Every year we have the pleasure of welcoming new income tax preparation clients to Pathway. This year has offered up some particularly interesting challenges that have caught our clients unaware.
Here are the top three:
1. Mailing address not updated.
2. Home Buyers Plan credits not applied.
3. Past tax returns not filed.
One of the first tasks we assign ourselves is reviewing your Tax Account with the Canada Revenue Agency (CRA) and acquainting ourselves with your income tax filing history.
Our goal is to ensure that you have a clean account moving forward, and that any past discrepancies we find get cleaned up. Let’s look at each of these challenges in detail.
This seems like a small thing at first. You may say to yourself that you will have it updated next tax season when you file your tax return.
Here is the challenge that one of our clients faced. They filed their 2018 return on time, but had moved at the end of May in 2019 and did not contact the CRA to update their address.
They had opted to receive all communications from the CRA via mail, and missed a vitally important review letter requesting a copy of their tuition receipts. This is not an abnormal request: we all file electronically, and when asked, must produce receipts that we claim on our tax returns.
It just so happens that the receipts in question were over $20k. This client was an international student and had therefore incurred large fees.
Because the receipts were not sent in as requested, a reassessment took place. These vital tuition fees were denied and removed from their tax account.
We are still in the process of having this decision reversed.
Key Takeaway: Don’t wait for tax season to update the CRA with your new address. Update them as soon as you move out.
Home Buyers Plan
If you participate in the Home Buyers Plan (HBP) you are assigned an annual RRSP (Registered Retirement Savings Plan) repurchase amount.
When preparing your tax return, the process is to assign your RRSP purchase to the HBP. If your assigned value was $1,100 and you purchased $2,000, then we would assign the first $1,100 to the HBP and the remaining $900 would be available to defer income tax. Simple math.
Unfortunately, upon reviewing one of our clients accounts, it became clear that many years had not been applied to this HBP program. Four, in fact, were discovered. And one year that was applied was not for the full assigned value - although an RRSP repurchase had been made.
To add to the dilemma, our client had thought that they were very close to having their HBP paid off because they made a big RRSP purchase on one of those years.
Our next steps were to submit changes going back to 2014 and correct the past five years of returns so as to correct the balance of the HBP account.
We are still in the process of having these reversed.
Key Takeaway: Meet with your tax preparer to ensure your payments are on-track, such as your Home Buyers Plan.
Returns Not Filed
This seems to have been the most popular challenge for 2020. In one month alone, we located four personal clients, and one corporate client, who had thought their past returns had been submitted.
The corporate client was deeply concerned because we had their past return in hand. It had been prepared but had not been E-filed by the past preparer. This meant that they now would incur late filing penalties.
Everyone is caught up to date, but it truly is most shocking when you come to realise that you have either paid for a service that has not been carried out, or trusted a provider to submit a return on your behalf that wasn’t completed as agreed.
Key Takeaway: Just having “someone” to do taxes doesn’t guarantee professionalism. Vet your tax preparer by looking for testimonials, or by ensuring they’re knowledgeable about their field as well as you as their client.
We encourage everyone to sign up for your My Account access through the CRA. Even as a novice, their system is arranged in easy-to-understand sections that outline everything by the year and type.
You may find yourself in a position where you are not interested in logging in and managing your account. And that’s okay. We can manage that for you.
Either way, make sure that once your return has been prepared that you receive a final copy of your return. And make note to look for confirmation from the CRA that your return has been processed and you have an assessment notice.
We are ALWAYS here to help you. If you have any questions or want us to review your tax account, please reach out.