My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Friday, March 11, 2011

Confessions of a Tax Accountant - Week Two- T1 Adjustments for Statute Barred Years

As of today, I have received less then 10% (21 returns) of the client income tax returns I will prepare.The returns submitted thus far are typically my less complex returns and have only a few slips such as T4’s, T5’s, RRSPs and maybe some stock trading or a rental property or two. These returns can be filed without waiting for additional slips. As the majority of my returns require T3's and T5013's, I will not be seeing most of my returns for at least a couple weeks.

I do not have much to report income tax issue wise this week, but I did receive a notice of re-assessment for a client that brings up an interesting filing issue if you have missed claiming income tax deductions or credits in prior years.

T1 Adjustments For Statute Barred Years

In years gone by, if a client wanted to adjust their personal income tax return for a missed deduction or credit for multiple years, or more then three years after they had been initially assessed, the Canada Revenue Agency (“CRA”) would typically deny such a request, since the tax returns were statute barred. Such adjustment requests were often made for disability credits not claimed, medical and donation receipts not claimed and interest expense not deducted amongst various other reasons.

However, as a result of the “Fairness” legislation, the CRA is now allowing most requests that cover multiple years. The following is what is typically printed by the CRA on the re-assessment notice for one of these adjustment requests.

“As you requested, we have adjusted your return. In the past, you had to make such a request within three years of the date we mailed you the “Notice of Assessment” for that return. However, the taxpayer relief provisions of the “Income Tax Act” allow us to make adjustments beyond the usual three year period. Since we allowed you an adjustment under these provisions, you cannot file a notice of objection regarding this reassessment.”

Since in almost all cases you are asking for a refund from CRA, the fact you cannot file a notice of objection is typically a moot point and a small concession especially in comparison to the fact the CRA will probably accept your multi-year adjustment request.

If you or anyone you know has missed claiming a deduction or claiming a credit on a return assessed over three years ago, you should consider preparing a T1 Adjustment Request, since in most cases it will now be accepted.

[Bloggers Note: In my Confessions of a Tax Accountant blogs, I will discuss real income tax issues that arise, but embellish or slightly change facts to protect the innocent, as the saying goes.]

NHL- Just Act With Some Common Sense

The hit by Zdeno Chara on Tuesday night against Max Pacioretty was a vicious hit. In my opinion, in real time, it appeared to be what is commonly known as a “hockey play”. However, whether it was or was not a hockey play is irrelevant and the result was horrific.

Since the players obviously will not police themselves or respect their own, the NHL should take two simple steps to clean up the head-shot and icing mess. If I was in charge of the NHL, I would implement two simple rules:

  1. Automatic icing. There are 3 plays out of a 100 where an offensive player actually wins the puck, so why risk the head and "lower & upper body" injuries that often occur on chases to the puck on icing plays.
  2. Automatic suspensions on any hit to the head or any hit that causes an injury to the head, whether it appears intentional or not. Ten games the first time (with leeway to increase it if circumstances dictate such), twenty five the second offence (with upward adjustment leeway) and a years suspension the third time a player goes for the head of an opposition player.
There, nice and simple, no discretion other then to increase suspensions. What’s so hard?

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

6 comments:

  1. If you're looking for topics for future posts, here's an idea related to this one. (As you may guess, it's a self-serving idea because I'm trying to work out the answer myself.)

    During 2010 my wife received 'top-up' payments from her employer while she was on mat. leave. Income tax was paid on these payments. She is allowed to take 5 yr. off work (unpaid) to continue caring for our child. However, she still 'owes' her employer 1 yr. of service. If she decides not to return after the 5 yr. leave, then we will need to repay the 'top-up' payments.

    It seems to me that if we've repaid the payments, then we should also be able to recover the income tax that was paid. However, the return will be 5 years old at that point; are there different rules for this case?

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  2. Hi AE

    See this link from CRA (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/menu-eng.html) second paragraph from bottom, says you can deduct salary or wages included in income in a prior year and repaid. I think this applies to your situation, but I dont have the exact details.

    Your issue could be this is not an ammendment to a prior year, but a current year tax deduction with a 3 year carryback. If your wife has no income in the year of repayment or the 3 prior years, you could get stuck with a loss carryforward or even if you can carryback the deduction, a refund of taxes at a lower rate then paid.

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  3. That is an interesting approach, I'll look into it more. I had only been considering it as an ammendment, but now you've given me some more ideas. Thanks!

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  4. This post is appropriate for business men in tax planning.this post is very helpful and useful for tax consulting of business men.
    Thanks and good luck...........
    Tax Accountants in London

    ReplyDelete
  5. CRA rejected our request to adjust 2008 tax return for "elected split-pension amount" due to statute-barred return. (We cannot process the required debit reassessment to another individual's statute-barred return.)

    They did accept our adjustments for 2009 and 2010 tax years. 2008 tax year will be another $1,500 refund for us. Is there an appeal procedure I can follow? Hope you can help us.

    Thanks

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    Replies
    1. Anon, where we have requested adjustments (for issues such as disability claims)for statute barred years, my clients have typically received the following response on their notices of reassessments

      "As you requested, we have adjusted your return. In the past, you had to make such a request within three years of the date we mailed you the “Notice of Assessment” for that return. However, the taxpayer relief provisions ("fairness" of the “Income Tax Act” allow us to make adjustments beyond the usual three year period.

      Thus, I am a little surprised the CRA did not allow the 2008 adjustment, even though it was statute barred. You could try the fairness process, but i would not hold out much hope.

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