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!”