Blurb: A tax accountant is only as good as the information
you provide him. We've prepared a series of questions that any
tax preparer should ask before completing a return. Even if doesn't
ask you these questions, you'd still better give him the answers.
Nine questions your tax accountant should be asking
By Peter Diekmeyer o Bankrate.com
The Canadian income tax act has grown exponentially in recent years. It now comprises thousands of clauses, sub-clauses and double negatives. Let's face it: today's tax laws are for all intents and purposes incomprehensible to the average person.
So it's not surprising that more than half of all Canadians now resort to professional help to file their returns. But if you've decided to hire someone to handle the task for you, you'd better be careful.
Professional tax preparers complete hundreds of returns during each tax season, often working long hours. They need to work fast, which doesn't always leave them enough time to deal with each client's specific issues.
If you don't explain all of the circumstances in your life that affect your tax position, your accountant won't be able to do his job properly.
To help, we've prepared a list of nine basic questions that your accountant should be asking you when bring him your T-4s, T-5s and assorted receipts. And if he forgets to ask these questions, you should give him the information anyway.
Are you married?
Your marital status affects the amount of tax you pay in a variety of ways. For example if your spouse is not working, you can list him or her as a dependent, and you will be eligible for a tax credit.
The fact that you are married also makes you eligible for numerous income splitting opportunities, and subject to specific rules as to which spouse can deduct certain expenses.
Don't forget that in Canada the word "spouse" includes married, common law and same-sex partners. Common law and same sex relationships are defined as two persons who live in a conjugal relationship for a continuous period of at least 12 months.
How old are you?
Your age affects your tax position in a variety of ways. For example if you are 65 years old you may be eligible for a tax credit of up to $606 depending on your income level.
Seniors can also include certain extra expenses in their calculations to determine their eligibility for medical deductions. These include, but are not limited to artificial limbs, prescription glasses and dentures.
Your age is also an important consideration in rules governing your RRSP, since once you are 71 years old, you can no longer contribute to the plan and must begin taking money out.
Were you employed last year? Did you list all of your jobs?
This is not as stupid a question as it might sound. Employers generally issue T-4 slips at the end of the year that list key information such as your employment income, and the amount of federal and provincial taxes paid.
Nevertheless, even if your employer doesn't issue a T-4, it is still your responsibility to declare all of your employment income for part-time and temporary jobs. If you don't, you risk having your return reassessed and you may have to pay interest and penalties on the extra amount.
Make sure to tell your accountant about all of your income sources, so he can give you the best advice.
Do you own a business?
Owning your own business changes your tax position in a variety of ways. For one, you will have to file a statement of revenues and expenses with your tax returns, and if your business is incorporated, you will have to file an additional, separate set of returns.
Running your own business makes you eligible to deduct a variety of expenses that are not available to salaried workers.
Typical examples are the cost of operating a home office, including a separate phone line, computer and sometimes even Internet access. If you use your car for your business, you may be able to deduct a portion of the operating costs.
The typical test is that any expenses must be reasonable and must be incurred to earn income. Your tax accountant will be able to help you navigate the many and complex rules governing these deductions.
Do you have a home or revenue property?
In general there are few income tax consequences governing your home, or "principal residence" as Canada Customs and Revenues Agency like to call it. Capital gains made from the sales of one's principal residence are exempt from tax, making real estate a good investment opportunity.
However this exemption does not apply to rental units such as the "plex" market or to any "secondary residences," (cottages) that you may have. The limit on principal residences is one per couple. That means you cannot tell CCRA that one house is your "principal residence," and the second is your wife's. You must choose one principal residence as a couple and the second will be considered your "secondary residence."
If you own a rental unit, you'll have to file a separate statement of revenues and expenses for the property and will be subject to a complex series of rules as to what you can and cannot deduct.
Do you have any financial holdings?
Interest and dividends on any stocks and bonds that you own are taxable, including assets held overseas. Make sure that you tell your accountant about all of your holdings because he may be able to help you reduce your future tax liabilities.
For example interest income is generally taxed at regular rates, but dividends and capital gains benefit from preferential treatment, which may make it advantageous for you to hold stocks rather than bonds.
Do you have any kids? How old are they?
If you have children, you are eligible for a slew of deductions and credits including the child tax credit, child-care expenses and tuition fees for those attending university. However there are specific rules governing which spouse is eligible to benefit from these deductions.
Do you have a Registered Retirement Savings Plan?
Whether or not you have an RRSP is one of the most important things that your tax accountant needs to know. Any contributions that you make to an RRSP (up to 18% of you earned income) are tax deductible. However any withdrawals are included as part of your taxable income.
RRSPs are one of the best tax reduction and deferral strategies around. If you are not talking to your accountant about your RRSP, you are may miss out on some of the benefits.
Did you incur any medical expenses?
Canadians are generally eligible to a tax credit (16% in 2003) on a portion of their medical expenses. There is a long list of expenses that are eligible, that include sprivate health and dental plan fees. However the eligibility amount is reduced by the lessor of $1,755 or 3% of your net income.
Although these questions are only a start, they should give you a good idea of how important it is that you provide your accountant with the information he needs to know to complete your returns properly. If you don't, you could end up paying a lot more income tax.
-- Posted April 1rst, 2004
Peter Diekmeyer is the Montreal Gazette's management columnist. He can be reached at: firstname.lastname@example.org