Tax considerations for your Margin account

Each year in February or March we make tax slips available to you in your Questrade account. What tax slips you receive depends on the following:

• Your account type
• The activity that took place in your account during the year
• Your residency (i.e., the province, country you live in)

You can find your automatically-generated tax slips by logging into Questrade and going to the Tax slips page. Also review Important dates for tax slips.

At a high level, for Margin accounts:

• If you deposited money into your account or purchased stocks or other investments, you don't receive a tax slip; however, your purchases will appear on a Trading Summary
• If you sold investments you previously purchased (including transferring them to a registered account), you receive a T5008 tax slip and the sale is included on the Trading Summary
• If investments you bought paid income, like a dividend or interest, we provide you with an Income Summary. A tax slip may accompany the summary, depending on your residency, security type, and amount.

The table below shows what tax slips you receive for the above situations. (Note: if you have a Questwealth Cash account, you will also receive these tax slips.)

During the tax year, you may sell securities you previously purchased or, in the case of short selling, you may close your position. The sale of securities in these situations may be taxable as a capital gain or loss.

Capital gains/losses and adjusted cost base (ACB)

A capital gain or loss is the difference between the money you initially invested and the amount you received from the sale. This is calculated based on the difference between your adjusted cost base (ACB) for the security and the final sale price. The ACB is the cost of purchasing a security, adjusted for expenses and other activity in your account related to that security plus transaction costs, adjusted for any capital changes, corporate actions, etc.

If the money you receive from the sale of the security is greater than the ACB, then you have made a capital gain. Effective June 25, 2024, half (50%) of an individual’s capital gains up to the first $250,000, and two-thirds (66.67%) of their capital gains thereafter, are included in taxable income. For corporations and most trusts, two-thirds (66.67%) of all capital gains are taxable. All gains from day trading are taxable as business income and not as capital gains.

If the money you receive from the sale of the security is less than the ACB, then you have a capital loss. A capital loss can be used to offset capital gains you have in the same year, any of the preceding three years, or may be carried forward to future years through a strategy known as “tax-loss harvesting”. To learn more about this strategy, see our detailed tax-loss harvesting article or consult with a tax professional.

Tax documents reporting sale of securities

At tax time, you will receive the following related to the sale of securities:

• Trading Summary, which reports all security trading (buys and sells) in your account during the year. Note: starting this year, the Trading Summary is being issued to you separately from the T5
• Statement of Securities Transactions (T5008) which reports the amount paid or credited to you for securities you sold during the tax year. On this tax slip:
  • The amount in Box 21 is the money you received for selling a security
  • The amount in Box 20 is the cost or book value (cost base) of the security that was sold. The cost base is the original value of an asset.

  
  

These documents do not state your capital gains or losses. You use these documents, along with your own records you keep to track your buys and sells, to help you determine the capital gains or losses for securities you have sold during the year.

Important note: The amount in Box 20 may or may not represent the actual ACB. In some cases the amount may appear as "0", either because the cost base is actually zero or we do not have an accurate cost base. To make sure you are accurately reporting your capital gains and losses in your tax return, it is your responsibility to keep track of the ACB for each of your securities and consult with a tax or accounting advisor as needed.

For an example of how the ACB is calculated, go to Average price and adjusted cost base.

Income paid to you is typically what is paid from a security you previously purchased; for example, a dividend.

For Canadian securities, the structure of the organization where the income originates from determines the tax slip, as follows:

• T5 (Statement of Investment Income) reports income from an organization structured as a corporation
• T3 (Statement of Trust Income) reports income from a Canadian organization structured as a trust
• T5013 (Statement of Partnership Income) reports income from a Canadian organization structured as a partnership

Income from foreign securities that is deemed taxable by the CRA is reported on a T5 as foreign income, regardless of its structure.

Here is more information about each of these tax slips.

