It’s Personal Tax Time – How to Get on Your Accountant’s Good Side

Many readers of this blog use accountants to prepare their personal income tax returns. You can take three approaches in working with your accountant. You can provide them with:

1. all the detailed information they request
   
   
2. most of the information, without overly exerting yourself
   
   
3. the minimum information, since you pay good fees

From a client perspective, all these approaches are reasonable to some degree. However, as a retired public accountant of 35 or so tax seasons, I suggest you lean towards approach number one, to the greatest extent you can.

I say this for two reasons. The first reason is simply the better organized you are, the more time your accountant can spend dealing with minimizing your taxes. The second reason is that many Canadians invest in mutual funds (T3 slip) and limited partnerships (T5013 slip). Both these investments have March 31st deadlines for issuing the T3’s and T5013’s, so clients often have to wait until late March and early April to receive their slips.

Consequently, your accountant’s workload has likely changed substantially over the last five to seven years, such that 45-60% of the client information comes in after say April 7th. In the good old days, that number was likely only 25-35%.

I am not expecting you to shed too many tears about your accountant’s working conditions given the fees you pay them. I am telling you this because the easier you make it for them to work on your return (rather than chase information), the better it is for you.

So, with the theme of be nice to your accountant, I list below some do's and don'ts for providing your tax season information to your accountant. 

I will start with the things you want to avoid doing.

Tax Season Don'ts

1. Do not hand your accountant all your tax slips in the original envelopes 
   
   
2. Do not send your accountant PDF’s of each tax slip as they arrive. If you prefer to use email or your accountant has a portal (in lieu of paper copies), try to send a first batch of as many initial slips as possible. Then make a list of what you think is missing (such as T3’s, T5013’s, straggler donation slips) and send a second batch all these slips. Once that is done, it is fine to send amended or straggler slips one by one 
   
   
3. Do not provide your prior years tax returns and tax slips to your accountant. All tax programs have prior year information carried forward if required and most accountants have paperless systems of prior years slips if a past tax slip is required for any reason 

Tax Season Do's

1. Provide your accountant any investment, capital gains and foreign reporting information provided by your investment advisor
   
   
2. Have your children download their tuition receipts from their University portal
   
   
3. Ensure your have official donation slips for all your donations. If you only have a confirmation of your payment from the internet, that is not an official receipt and you will need to request an official receipt from the organization. If you want to earn a gold star, summarize the donations for your accountant so they have a total to compare against their total. This is definitely more than expected, but it acts as an excellent check and balance, as I have had many variances over the years and a summary provides a quick way to see if the client’s total was off or the accountants total was off.
     
4. If you made a donation of marketable securities (see this blog for more detail), make a note for your accountant. This is something they will likely pick-up, but it can be missed sometimes as the notation on the donation slip is sometimes small or in a corner somewhere and easy to miss.
   
   
5. For any medical expenses, where possible get one summary receipt, such as for a chiropractor or physio etc. Some pharmacies also provide a yearly summary, so you don’t have to provide 34 individual receipts.  
   
   
6. Still with medical receipts, if you are audited by the CRA, they will want to see a medical receipt that reflects payment. I often received the invoice for medical purchases, but not an invoice reflecting payment. You may need to follow-up with the medical practitioner to request a paid receipt (again, if you have several expenses with the same practitioner, get them to do one summary receipt reflecting the services and reflecting payment for those services)
   
   
7. If you have a line of credit with the bank for investment purposes (especially for professionals to fund their capital entitlement), see if your banker can provide a simple summary letter on the financial institution’s letterhead of the total interest expense for 2022
   
   
8.  If you have rental income, summarize your rental income and expenses for the year. Also provide any invoices for any large repair bills so your accountant can determine whether the expense is currently deductible or must be capitalized.
   
   
9. If you sold your home in 2022, provide your accountant the sale information. Also provide the date you purchased your home and the original cost information (although it may not be needed depending upon the circumstances). The above information must be reported to claim the principal residence exemption, or the exemption may be denied, or a substantial penalty levied.
   
   
10. Let your accountant know if anyone in your family has become a non-resident in the current year.
    
    
11. Review your return before it is filed. You know your affairs better than anyone. Do a quick overview of your return to ensure what you expect to be reported and deducted has been reflected accurately. In most cases everything will check-out, but sometimes things are missed or when reviewing your return, you realize you forgot to inform your accountant about some income or deduction for the year.

The above information will cover off much of your return. Many accountants make this easier by providing a checklist for you to organize your tax information. 

While all this organizing may seem like a lot of work when you are paying someone to prepare your return, you want those dollars spent having your accountant working on minimizing your taxes, not chasing down information.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Tax Tweets of the Day for the Week Ending February 1, 2013

My twitter tax tips for this week are listed below. Nothing too fancy there, I like next week’s better. However, I’ve added a couple quick comments to the tips below.

Tips for Week of January 26- February 1,2013

University/College students must print their T2202a tuition forms issued by their school to claim or transfer #tuition credits. #blunttaxtip

Note: University students are notorious for not printing out their T2202a tuition forms and holding up the filing of their parent’s tax returns. These forms are sent by the Universities and Colleges to their student’s portals typically in the next week or two. Please remind, or in my case, harass your kids to print out the form and email it to you.

