Monday, April 22, 2013

Confessions of a Tax Accountant -2013- Week 4

This is my last confession for this income tax season. I am now deep in the tax trenches and really looking forward to May 1st. A final reminder, please file your income tax return on time to avoid the 5% late-filing penalty.

This week I discuss the following:
  • Why don't I listen to my own advice?
  • A magic act - how some people make a dividend disappear?
  • The gap in service levels between investment advisors with respect to capital gain reporting.
  • Donations made to U.S. charitable organizations and the related limitations.

Do as I Say, Not as I Do

It is funny how we often ignore the advice we provide to others. I have been thinking about this the last couple weeks as I have been inundated with personal tax returns and the related emails, phone calls, couriers etc. My failure to heed my own advice can be traced back to my November, 2012 blog post on The Income Tax Cost of Working Overtime. In that post I stated that you have no reason to decline new clients or new work based on not wanting to enter a higher tax bracket. However, I went on to say that there are times when work should be turned down.

Those times may include the following:
  1. You have so much work that you are overwhelmed and if you take on the new client/customer your service or product will be sub-par and your reputation will suffer. 
  2. You are working so hard that your family life or health is suffering. In this case the extra dollars may cost you something more important than money.
As I thought about this blog post, I realized I have not listened to my own advice. The nature of tax return preparation has changed in the last 5 years. The late issuance of T3's and T5013's have condensed income tax season into a hellish 3-4 week period, instead of a 6-8 week period. As I contemplated this change, it hit me that I am now compromising my own health and/or taking years of my life. So I am making a public vow that I will be making significant changes to my work environment next year.

Disappearing Dividend Income

It is "cool" to be a dividend investor. Whether you are a do it yourself ("DIY") investor or you are like many of my clients who have investment advisors or private investment firms handling their investments, maximizing dividend income seems to be the "in" thing. The issue is that many of these dividends seem to disappear without a trace and I am often called in to assist in locating the ever elusive dividend.

Inspector Goodfield is called upon when the current year's dividend income on a 2012 return is less than last year's dividend income. I am asked, "Where could these dividends have gone?" Well, there are typically three reasons a dividend can go "poof".

  1. The first reason is one or two of the companies in your investment portfolio have cut their dividend payouts. 
  2. The second is you are missing a T5 or T3 slip.
  3. The most common reason for a decrease in dividends is ...... take a guess?.... Yes, it is not reporting the sale of the dividend yielding stock. Now I am not saying this is an overt attempt at tax evasion, it is just that many people sell stocks early in the year and forget they sold them or just do not properly track their capital gains and losses.

So if you filed your return with lower dividend income than last year or have not yet filed, you should always confirm that any decrease in dividend income reported year over year is the result of a dividend cut or missing T-slip and if not, review your sale transactions for the year.

Investment Advisor Chasm

In last years Confession of a Tax Accountant Week 6 I wrote about the varying quality of assistance investment advisors provide in respect of capital gain/loss reporting and the fact that some advisors feel it is the accountant's responsibility to track the adjusted cost base ("ACB") of all their clients' holdings, a contention almost all accountants dispute. Two weeks ago I discussed an offshoot of this topic, the poor reporting of flow through shares. This week I once again pick on investment advisors and their financial institutions for poor capital gain/loss reporting.

In the last couple weeks I have experienced some terrible capital gain/loss reporting by client's advisors and/or their institutions. I have had up to 75 trades missed, non-reporting on accounts closed during the year, situations where I had to inform the advisor of all the clients accounts for which I expected capital gain/loss reports and huge adjusted cost base variances where advisors moved firms during the year (In these cases I expect the greatest of care and diligence since the cost base of investments often get lost or not carried forward properly on the transition to a new firm).

Being the BBC and not having the greatest patience even at the best of times, I have been less than subtle when expressing my displeasure in respect of this misreporting. However, to my surprise, my client's have been unfazed, they just say "aren't all investment advisors pretty much the same?" I confidently answer no.

For example, an advisor who works for several of my clients reconciles each clients expected interest, dividend, capital gain income and their expected interest expense and management fees. Others are constantly asking if there is anything they can do to help. So the answer is definitely no, all investment advisors are not the same.

Obviously an advisor can be administratively strong but very weak from an investment advice perspective or visa versa. But I would suggest that they very often go hand in hand and if your advisor is not providing the proper level of service either administratively or investment advice wise, you should put them notice or consider finding an advisor who will make you a priority.

U.S. Donations


With our close proximity to the United States, many Canadians make donations to U.S. charitable organizations. While I always applaud charity, you may want to consider that for income tax purposes, U.S donations (except for certain Universities and specific exceptions) are not included together with your Canadian donations, but are treated separately and are subject to separate rules. Like Canadian donations, U.S. donations are subject to an overall limitation of 75% of your net income, however, that limitation is based on U.S. source income.

In plain English, if you made a $200 donation to a U.S. organization, you must have $266 in U.S. source income to claim the $200 ($266 x.75). If you have no U.S. source income the donation is wasted, although it can be carried forward for five years.

Thus, before you donate to a U.S. cause, you may want to consider whether you are willing to forgo the income tax credit you would receive on a donation to a similar Canadian organization. If not, consider making the donation to the Canadian organization.

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.


  1. While expecting an accountant to calculate the ACB may be a bit burdensome, as a life insurance advisor I frequently defer decisions/calculations to my clients' accountants. Or as I like to put it,"do I look like an accountant to you?".

    Calculating the future value of someone's business or cottage, even expected taxes upon death, these are all things that a client's accountant is going to have much deeper knowledge of than their life insurance advisor. And that's both from a familiarity with the client's information AND the basic background knowledge on the topic.

    Frankly, too many advisors in the financial sector try to be everything - including pretending to be lawyers and accountants. While I might have a working knowledge of things like business taxes, wills, etc, a consumer is better served by speaking to a real expert on the subject rather than a self-taught expert like their financial advisor. And every time I send my clients to their accountants, their accountants are happy that I've done so.

    I've also seen this in reverse - a lawyer directly contradicted my advice on life insurance product. Their advice appeared to be based on reading on the internet, which was generally true but copmletely wrong in the specific case. Which is a good example of why I don't play lawyer - I could be generally right but still specifically, completely wrong.

    1. Glenn, I agree that for decisions such as the business or cottage I would expect you to defer to me. However,if my decsion involved the ACB of an insurance policy, I would expect you to obtain that info for me from the insurance co. If you were setting up a policy, I would not expect you to recreate my financial statements.

      Investment advisors make the trades, issue monthly statements and in many cases are paid substantial fees for their advice and administration. To expect accountants to track the acb for hundreds of cliens who have thousands of trades during tax season when we cant even breathe is ridiculous. It is bad enough we need to spend hours upon hours fixing obvious errors. If I was an investment advisor for many of my clients who have hign net worths, I would scan or have my assistants scan all cap gains reports for any obvious ommissions of ACB's or flow throughs etc.before I issued them. But hey thats me, but if your an advisor for my clients and issue me crap, I make sure my client is aware, so I would suggest for any investment advisor, be aware, it is not good business to "piss of" (pardon my french) your client's accountant.

  2. And as you can see from my comments, I also don't act as an spelling teacher either :).

  3. Is there a chance that a PBS station would fall under the definition of a 'charitable' organization existing on donations ??

    1. I am pretty sure PBS donations get caught under the US rules and to deduct, you need US source income.