3,332.50 on Box 12.
You will also need to enter the:
•year,
•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 9 characters Business Number.
The Quebec equivalent form is the RL-3. The information required is very similar to
the T5.
•RL-3 Slips
•RL-3 Guide
T5 Summary
The summary is fairly straightforward and is basically an aggregation of all the
dividend slips. After entering the name, business number, address etc. of the
corporation you need to indicate:
•how many slips were filed
•add up the amounts per the boxes and indicate them on the appropriate line
The Quebec equivalent summary can be found at RL-3 Summary
Other Notes:
•Payment of dividends should be recorded in the corporation minutes
•The CRA has fillable dividend forms i.e. the appropriate fields can be entered
online and then printed out.
•Once completed the T5 slips and T5 summary should be mailed to the address
indicated on Page 2 of the summary.
•Another copy should be kept for your records.
•A third copy should be given to the recipient(s) of the dividends to maintain with
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.
