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.

Should I pay for my child’s university education?

Numbers are typically the focus of retirement planning. Will I have enough of a nest egg to support myself? When do I withdraw my retirement savings? Should I start receiving my Canada Pension Plan benefit early, before turning 65? These questions are easily answered by an advisor — preferably one who is good with financial planning software.

But advisors and clients often overlook the softer side of retirement planning, where human relationships and feelings come into play. One common issue on this front is adult children and their continued financial dependence on their parents – especially when deciding how to pay for a child’s post-secondary education.

This week BDO Canada LLP senior wealth advisor Carmen McHale explains why this common dynamic can be so fraught from both an emotional and financial point of view – and how to tackle it.

_________

By Carmen McHale

Most parents I work with have a hard time saying no to their children – their car payments and cellphone bills are covered by Mom and Dad well after the children are working and bringing in their own money. Parents pay for the wedding, help with the down payment on the house, pay for the master’s degree that never seems to end. They often ask: Should I keep my kids on the family payroll?

A recent survey by FP Canada found that more than a third of Canadian parents with children 18 or older have helped their children pay their rent.

The problem with this is twofold: first, your kids do not learn responsibility and are unable to budget for themselves because they have never learned the value of a dollar. The other problem can be much serious – you have spent so much money on your kids that you have put your own retirement in jeopardy.

As an example: The same FP Canada study reports that while less than 10% of parents with older children have used retirement funds to help them purchase a home, almost 40% of parents with children under 18 expect to postpone retirement to help their children purchase a home.

A report from Merrill Lynch also has some stark data points for parents to review. The study found that parents are spending twice as much on their adult children as they are putting away for retirement. Overall, it said, 79% of parents continue to give money to their adult children age 18 to 34.

What about the master’s degree? Most parents I work with want to pay for their children’s education, but covering costs for more than the four years of undergraduate studies is another story.

Multiple children, multiple tuition bills

I frequently run across a situation like this: the oldest child has just finished a seven-year post-secondary program and now the younger sibling wants to go to dental school (which would bring to eight the tally of years in school after graduating high school). I will assume for purposes of this discussion that any RESPs will be used for undergraduate or have been exhausted already.

Couples are often not prepared for these expenses, and now there is a dilemma. They have already covered all expenses for their first child, which could be upwards of $350,000 including living expenses (yes, $50,000 per year for seven years). Parents often feel guilty if they don’t treat their kids equally – what if they can’t afford the second child’s education? They have already paid the full way for the sibling. What does the couple do? They will be delaying their retirement by several years by funding the full bill. Will Mom and Dad have to delay their retirement? Even with this knowledge, they feel they are in a situation where it is too late to change course – family harmony is at stake.

Parents can handle this type of situation in a few ways. Sometimes they can guarantee loans for the dental school costs for the child. They can also equalize the extra school costs in their will or by reducing their financial assistance for the first child in other areas – like their wedding or house purchase.

Two overarching rules will ease the challenge. First of all, plan your approach in advance. And second, commit your resources responsibly. There is nothing wrong with pitching in to help our kids financially as they move through key stages in their life. Housing costs continue to rise, especially in many urban areas, and some courses of studies end up burdening students with significant debt loads. But parents also need to reality-check their financial support – and make sure it won’t put their own retirement at risk.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Getting Organized to File Your 2013 Personal Tax Return

Following my six-part Retirement series, I have no energy left to put together any original thoughts. So, I am going to provide you a summary of the Twitter Tax Tips I posted last year to help you get organized for tax season. I will provide a similar summary for tax preparation tips in the next week or so.

Organizing Tips

1. Make a checklist of all the tax slips you expect to receive this year and follow-up any missing slips, no matter how small. This will help you avoid a 20% penalty when the CRA matches your tax slips next fall.

2. Medical expenses must evidence payment. Have the pharmacy, dentist, orthodontist, chiropractor, etc. provide you with a yearly summary receipt so you don't have to find the twenty different chiropractor receipts you had during 2013.

3. For each donation you made online, ensure you receive or request an official tax receipt. The online confirmations are not official receipts. To clarify; when you donate online, you receive a payment confirmation receipt (this confirmation receipt is not an official receipt) and often, a notice that the official receipt will be sent separately or must be downloaded. Many clients provide me the payment confirmation receipts and do not download the official receipt or request such.