Ensure your children’s activity receipts are marked paid in full to claim fitness/arts credits. #blunttaxtip

Obtain capital loss, HBP, #RRSP & #TFSA limit info from your online CRA acct. or 2011 tax assessment. #blunttaxtip

Note: It is very important to ensure you have updated carry forward information for your capital losses. You want to ensure you claim the maximum amount of capital losses carryforward against any current year gains.

If you have self-employment or rental income, summarize the income & #expenses now, so you’re not rushed/miss expenses. #blunttaxtip

If you moved to a new work location in 2012 >40km away, gather & summarize your receipts to support the claim. #blunttaxtip http://bit.ly/XEZqmQ

Note: If you moved to a new job this year, it is very important to gather all your receipts for any expenses you incurred and summarize as required by the CRA. See the link above and the form T1-M to understand what expenses are eligible and how the CRA wants these expenses aggregated.

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.

Is Personal Income Tax Planning a Fallacy for most Canadians?

As a tax accountant, I could make your head spin with all the income tax planning machinations I can undertake for corporate income tax clients in the correct circumstances.

But what about personal income tax planning? In my opinion, for the average middle class Canadian, personal income tax planning is almost a fallacy. Surprisingly, probably to most, personal income tax planning for higher income earning Canadians is also somewhat restricted. However, there are greater planning opportunities available that I discuss below.

I understand the "middle class" has stratified over the years and is not easily definable; but for purposes of this post, I will define middle class as a family, with either one or both spouses earning T4 employment income with a family income between $70,000 to $100,000, with no self-employment income (self-employment provides for some tax planning opportunities).

To be clear, I don’t consider the maximization of personal and family credits, medical expenses credits or charitable tax credits, etc. as tax planning. Although there can be some planning involved, the reality is that in most cases if you purchase an income tax software program, these credits will be maximized automatically for you.

Why do I say income tax planning is a fallacy for the average person? Because other than purchasing a RRSP, for all intents and purposes, there are no significant planning opportunities. Really, think about it. I am sure you have already read several income tax planning tip columns in your favourite newspaper this year; what was the best tip you read? That you can claim your safety deposit box fee? For those who incur employment expenses, maybe you can claim some employee expenses such as your car on your return. 

Even as I review a tax tips column I wrote for Jim Yih’s Retire Happy Blog last year, I am struck by how limited income tax planning is for the average person.

For all you socialists out there, I will tell you that as usual, higher income and higher net worth people do have some personal income tax planning opportunities. But, compared to the planning possibilities my corporate clients have, they are still very limited in nature.

Some personal income tax planning opportunities available to higher income Canadians (and in some cases middle income earners) include:

Income Splitting- For example, the use of a prescribed loan.

Capital loss utilization- See the 3rd paragraph from the bottom of this blog post on transferring capital losses to a spouse.           

Rental Properties – For those with enough disposable income to purchase a rental property, I discuss the income tax implications of purchasing a rental property in this blog post.  

Flow Through Shares- Higher income Canadians often purchase Flow Through Shares to reduce their income tax liability. I discuss this opportunity in this blog post.

Interest deductibility- In this blog post I briefly discuss how to mitigate your income tax exposure when claiming investment interest.

This post is not like an April fool’s joke where you reach the bottom and I provide you with ten great personal income tax planning tips. Unfortunately, all I can tell you is that for most Canadians, the personal tax planning joke is on you.

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.

Purchasing a vacation property in the United States: Lifestyle vs. Bargain?

The Toronto Star’s Moneyville section recently had two stories on purchasing property in the U.S., the first by Roberta Avery who purchased a home in Sedona, Arizona and the second by Alison Griffiths who purchased a farm in Florida.

I found the articles interesting, as like many Canadians, my wife and I have bandied around the idea of looking for a U.S. property while the prices are seemingly low and there are distress sales. We have also had this discussion with several friends who are also considering purchasing a U.S. vacation property.

Although professionally I know of several people who have purchased U.S. properties, some of whom have bought multiple properties as pure investments, interestingly, only one of my friends has followed through with a U.S. purchase. That is not to say the Avery's and Griffith's have not made the best investment and/or personal home buying decision of their lives, it is just in my personal circumstances, it is still not the time to buy a retirement property.

My reasoning is twofold. The U.S. property taxes for Canadians are typically very substantial and taken together with the other carrying costs such as management fees, interest, insurance and utilities, my budget estimates put me in the red several thousand dollars a year, even if I could rent the property a month or two. With the glut of homes for rent in Florida and Arizona, I am not sure how much rental income one can count on in the near future. In addition, I would prefer to not have to deal with the IRS and file a U.S. income tax return every year, although that is not a deterrent on its own.

The second reason, and the more important reason, is that I have several places in the world I intend to visit over the next fifteen or so years, including Africa, Australia, the Baltic, Greenland and Bora Bora. My wife and I feel that if we purchase a U.S. vacation property now, we would feel beholden to using that property and we want to be free of any real estate shackles.

Alternatively, we could just look at a U.S. vacation property purchase solely as an investment, working with the assumption the property will increase in value greater the the yearly excess carrying costs. I have not ruled out that possibility yet.

I would be interested to know if the Avery’s and Griffiths’ plan to travel the world in addition to carrying these properties? It sounds like both these couples are happy to spend their time in their dream homes. I guess it’s different strokes for different folks, with future travel plans and lifestyle a determining factor.

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.