Why am I taxed twice

[steven-whitten]

I sold some mutual funds this year. The bank issued me with a T3 to cover the dividends earned, this was reinvested. TT has added this to my income and taxed me at the relevant rate. The bank also issued a T5008 so I can report the capital gains on all the funds I sold (I sold the lot) There is no adjustment of the T5008 to cover not paying income tax and capital gains tax on the same moneys. Is this correct, are we being double taxed here?

[TurboTaxJeffrey · Accepted solution]

You are not being taxed twice.  The dividend income is a realized income, even though it was reinvested.  The capital gain(s) were calculated based on the purchase cost of the stocks, and the sell price of those stocks.  These gains are indeed income on top of the dividend income.

[TurboTaxJeffrey]

For example:
$1000 initial investment in a stock.  It pays $100 in dividends, which is reinvested in more of the stock.  The cost of the stock owned is now $1100.

More dividends are paid, $90.  Those dividends are reinvested, so the cost of the stock owned is now $1190.

The stock is sold for $1500.

The total dividend income is $190.

The capital gain is calculated based on the proceeds of disposition (selling price) subtract the cost
$1500 - $1190 = $310.  

As you can see, the $310 is a separate income from the dividend income.

[steven-whitten]

Got it, I haven't removed the dividend payment form the sell value, thus reducing the capital gain by the dividend amount. Thanks for the clarification

[TurboTaxJeffrey]

Exactly.  Did your T5008 not show the cost of what was sold (box 20)?

[TurboTaxJeffrey]

Box 20 on your T5008 will include the dividend reinvestments.

[TurboTaxJeffrey]

In the example I posted, the T5008 would have $1190 in box 20, and $1500 in box 21.

[steven-whitten]

T5008 show the full proceeds sold in Box 21 and box 20 is blank. There were some fees too, they are not shown

[TurboTaxJeffrey]

Do you know the cost?  If not contact your investment advisor and ask for the amount.  If you have the transaction records yourself and can calculate the cost you can enter that.  Just keep your records in case CRA asks.  Any fees on the purchases are also added to the cost.  Fees related to the sale (s) are recorded as outlays.

[steven-whitten]

Yes I have all the info, just thought that would be on the T5008 actually, which is why i asked the question int he first place - think something was wrong. Thanks for the clarification.