Confessions of a Tax Accountant

From the inception of my blog, I have written a weekly confessional during income tax season discussing interesting or contentious income tax and filing issues. This year I have abandoned the "confessions" as I figured I would probably just complain about the Foreign Reporting T1135 Form for six straight weeks – and I did not want to inflict this upon you. However, today for old time's sake, I will bring back the confessions for a guest appearance.

As usual, I only received about 40% of my client's tax returns before April 1st as they were waiting for their T3 and T5013 slips (by the way, the fact the T5013 essentially only has numerical  boxes with no written descriptions drives most accountants mad). For many of the returns that arrived before March 31st I did not even attempt to complete them because I knew there were additional tax slips to come. I must get 15 emails a day with the email header “opps, I just received another tax slip”. No one cares about this other than accountants who have to do all their work in a condensed three-week period, so I will stop the whining now. This is why I stopped with these confessions, it just provides me a license to grumble.

In all honesty, there have not been that many new issues this tax season. The same old issues are always there. For many accountants, the biggest issue is how much time they spend chasing down information and preparing the T1135 Form, let alone the additional cost to clients. However, one new issue that has arisen a few times this year, as result of the Family Tax Cut, is co-coordinating the family claim when spouses and/or common law spouses use different accountants, or one spouse prepares their return themselves. I write about this issue below.

An Accountant for each Spouse

Do you and your spouse have your tax returns prepared by different accountants or is one of you a do-it-yourselfer? If so, I suggest, (especially if your family can access the family tax cut) you reconsider this decision next year, as you may be missing out on some significant tax savings.

Spouses may choose to use separate accountants for some of the following reasons:

• secrecy

• a spouse may like to keep his/her finances separate (i.e. he/she only contributes to a joint account to pay household expenses)

• one of the spouses really likes his/her accountant and has a history with them and does not want to change accountants.

Using two accountants may result in either the family not utilizing all its tax credits and deductions or the more common issue, they duplicate claiming credits and deductions; which may cause the CRA to re-assess and/or request family information that is often time consuming to obtain and provide.

This year the possible dysfunction in using two accountants has been exacerbated with the family tax cut. Now, a decision must be made as to which spouse will make the claim and the claimant requires various tax information from their spouse that is not readily available to the accountant preparing the return.

In addition to the family tax cut, a couple will benefit from a single accountant preparing both returns in respect of these deductions and credits:

a) Child care expense

b) Child credits such as the fitness and arts credits

c) Medical expenses

d) Charitable donations

Furthermore, where you and your spouse have joint investment accounts and don’t use the same accountant, it is cumbersome to report split interest, dividend and capital gains income. In these cases, there is often either duplication in reporting income or one spouse misses reporting their ½ of their income entirely.

For the reasons I note above, let alone the extra tax preparation costs, I suggest you and your spouse or partner consider using the same accountant to effectively capitalize on the spousal and/or family benefits.

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.

An Executor’s Nightmare

This is my last blog post of 2013. I would like to wish my readers a Merry Christmas and/or Happy Holidays and a Happy New Year. See you in January.

An Executor’s Nightmare

What is an executor’s nightmare? How about becoming the executor of two estates at once! That is what could happen if your spouse passed away while administering his or her Uncle Charlie’s estate. If you are your spouse’s executor, not only will you have to administer your spouse’s estate, but you may have to assume the executorship of Uncle Charlie’s estate. All this, while mourning the loss of your spouse.

As extreme as this seems, if Uncle Charlie did not provide for an alternate executor in his will, then subsection 46(2) of Ontario's Trustee Act permits you, as your spouse’s "personal representative" to act as executor under Charlie's will.  (Note: This post discusses Ontario. I am not sure if the law is the same in each province).

However, if Uncle Charlie named an alternate executor in the event of the death of his executor (i.e. your spouse) and his will was drafted such that the alternate could step in and perform those duties, then you can step aside.

Katy Basi, an estate lawyer and frequent contributor to this blog says "It is critical to ensure that you have a series of alternate executors/trustees appointed in your will, especially if your will creates trusts which could continue for a number of years after your death. If your last named executor/trustee dies, and the administration of your estate is not complete, or trusts are still ongoing, then the "personal representative" of your deceased executor/trustee may take over. This person could be a stranger to you, but Ontario's Trustee Act can swing into action and make it so."

