Thursday Thirteen Tax Tips: 13 Important Considerations Before Hiring Tax Representation

Trying to decide if it is time to hire a tax representative is a difficult decision and if made incorrectly, can cost hundreds if not thousands of dollars plus add significant amounts of stress and reputational damage to you and / or your business.

With so many people and organizations on the Internet promising to do so much for you, how do you know who to trust and more importantly, how can you tell if the specific tax matter you have is something they have experience (and success) handling?

Well, I’m going to give you some tips, so feel free to share them, about how I would go about finding a tax expert for my situation and what important questions you need answered before you hand over your hard-earned money, Social Insurance Number (SIN) and / or Business Number (BN).

The first thing that you must be comfortable doing is asking questions and if you do not understand the answer or if it seems like the response you get is part of a sales pitch, then think twice and get another quote.  It’s okay.  Anyone offering these services will either expect that you have spoken to more than one person, or will be confident that their expertise is what you need and know that you will come back.

Do they offer a free consultation?  It’s helpful if you do not know exactly how much trouble you are in, if at all, and having a few minutes to ask will put your mind at ease and help build a relationship for the future if it’s necessary.

During a 15-minute free consultation I usually do not know how many other tax representatives they have spoken to, if any.  As a result, I have to be clear, honest and set the price based on the amount of work involved, only.  It works for me, and it works for my clients.

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Once I begin working with clients I get to hear what others promised, or wanted to charge, and often times I am surprised both by the recommended course of actions and the price quoted / charged.I thought it might be a good idea to expand on this topic and provide the 13 IMPORTANT considerations to look for before hiring tax representation:

13) Knowledge – Does this person or organization have significant knowledge in the area you need?

12) Experience – Knowledge is great to help you understand more, however, is their knowledge based on books they studied in school, or was it gained through hands-on experience?  If you are lucky, you can get both.

11) Fit – Can you work with them? Are they able to explain in a manner that you actually understand what happened, and what the next steps are.

10) Advertising – Odds are good that if they are spending a lot of money on advertising, they are going to have to charge you more in order to re-coup the costs.  A lot of advertising doesn’t necessarily mean they are the best, it just means they value advertising, or need clients..

9)  Social Media Presence – Taking into consideration that people do NOT advertise they have a tax problem online, it can be difficult to see if your prospective tax representation is worth your hard-earned dollars.  A good way to check up on a prospective hire is to have a look at their followers and who they follow.  It may seem great that a firm will have 5000 followers, however, followers can be bought, so a Canadian firm with 3000 followers from, say, Turkey might be a tip-off that something is not right.  Also look at their posts and comments via mainstream media.  Are they commenting on articles to educate or does everything they publish and promote look like it has been written by a marketing firm aimed at trying to get you to hire them.

8) Flexibility – Are they flexible in their pricing, or are they so set in their fees that they will not, or can not, recommend someone else or reduce their fees to assist.

7) Promises – Do they promise to save you money through reviews of your tax filings or do they take the easy way out and recommend bankruptcy, or a proposal?

6) Fear Mongers – If you notice that the tone of everything coming from a prospective firm / representative seems like they are trying to scare you, they are, and that’s a good sign to proceed with caution.  If they tell stories of the CRA hiding in your bushes, reading your emails or coming to arrest you, you should think twice.

5) What is their catch? – You know what you need, but what do they want, or what do they want from you?  There might be additional things relating to your tax issues that you did not know about and would benefit you, but if it’s not necessary and they won’t back away from it – like a financial analysis – then be concerned that they just want to put you though a cookie-cutter program instead of working towards solving your problem(s).

4) Do they play nice with others? – Blog posts aside, are they active in community networking groups (like on Linked In) and are they contributing to the discussions or do they have their own agenda and are just posting articles aimed at the wrong crowd – ie/ pitching their services to individuals in a group full of tax lawyers.

3) Sticks and Stones – How do they  refer to the Canada Revenue Agency?  Do they call the CRA the “Taxman”?  Do they have other negative nicknames?  I can tell you with the experience that 10-plus years of working for the CRA has afforded me that the CRA HATES that and do you really want your representation to start your negotiations off on the wrong foot?