4. If you incur expenses to earn employment income, request a signed Form T2200 from your employer.

5. University/College students must print their T2202a tuition forms issued by their school to claim or transfer tuition credits. 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. Please remind, or in my case, harass your kids to print out the form and email it to you.

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

7. Obtain capital loss, HBP, RRSP & TFSA limit info from your online CRA acct. or your 2012 tax assessment. 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 (it was a good year for the stock market, hopefully you had large gains, whether realized or not).

8. If you have self-employment or rental income, summarize the income & expenses now, so you’re not rushed and miss claiming expenses.

9. If you moved to a new work location in 2013 >40km away, gather & summarize your receipts to support the claim. 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 form T1-M to understand what expenses are eligible and how the CRA wants these expenses aggregated.

10. If you use an accountant, send your information to them as early as possible, they will be very appreciative and have more time to review your return.

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.

Private Corporations - Using a Family Trust to Fund University Costs

I have discussed the use of a family trust in two prior blogs – Introducing a Family Trust as a Shareholder in a Private Corporation and Should Your Corporation’s Shareholder be a Holding Company or a Family Trust?

Today, I have a back to school blog post on using family trusts to fund your child's University education where one of the shareholders of your private corporation is already a family trust or you plan to introduce a family trust as a shareholder.

I know that many readers of this blog do not have private corporations. I apologize in advance for the restricted nature of this blog post. But, this is a case where those who operate through a corporate entity have a significant income tax planning advantage. As I noted in this blog post, personal income tax planning is a fallacy for most Canadians.


I don’t have to tell anyone that raising children is expensive. One of the largest expenses is education. For purposes of this blog post, I will ignore whether you feel as a parent your child should pay for some or all of their post-secondary education and assume you intend to pay for as much of that education as possible.

Most parents at a minimum utilize a Registered Education Savings Plan (“RESP”) to help fund their children’s educations. RESPs are excellent educational funding vehicles. The government provides grants, investment returns grow tax-free and the investment income is taxed in your child’s hands, when they eventually use the funds for post-secondary education purposes (typically resulting in minimal income tax).

However, in many cases, parents do not have the funds available to contribute to an RESP on a yearly basis, or, where they have large families or children pursue lengthy and/or multiple degrees, an RESP may be inadequate to fund all their children’s educational needs. A family trust can be utilized to either fully fund your children's education or to fill the "funding gap".

Family trusts are typically either introduced upon incorporation, where the family trust subscribes for the initial common shares issued by the corporation, or at a later date (usually as part of an estate freeze) where a family trust subscribes for new common shares in the corporation after the estate freeze or reorganization.

I discuss the concept of an estate freeze in the Introducing a Family Trust as a Shareholder in a Private Corporation blog I note above. But quickly, the intent of an estate freeze is to lock in the current fair market value of the shares held by the current owner(s), typically the parents into new special shares. As the special shares have a set fair market value, the parent's future income tax liability is fixed based on the frozen value and any future growth of the corporation accrues for the benefit of the new common shares issued to a family trust or any new shareholder.

Whether a family trust acquired shares in the private corporation upon incorporation or upon an estate freeze is irrelevant; what is important is that once the family trust is in place and the corporation pays a dividend, the family trust can allocate the dividend it receives from the company to any beneficiary of the family trust that is 18 years of age or older (as a side note, when a beneficiary is allocated a dividend from the family trust when he or she is younger than 18 years, a punitive tax referred to as the “Kiddie Tax” eliminates much of the benefit of allocating dividends to these beneficiaries).

Assuming any part-time employment income the beneficiary child has earned during the summer or working part-time while at school is offset by the education tax credit he or she is entitled to as a result of the payment of tuition fees, a child 18 years or older can receive approximately $39,400 (in Ontario) in dividends from a private company tax-free. For example, if a family trust received dividends from the family business and allocates $39,400 to a child who is at least 18 years of age to pay for their University costs (tuition, books, rent, food, etc.) this could save the parent upwards of $12,000 in income tax. Alternatively, if a family trust allocated the $39,400 as two separate $19,700  dividends to two children over 18, no income tax would typically be payable. If a family trust receives $78,800 in dividends from the family corporation and allocates these dividends as $38,100 to two children, the parent could save as much as $26,000 in taxes.

