Tax Errors – Depending on the CRA for your information isn’t a good thing

Last year, I had two new clients come with copies of their past three years of tax returns. (It is my practice to review the prior three years to ensure that I am consistent with the previous years.)

This is part one of two – How depending on the CRA’s AutoFill Return can cause you to pay too much taxes!

In the review process, I was initially aware that:

  • The prior year’s return (Current year less one) was missing a claim for a credit on the return. The reason for this was that there was a claim in one part of the return that should be duplicated in a second part of the return, in certain cases. I was also aware that the return over-claimed a particular credit, using up that credit for the year that I would be filing.
  • The previous year’s return (Current year less two) was missing a reportable event, which has a penalty of $100 per month for every month that was not reported.
  • I did not have access to the taxpayer’s information at the CRA, to confirm that the information reported was correct, nor had the client provided the original source documents for this review, something which I recommend. (There was a valid reason for that.)

We did a review of my findings in person and my client authorized me to access the CRA’s records. Checking the CRA’s records, I was further able to determine that the client had duplicated tax slips and reported about $1,200 more income than they should have.

Results of this review:

  • We are correcting the previous year’s return to report the necessary event. Because we are filing the correction, we will apply for a waiver of the penalty. On approval by the CRA of that waiver, he will have saved about $1,800 of penalties.
  • We are correcting the prior year’s return, to report the correct income and claims. This is anticipated to result in additional monies of about $980 that he had overpaid.
  • We will claim the excess credit in the current year return, saving he an additional $200.

Lessons Learned:

  • Just because the CRA has the tax slips, it is important to know how to correctly report the information. The defaults that tax software downloads the slips isn’t necessary to your benefit, though it is safe.
  • Retail tax software does not always optimize the claims or cross-correlate claims across the entire return. As the software improves, this may change, but presently an individual who knows the rules can easily and significantly improve your position.

My client is very satisfied with the initial work that I have done and he is happy that he was referred to me. His comment was, “I wish I had come to you earlier!”

Information returns

The CRA opens for filing information returns on Monday, 7th January, 2019. These include T3, T4, T5 and NR-4 returns. Affected individuals include those with Trusts, Estates, Employees, pay interest or dividends, or who are a non-resident Landlord.

I have been contacting affected clients by email and by phone to get their information in. Please feel free to call me if you have not received any message yet.

These returns are due in the next month.

2018 Statistics

Here are some statistics for 2018, showing how hard I work for my clients. (Most people will not be interested, but I thought it was interesting.)

In 2018, I:

  • Received 986 Phone Calls for a total of 45.7 hours,
  • Placed 2,054 Phone Calls for a total of 135.6 hours,
  • Received 921 Text Messages,
  • Sent 799 Text Messages,
  • Sent or received a total of 7,234 emails,
  • Received or sent a total of 1,443 file transfers (more than one file can be in a transfer,)
  • Received or send a total of 61 faxes,
  • Received a total of 25 inquiries from this website, and
  • Sent 20 envelopes by Registered Mail.

Tax Instalments Due

Be advised that personal tax instalments are due on December 15, 2018. Any individual who received a request to pay personal instalments in August or September, needs to attend to this matter before the due date.

Claiming Cannabis on your personal tax return

A question raised was if the purchase of Cannabis from a retail or provincially regulated Cannabis retailer can be claimed on a personal tax return as a medical expense.

The short answer is no.

The claim for cannabis is made under Paragraph 118.2(2)(u) of the Income Tax Act. To qualify, the patient must be authorized under the Federal Acts and the purchase must be made from either Health Canada or other certain specified production licenses. The provincially regulated Cannabis retailers who opened on Oct 17, 2018 do not hold the licenses under that Paragraph so no purchases made from those locations will qualify.

It is entirely possible that the Act may be changed. But presently, this is what the law says.

If you find that the retail source is cheaper than the medical source, you may wish to consider if it is to your benefit to purchase from the retail source. If that is your choice, you must evaluate the lost benefits from any insurance claims which you will be entitled to as well as the impact on your tax return from no longer being able to make a medical claim for the same item. This evaluation is based on your personal circumstance and is beyond the scope of this article. You are welcome to engage my services to assist you with this, by using the Contact Me tab on your screen.