Fraudulent T slip

Hi there,

I have a client who make an investment with a company, where the company pay them interest, and issue T5. However, he never received any interest payment from the company, and now the company is in receivership. What is the step he can take to have the T5 income remove from his filing? There is a court case open just recently, but it may take years.

Thank you,

Interest may be taxed, but not “visibly” paid, if added onto the original investment. This is not uncommon, so the T5 may not, in fact, be “fraudulent”. That would be the first thing to ascertain.

The client may, or may not have, a loss to claim. That would be the second thing to ascertain.

Consider claiming a reserve for doubtful debt with respect to interest credited but paid by the company now in receivership.

Thank you, I will double check that again.

But based on what the client explain, and based on the contract signed, there is no reinvestment of the interest. The interest will be paid out on certain date as stated in the contract. And my client said he been in contact with the owner of the company throughout, asking about when the interest going to be paid out, and all the owner replied is there been delay of some internal accounting issue, never mention about the reinvestment.

Thanks, I will look into the doubtful debts.

Pretty sure that IT442-R deals with situations where the client is in the business of loaning money and would ordinarily file a business statement.

If you want to get the return filed, and it is unlikely the T5 slip will be cancelled you might have a case for deducting an offsetting amount as a carrying charge on line 22100 of the T1 return (Interest paid on money to earn investment income). If and when requested by the CRA to justify the deduction you could plead your case then.

Technically speaking; if the contract or agreement had stated that annual interest gets re-invested or added to the principal amount rather than paid out the interest would be income, then once it gets added to the investment (re-invested) it then becomes capital, then when it is lost becomes a capital loss… or perhaps an ABIL if the circumstances warrant.

Irregardless of the “interest income” at some point the client may have a loss of principal too?

Yes, at some point. The case just started, and now he is just happy if he can get the principal back. And it is unlikely :(.