It should be noted that there may be some tuition credits wasted under this plan when a dividend is paid (under the Income Tax Act, the tuition credits must be applied against taxable income until taxable income is nil, even if the credits are not required to reduce income tax to nil). If no dividend was paid, the child could potentially carryforward and/or transfer some of the credit to their parents. However, typically the forgone tax savings is minimal, but this issue must be considered.

Finally, parents must recognize that any money paid as dividends to your children, is legally their money. Thus, ideally, the money should be used to pay for University or College, to pay rent, to pay for a car, or any other expenses for the child. Any excess funds should be set aside for the child, maybe to help with a future house purchase.

There are many benefits of a family trust including the potential multiplication of the $750,000 capital gains exemption; however the funding of your children’s education is often the most practical and tax efficient.

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.

Information Requests from the CRA that make you go Hmm

Every year after income tax season, I can count on several clients calling to inform me they have received an information request from the Canada Revenue Agency (“CRA”). One of the most common requests is a request for back-up information in regard to child care expense claims made for nanny's employed by my clients.

The CRA states the following in the information request: “to support your claim, please provide the following information: Either receipts, cancelled cheques or your Business Number (if you have issued a T4 slip to a caregiver)”.

Each time a client who has employed a nanny receives such a request, I shake my head. That is because where my client has hired and paid a nanny for childcare services, they are required by law to issue the nanny a T4 and when my clients file their income tax returns and make their childcare claims, they must provide the nanny’s name and SIN# on the childcare Form T778.

One would think that rather than wasting taxpayer’s time and CRA resources, the CRA would simply just punch the nanny's name and SIN# into their computers to cross-check that the nanny has reported the income provided on their T4 on their income tax return. This would seemingly confirm (a) the taxpayer actually paid the childcare costs and (b) the nanny has reported the income.

I have asked CRA agents numerous times why the CRA undertakes the above process and does not simply cross-check the child care claim instead of wasting my client’s time and the CRA’s resources. All I get is I agree with you, I don’t know why.

Maybe there is a more nefarious reason for the information request; however, no one has yet been able to provide such a reason or maybe they are not willing to do so.

Another information request my clients constantly receive is a request to provide the tuition receipt form T2202a for Canadian students and the T11A form for foreign students, typically, students attending University in the United States.

Where a client has e-filed, I understand the request for support of the tuition claim.

However, for those few clients who still prefer to paper file and the numerous Canadians that still paper file, this request is another head scratcher (especially since it has been a common request for years, even before e-filing became the norm). Why these information requests make you go hmm is that the CRA specifically states that you should only complete schedule 11 and not attach the T2202a form to your income tax return. You would think that if the CRA is going to consistently ask for the form, they would just make it a requirement to attach the form to save both taxpayer’s and the CRA’s time and resources.

 I could go on, but I will let any reader who wishes to pipe in to add to this list of things the CRA does that makes you go hmm.

Financial Blogger Michael James recently set forth his views on CRA Processing Reviews in this blog post.

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.

CRA Audit- Will I be selected?- the animated version & Derek Jeter & the IRS

Derek Jeter of the New York Yankees recently hit a home run to join the 3,000 hit club. Only 28 players in Major League Baseball history have reached this milestone. Jeter became only the second player to reach 3,000 hits with a home run. So when Christian Lopez caught the home run, he had a souvenir of immense value, some say as high as $250,000 to $300,000. Mr. Lopez however returned the ball to Jeter, because he felt it was the right thing to do. What would you have done with the ball?

The Yankees lavished prizes upon Lopez for his altruistic act, including free seats and other memorabilia. The only problem with this is, these prizes are taxable and the IRS may want their share of taxes.

CRA Audit- Will I be selected?- the animated version

A while back I posted The Blunt Bean Counter video. I had widely differing views on the video; some really liked it and some, well not. At the same time I was making the first video, I thought it would be a good idea to make an animated version of my most popular post, "CRA Audit-Will I be selected? for those who are too lazy to read the print version. I was going to scrap this video, but decided after spending thousands (okay, twelve bucks) on production to post it anyways. This will most likely be the last time I inflict upon you an animated video.

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.