2) Which Way is Up – Does their projected course of action come with terms, such as; “I think, this will work” or “I can try this…” or does the word “maybe” come up a lot?  The good part of that language is that it is a sign that they want to try a course of action and they expect the outcome to be positive or they have no clue what to do and after they run you through their cookie-cutter service, they hope you will be in a better situation.

1) You are Smarter – If you finish your conversation and get the feeling that once all is said and done you will be in a much better place both mentally and financially and you are armed with enough information and understanding of what got you there in the first place and that you can and are able to identify and address all future issues, then you might just be in the right place!

Good luck!

 

Warren

Think the Canada Revenue Agency Treats Employees Differently? Think Again!

Former CRA employee fined and sentenced to 18-month conditional sentence for income tax evasion

Surrey, British Columbia.   The Canada Revenue Agency (CRA) announced today that Maria Victoria Banhaw of Burnaby, British Columbia, was sentenced on October 3, 2014 in Vancouver Provincial Court, after pleading guilty to one count of income tax evasion. Banhaw was fined $47,580, representing 75% of the total federal income tax evaded. She was also ordered to serve an 18-month conditional sentence, which includes 9 months of house arrest.

A CRA investigation determined that Banhaw, while employed at the CRA, prepared and filed personal income tax returns for herself, her husband and 34 family members and friends for the 2005 to 2009 tax years. On these 96 returns, Banhaw overstated the amount of Registered Retirement Savings Plan (RRSP) contributions in order to reduce taxable income and increase refund amounts payable. Banhaw’s family and friends were unaware that she made false claims on their returns. In total, Banhaw reported $389,417 in false RRSP contributions, resulting in $63,438 in taxes evaded.

The preceding information was obtained from the court records.

When taxpayers are convicted of income tax evasion, in addition to any fines, they must still repay the full amount of taxes owing, plus interest and any civil penalties that may be assessed by the CRA.  In addition, the court has the ability to fine them up to 200% of the taxes evaded and impose a jail term of up to five years.

If you have ever made a tax mistake or omission it is prudent to speak to us right away so that we can help you understand where you stand in the eyes of the CRA.  We will help you determine if you can handle it on your own – and set you up to do so, or recommend our services or the services of others to assist you through the process.

Key Deductions and Tax Credits for Persons Older Than 65-Years of Age

With the 2014 Tax Filing season rapidly approaching, I think it is important to keep track of key deductions and credits that Canadians older than 65-years-old should be thinking about when they file their Canadian tax returns this year and all years going forward.

The Canada Revenue Agency set up their own webpage dedicated just to this very topic: http://www.cra-arc.gc.ca/seniors/ which I recommend bookmarking, but I have summarized their points below for ease of access.

Common credits which may be claimed by seniors

  • Age amount
  • Pension income amount
  • Disability amount (for themselves)
  • Amounts transferred from a spouse or common-law partner
  • Medical expenses

Age amount

You can claim this amount if you were 65 years of age or older on December 31, 2013, and your net income (line 236 of your return) is less than $80,256. If your net income was:

It is important to remember to enter your date of birth in the “Information about you” area on page 1 of your tax return.

Remember to claim the corresponding provincial or territorial non-refundable tax credit to which you are entitled, on line 5808 of your provincial or territorial Form 428.

Tip: You may be able to transfer all or part of your age amount to your spouse or common-law partner or to claim all or part of his or her age amount. See line 326 – Amounts transferred from your spouse or common-law partner, for more information.

Pension income amount

You may be able to claim up to $2,000 if you reported eligible pension, superannuation, or annuity payments on line 115, line 116, and/or line 129 of your return.

Eligible pension income does not include the following income amounts:

  • any foreign source pension income that is tax-free in Canada because of a tax treaty that entitles you to claim a deduction at line 256;
  • income from a United States individual retirement account (IRA); or
  • amounts from a RRIF included on line 115 and transferred to an RRSP, another RRIF or an annuity.

Canada Pension Plan (CPP) income does not count as eligible income here.

