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T5 Royalties

I have a client who had his 2017 return reassessed based on a T5 Box 17 (Royalties) not showing up on S4/Line 121 (Investment income).

According to CRA Help, Royalties are to be handled in one of the following ways:

Completing your tax return
Report on line 104 your royalties from a work or invention with no associated expenses.
Report on line 135 your royalties that have expenses associated with them.
Report on line 121 all other royalties.

In my case, there were expenses involved, so I assigned the amount to a T2125, which then reports them on Line 135.

My client was reassessed because CRA claims the amount should have been reported on S4/Line 121.

Are others experiencing these reassessments? How are others handling this situation? Perhaps the simplest answer is to always report as investment income, but the the taxpayer’s earned income is less, resulting in lower RRSP contribution room calculation and lower CPP contributions.

From a software/efile integration, how are these different reporting options communicated to CRA?

@gil

Yes. I have experienced a CRA Post Assessment Review for Royalties.

In general, whenever there are multiple options, and, when the dollar amount is above a predetermined threshold value, then a CRA Post Assessment Review is often triggered. So, I always prepare a CRA Review Package as I prepare client tax returns.

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I am in progress with my Citrix ShareFile portal. I am bundling my client source docs into line item audit ready bundles with the schedule on top, reconciliation or table of contents next, source docs with those nifty reference numbers on the bottom right hand corner.

Doe, John, T1 2018, Medical Line 330

  • Medical form with line #'s.
  • reference the line number on the source doc summary and on any reconciliation pages for such things as less reimbursements, travel, etc
  • reference the line number/page number on the receipts

Still noodling through whether I should use a more universally acceptable naming convention with no commas or spaces.

I can do this relatively quickly while I compile and enter but scanning with my trusty sidekick, El ScanSnap S1500 Diablo. ( Just a little humour. I am a bit punch drunk from little sleep and too much new tech.)

When I get the pre or post assessment review then I can simply attach my customizable cover letter template (still in progress), attached to my tabbed PDF, and upload to CRA through Rep A Client. Then print the CRA confirmation receipt and combine to the front of the PDF.

Previously I was emailing a copy to my clients. Now I am loading into Citrix ShareFile and emailing the link.

Basically, if you have a T5 Box 17 which you are not putting in line 121, expect a reassessment.

You will always win, but you have to go through a reassessment to reverse the computer. It can’t handle anyone doing anything other than putting it on line 121.