T5 / RL-3 / NR4

• Reports dividend income, interest income, and foreign Income paid on your investments
• The amounts in the boxes of the T5 represent the total of the amounts shown on your Income Summary
• A T5 is issued for the currency of the holding; so if you have both U.S. and Canadian securities that paid income, you will receive two T5s, one for each currency
• A T5 is not issued if your total investment income is less than US$50 or CDN$50; however, you must still include this income on your tax return
• If you own shares of a split share corporation, you will receive a separate T5 for expenses and income related to investments in this stock class
• You may also receive a T5 if you hold shares in a real estate investment trust (REIT) or regulated investment company (RIC)
• If you are a Quebec resident, you will also receive an RL-3 tax slip
• If you are a non-resident of Canada, you will receive an NR4 tax slip

T3 / RL-16 / NR4

• Reports investments held in Canadian income trusts, royalty trusts, or real estate investment trusts (REITs), typically paid from Canadian ETFs (exchange-traded funds)
• You will receive a T3 tax slip and Summary of Trust Income which specifies the amount and nature of these distributions in your account
• Mutual fund companies generally issue their own tax slip
• If you are a Quebec resident, you will also receive an RL-16 tax slip
• If you are a non-resident of Canada, you will receive an NR4 tax slip

T5013 / RL-15

• Reports units held in a Canadian limited partnership (or units of a partnership)
• If you are a Quebec resident, you will also receive an RL-15 tax slip

Below is a list of typical income from Canadian securities which is reported individually in separate boxes on the appropriate tax slip (this is not an exhaustive list):

• Dividend - for dividends from Canadian companies, a dividend tax credit amount will appear on your tax slip
• Interest on bonds and Guaranteed Investment Certificates (GICs)
• Return of capital - this is a non-taxable return of some of your investment in a security; however, it does reduce your adjusted cost base (ACB)
• Capital gains from a flow-through entity such as a formal trust or partnership

Examples of activity in your account where income paid by you is taxable are:

• Interest paid by you on margin. This amount is reported on your Income Summary under "Paid by you." To determine whether a tax deduction applies in your situation, please consult with a tax or accounting advisor
• Trading commissions. Trading commissions you may pay to purchase securities are used to increase the adjusted cost base (ACB) for that security. Trading commissions you pay to sell securities are deducted from the money you receive for those sales. Both purchase and sale trading commissions are reflected in the amount shown in Box 20 of the T5008 tax slip. The money you received from the sale of a security is shown in Box 21 of the T5008

Trust companies must also file tax returns, and may wait until the prescribed time frame (i.e., 90 days after year-end) before they send the issuer the required information to produce the T3 slips.

Delays in T3 slips could also be due to late disclosures and amendments by some income trusts and limited partnership units.

The regulatory deadline to provide T3 slips to customers and to file with the CRA is March 31.

Box 20 on the T5008 reports the cost or book value (cost base) of a security that's been sold during the tax year. While the cost base may actually be zero, there are a number of other reasons why this amount may show as zero:

• The security was transferred from another institution and the cost base was never passed to us. In this case, to obtain the true amount, you will need to check your account statement with your previous broker.
• You did not actually pay for the security; for example, a company for which you hold securities has issued rights to its shareholders
• You did a short-sell transaction, where we are unable to determine an accurate cost base

The T1135 statement is an individual income tax format that is submitted with an individual's T1 general. As this is not a regulatory requirement, we do not provide this statement at this time. 

For more information, consult the FAQ "What is the T1135 Foreign Income Verification Statement", at the end of the article Tax season frequently asked questions.

If you trade actively, you need to be aware that you may be considered as a day trader by the CRA, which can have tax consequences-meaning that when you sell securities they could be considered as business income rather than capital gains, and as such would be fully taxed.

Whether you are considered a day trader by the CRA can depend on a number of factors such as frequency of trades (especially intraday trades), whether this trading activity if a core part of your normal business activity, and other factors.

If you are concerned about whether your trading income may be taxed as business income because of your frequent trading activity, please contact a tax or accounting advisor for guidance.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.