Last month, I had a couple referred to me by a financial support services company. The company provides financial services to employees of their client, but have realized that their knowledge is in financial services, not taxes, so refer tax issues to me.

The couple had been reassessed for the prior year (that is, 2017) by the CRA for missing income and asked support services if this was normal. Support services took one look at the returns and referred the couple to me. Which was good for the couple.

Not only was the prior year reassessed, but the previous year was also reassessed, AND the current return (2018) was heading into the same problem.

I spent 2.5 hours with the couple, going over the returns in person, explaining what was happening and what I was seeing and what fixes that I could see. (While I could detail the problems here, the end result was that the returns were wrong.)

A few days later, we had a chat by phone, and they will be coming in to sign the corrections later this week. Yes, they owe a large amount, but the fixes that I have put into place finish the problems. Both 2017 and 2018 was fixed, and the final bill would be slightly less than the bill for 2017 as prepared by the CRA. We agreed not to touch the 2016 as the changes didn’t warrant touching.

As I explained to them, if you had owed the amount at the beginning when you filed, you would have been happy. The only reason that you are unhappy is because you found out the problem two years later. And, while everyone likes a refund, what they really want is no problems.

A correct tax return, even if you owe, is better than one that causes grief.

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 two of two – How ignoring the information available from the CRA  can result in an incorrect return!

For this case, I was specifically asked to check out two years of returns filed by the previous person. I cross-checked the returns against the partner’s information as well as against the CRA’s records.

During this process, it was clear that the person who prepared the returns disconnected the two returns and only accessed the information provided by the taxpayers. This resulted in:

1. About 16 tax slips not being declared on the tax returns,
2. About $10,000 of deductions being ignored on tax returns,
3. About $10,0000 of expenses that were not reported on the matching returns, and
4. An invalid claim for Tuition Credits transferred from a minor child.

The client has been charged about $15,000 more taxes and penalties than was necessary. Her correct return would have had a balance due that is less than $100.

We are still working with the CRA to fix these errors.

Lessons Learned:

• In my previous lesson, I talked about duplicating downloaded information. In this case, no download was performed and she had to pay amounts which were completely unnecessary.
• It is vital that you cross-check information from one part to another.

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 him 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!”

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.