Introduction to Reporting (Regulatory & Operational & Management)

In Canadian market, banks will require the Reporting functionality to report to the Canada Revenue Agency (CRA). Tax shelter is a commonly used investment product in Canada with tax advantages. When a client invests in a tax shelter product, he receives a tax deduction from the government. There are two phases during the lifecycle of a tax shelter product; in the first phase, the client opens a Registered Retirement Saving Plan (RRSP) and starts contributing to the plan. At each year end the client should declare to the government the contributions made during the year to get the tax deductions. These business requirements and scenarios are now being reproduced in the Temenos Transact.

The key requirements for the Canadian banks are:

• The bank should be able to deliver slips for contributions made by the client and generate slips for all contributions to the government.
• The client may withdraw an amount for different reasons from an RRSP plan and in some cases he has to pay taxes on the withdrawal amount.
• When the client reaches the age of retirement the RRSP plan becomes a Registered Retirement Income Fund plan (RRIF) and the client starts receiving payments from his RRIF plan. The minimum payment that a client can receive from a RRIF plan is calculated by a government formula based on client age and value of the plan. If the client wants to receive more amounts he has to pay taxes on the excess amount.
• The client has to declare all withdrawals made to an RRSP or RRIF plan to the government at year end when he fills his income tax forms.
• For withdrawals made to an RRSP or RRIF plan, the bank delivers T4RRSP or T4RRIF slips to the client and XML files to the government.
• For non-resident clients the bank delivers NR4 slips; and for clients residing in Quebec province, the bank delivers RELEVE2 (R2) slips in addition to T4RRSP and T4RRIF slips.
• Tax Free Savings Accounts (TFSA) is a new type of registered savings plan or account that was announced during the 2008 Canadian Federal Budget.
• These accounts will allow tax-payers to earn investment income tax-free within the account. Contributions are not tax deductible. Withdrawals and interest earned are not taxable.
• Client residing in Quebec province the bank delivers RELEVE1 (R1) slips for income on broker commission.
• This document covers the explanations of how to produce Contribution Receipts, extract Tax slips like T5, NR4, T4RIF, T4RSP, T550-New Contract listing, R1, R2, R3 and TSFA transaction data for a taxation year from Temenos Transact application and produce a XML file which can be sent to Canada Revenue Agency (CRA).
• CRA requires Financial Institutions to assess interest income on non-registered products annually for inclusion in a T5 and/or a NR4 tax slip.

Interest accrual reporting:

Banks offer investment products with yields associated with market indexes. These products are known as Index Linked Term Deposits (ILTD) and they are offered during six sales periods per year. Each sales period ends on a predetermined day at which time no further sales or funds can be made for that issue of product. Interest is earned during this period time and added to the principal for the ILTD prior to the Issue (Strike) Date. The interest earned during the same period must be reported as interest income for the current taxation year for CRA T5 purposes.

Banks offer two variations of ILTD products: Market Sure and Market Stretch.

The Market Sure products have a minimum Guaranteed Rate of Return that is compounded annually. The accrued interest as of the anniversary date is subject to CRA T5 reporting requirements. At maturity, a Final Rate of Return is provided and applied to the term deposit effective on the term’s strike date. All interest is paid at maturity at the applied rate (subject to a minimum guaranteed rate and a maximum rate – if any applicable) The income has to be reported to CRA subtracting any income already reported for the same term in previous fiscal years from the total amount paid to the member.

The Market Stretch products have no minimum Guaranteed Rate of Return so accruing and reporting interest income annually during the term of the product is not applicable. A final rate will also be applied based on Desjardins guidelines effective on the term’s strike date and the interest will be paid at maturity. In this case, all the income will be reported on the current fiscal year.

Applicable for banks:

Customer information on CRA slips depends on the beneficial owners of the accounts, hence in order to define the customer as beneficial owners, below feature should be done.

Based on the configuration in the core application AA.CUSTOMER.ROLE>Beneficial Owner field, roles as Beneficial Owner. Hence any customer attached to arrangement with role where beneficial owner field marked as Yes will be treated as owners for CRA reporting purpose.

Click here to understand the terms and abbreviations used in this functionality.