Traditionally, I have the largest intake of personal income tax returns the second week of April and this year was no different. This influx in returns is because clients feel they have received all their T-slips and they can finally provide me a complete set of income tax forms and related materials. Notwithstanding that expectation, clients are still receiving T5013 slips and the dreaded amended T3 slip. I am now telling clients that I cannot keep fixing returns for delinquent slips and though no fault of theirs, I am no longer re-running returns to account for a late or amended T-slip (I will just file a T1 adjustment in May).
The T1135 foreign reporting form is still wreaking havoc, but I will not whine again about this ridiculous form. This week I will briefly discuss how clients often neglect to tell us or provide information on self-employment business start-up expenses and capital losses and why it is in their best interests to do so.
I frequently find out a client has started a new business during the year, yet they have not provided me any of their expenses. The clients' thought process is; since they have had little or no income, the expenses are not deductible (no reasonable expectation of profit), or they think they will hold the expenses to claim next year.
As you may or may not know, the "old school" reasonable expectation of profit (“REOP”) doctrine was dropped by the CRA a few years ago after they lost several cases. Essentially if an activity is commercial in nature and does not have a personal element, there is no REOP test and the expenses are deductible.
Consequently, any start-up costs should be deducted in the first year (capital items must be depreciated) even if you have no self-employment income, as these expenses can offset your employment and other income.
I have also found that clients who have capital losses sometimes do not provide the loss information, thinking it is useless if they don’t have capital gains in that year or that they will provide this information in a subsequent year when they have capital gains.
However, capital losses should be reported in the year they are incurred for two reasons:
1. If you do not report them, there is a good chance you will forget to report them in a subsequent year;
2. Capital losses can be carried forward indefinitely to be used against capital gains. Thus, there is no downside to start the clock ticking and you ensure the capital losses will not be missed or forgotten in a future year.
I have noticed that some T3s report management fees in the footnote box on the right hand side of the T3. It is easy to miss, so be careful to check that box, as these fees are deductible.
The T1135 foreign reporting form is still wreaking havoc, but I will not whine again about this ridiculous form. This week I will briefly discuss how clients often neglect to tell us or provide information on self-employment business start-up expenses and capital losses and why it is in their best interests to do so.
Self-Employment Start-up Costs
I frequently find out a client has started a new business during the year, yet they have not provided me any of their expenses. The clients' thought process is; since they have had little or no income, the expenses are not deductible (no reasonable expectation of profit), or they think they will hold the expenses to claim next year.
As you may or may not know, the "old school" reasonable expectation of profit (“REOP”) doctrine was dropped by the CRA a few years ago after they lost several cases. Essentially if an activity is commercial in nature and does not have a personal element, there is no REOP test and the expenses are deductible.
Consequently, any start-up costs should be deducted in the first year (capital items must be depreciated) even if you have no self-employment income, as these expenses can offset your employment and other income.
Capital Losses
I have also found that clients who have capital losses sometimes do not provide the loss information, thinking it is useless if they don’t have capital gains in that year or that they will provide this information in a subsequent year when they have capital gains.
1. If you do not report them, there is a good chance you will forget to report them in a subsequent year;
2. Capital losses can be carried forward indefinitely to be used against capital gains. Thus, there is no downside to start the clock ticking and you ensure the capital losses will not be missed or forgotten in a future year.
Management Fees – T3s
I have noticed that some T3s report management fees in the footnote box on the right hand side of the T3. It is easy to miss, so be careful to check that box, as these fees are deductible.
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