I would appreciate if someone help me to understand the difference between dividends Issued vs dividends received. I am new to taxes and recently started working at a small CPA firm. I’ve noticed that sometimes they issue dividends to shareholders from their CCPC at year-end and file T5.Then they amend this T5 based on the income declared by the shareholder in their personal taxes, as part of tax planning.
For example, we issued $150,000.00 of dividends during the fiscal year ending May 2022. However, when the shareholder files their personal taxes for 2022, they only report $100,000 of dividend income, and the remaining $50,000 will be included in their 2023 personal taxes.
Is this normal?
Is the T5 based on cash basis rather than accrual?
When we prepare the corporation’s May 2023 T2, should we only close $100,000 of dividends to retained earnings ? as the remaining $50,000 was not claimed by the shareholder in their 2022 personal taxes?TIA
Take this data as an example:
May/2022 $ 0
Dec/2022 $ 50,000
May/2023 $ 100,000
Dec/2023 $ 0
This will give a 2022 T5 of $50,000 and a 2023 T5 of $ 100,000 but the T2 for 2023 will be $150,000 because the dividends were declared in that year-end.
Dividends are reported on the T1 based on when they are declared.
Just look at your personal stocks and you will see that the T5’s will included dividends that are only paid out in January of the following year.
That last paragraph certainly does not accord with my experience. Taxable dividends are reported on the T5 when they are paid. T3s are a different matter, because trusts can deduct distributions that became payable during their fiscal year even if they were paid after the year-end. That can have the odd result that people who buy a fund early in January (before the ex-dividend date) may receive a T3 slip for the preceding calendar year.
@keith1 I am working on a client right now and know for a fact that the 2023 T5 that they received includes several distributions for December of 2023 that included dividends from a mutual fund they own for a few years but they received the distribution in the following year in January. I have seen this many times for several clients.
So, am I missing something?
Could it be that the dividend cheques were issued in December (for example), but the recipient received them in January?
Could it be that the underlying corporations issued the dividends to the mutual fund company in one year but the mutual fund didn’t pay out until January of the next year?