Katy also notes that you have the ability to renounce your acceptance as the successor executor for Uncle Charlie without court approval, as long as you have not started acting as executor of Uncle Charlie’s estate or “intermeddling” in any way in Charlie’s estate. If you had started to act, you would need court approval to resign.

Finally, Katy says that if there are no named alternates, and you renounce as successor executor, then effectively there is no named executor and someone would have to apply to the court to be appointed as "administrator" (similar to the case of an intestate estate). Family members usually have first priority, but the court has discretion and may appoint a trust company or other non-family member under special circumstances. The consent of the beneficiaries entitled to the majority of the estate remaining at that time is often required for the application to be acceptable to the court. The court will need to approve the application, and the applicant cannot act until they get this approval, usually in the form of a probate certificate naming the applicant as "Successor Estate Trustee".

What should become clear from today’s post are two things:

1. If you are informed you have been named an executor, ensure the person naming you as executor has alternate replacements in their will, and that the will permits these alternates to act not only if you are deceased, but also if you are unwilling or unable to perform your duties as executor.  

2. Ensure your own will has alternate replacement provisions drafted with similar care.

The above blog post is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice regarding any specific legal issues.

 

RRSP/RRIF Spousal Transfers on Death - Not so Automatic – Be Careful you don’t Create a Family War

Most people are aware that upon their death, their RRSP/RRIF can automatically transfer tax-free to their spouse’s RRSP/RRIF if their spouse is the beneficiary of their plan. The advantage of this spousal rollover is that the income tax on the value of the RRSP/RRIF is deferred until the surviving spouse passes away.

However, if the surviving spouse has other ideas and does not transfer the proceeds of the RRSP/RRIF to a plan of their own, the possibility exists that they could end up keeping the proceeds of the plan while leaving the related income tax liability to be paid by the deceased’s estate. While this can be an issue for any family, for blended families, this has the potential to ignite World War 3.

I recently attended the Ontario Tax Conference. The participants were lawyers and accountants, most of whom specialize in income tax. I know a room full of accountants and lawyers talking tax, what could be more torturous. However, there was actually a very outgoing and passionate presenter by the name of Christine Van Cauwenberghe of the Investors Group. 

Christine presented the technical details relating to this issue, from the mechanics of the “refund of premiums” to the administrative withholding requirements for financial institutions. But, in simple terms, this is what you need to understand.

When you designate your spouse as the beneficiary of your RRSP/RRIF, they will receive the proceeds of your RRSP/RRIF directly. It will then be his/her responsibility to transfer the entire proceeds to their RRSP/RRIF. If they do that, the bank issues the tax receipts in their name and there are no income tax consequences, end of story. 

However, your spouse has no legal obligation to transfer these funds to their RRSP/RRIF. In fact, where your spouse rather use the funds immediately, does not get along with your natural children or is from a second or third marriage and has his/her own children and/or does not get along with their step-children, they may decide to take the money themselves and not transfer the funds to their plan. In these circumstances, the tax receipt for the RRSP/RRIF will then be issued to the deceased’s estate. While the spouse may be held jointly and severally liable by the CRA for the related income tax, if the estate has enough assets, the CRA will typically go after the estate for the taxes, not the spouse.

In order to avoid this potential minefield, Christine suggests that you designate your estate as the beneficiary of your RRSP/RRIF, with a clause that provides two alternative options:

Option 1: The beneficiary (your spouse) chooses to elect with the executor(s) to have the RRSP/RRIF amount taxed in their own name as a refund of premiums. Under this option, the spouse receives the entire RRSP/RRIF proceeds and typically transfers the proceeds to their RRSP/RRIF and the estate assists in filing an election. The required election form is Form T2019, however, you would probably not want to name a specific form in the will, only that there is an option to elect.

Option 2: If the spouse does not agree to the joint election, then they are only entitled to an allocation of the RRSP/RRIF funds net of the associated income tax liability to be incurred by the estate.

A disadvantage of designating your estate as the beneficiary of your RRSP/RRIF is that the funds will be subject to probate in most provinces. Some people feel that the probate fees (1.5% of the value of the RRSP/RRIF in Ontario) are a relatively small cost in order to prevent the potentially disastrous result of your spouse taking the entire proceeds of your RRSP/RRIF and leaving the estate to pay the related income tax.

If your spouse and children do not get along, or you have a blended family, you may wish to review this issue with the lawyer who drafted your will.

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. Please note the blog post is time sensitive and subject to changes in legislation or law.