Pension income splitting

If you qualify to claim the pension income amount, discussed above, then you are often able to report up to one-half of that pension income on your spouse or common law partner’s tax return, which will save you tax as a couple if your spouse is in a lower tax bracket.

Amounts transferred from your spouse or common-law partner

If your spouse or common-law partner does not need to claim some or all of certain non-refundable tax credits to reduce his or her federal tax to zero, you may be able to transfer those unused amounts to your return.

Split CPP income

If you and your spouse are at least 60 years of age, and one or both of you receive CPP benefits, each spouse may be able to apply to split their benefits with the other (i.e., report half on each other’s tax returns), which can save tax if one of you is in a lower tax bracket.

CPP contributions

If you are 60 to 70 years of age and employed or self-employed, you have to make CPP or Quebec Pension Plan (QPP) contributions, even if you’re receiving CPP or QPP benefits.

You can claim a tax credit for these contributions. However, if you’re at least 65 but under 70 years of age, you can elect to stop making contributions (use Form CPT30, the applicable part of Schedule 8 to your tax return, or Form RC381, whichever applies), but don’t just stop making the contributions without that election!

Medical expenses (for self, spouse or common-law partner, and your dependent children born in 1996 or later)

On line 330 of your personal tax return you can claim the total eligible medical expenses you or your spouse or common-law partner paid for:

  • yourself;
  • your spouse or common-law partner; and
  • your or your spouse’s or common-law partner’s children born in 1996 or later.

Medical expenses for other dependents must be claimed on line 331.

Tip:

You may be eligible to claim a variety of medical expenses, perhaps even previously unclaimed amounts, as long as the expenses were incurred in any 12-month period that ended in 2013. The list of eligible expenses has continued to expand slowly over the past few years.

It is wise tax-strategy to claim medical expenses on the lower-income spouse’s return to maximize your tax relief.

Disability amount (for self)

You can claim the disability amount of $7,697 on line 316 once you are eligible for the disability tax credit (DTC).

Tip:

If you were eligible for the DTC for previous years but did not claim the DTC when you filed your return, you can request adjustments for up to 10 years under the CRA’s Taxpayer Relief Provisions. To claim the disability amount for prior years, you will need to file Form T1-ADJ, T1 Adjustment Request, for each year you need to amend.

If you or anyone else paid for attendant care, or for care in an establishment, special rules may apply. For more information, see Attendant care or care in an establishment.

If you have a severe and prolonged physical or mental impairment, you may be eligible to claim $7,697 if a qualified practitioner certifies, on Form T2201 – Disability Tax Credit Certificate, that you meet certain conditions.

Public transit amount

You can claim the cost of monthly (or longer duration) public transit passes for travel on public transit within Canada for 2014. The cost of electronic payment cards can also be claimed when conditions are met.

Work force credits

If you’re still working, even part time, you may be eligible to claim the Canada employment amount (maximum $1,117) and the Working income tax benefit (see Schedule 6 of your return).

Registered plans

You’re entitled to make contributions to a registered retirement savings plan (RRSP) until the end of the year in which you turn 71-years-old.  Don’t forget to claim a deduction if you have made a contribution for 2014.

And if you’re eligible for the disability tax credit it is possible to make contributions to a registered disability savings plan (RDSP) to shelter income on those contributions from tax.

OAS clawbacks

Some seniors must pay back all or a portion of their Old Age Security (OAS) benefits if their income exceeds $70,954 (for 2013). If you’re in this boat, examine the types of income you’re earning to see if you can change the type of income earned to reduce the impact of these clawbacks going forward.

The Canada Revenue Agency (CRA) also administers the Ontario Trillium Benefit (OTB) which is the combined payment of the Ontario energy and property tax credit, the Northern Ontario energy credit, and the Ontario sales tax credit. The annual OTB entitlement is usually divided by 12 and the payments issued monthly. Your 2015 OTB payments, which are based on your 2014 income tax and benefit return, will be issued on the 10th of each month, starting on in July 2015.

Exceptions:

Starting with your 2014 income tax and benefit return, you can elect to receive your 2015 OTB in one payment at the end of the benefit year. If your annual 2015 OTB entitlement is over $360 and you make this election, you will get it in one payment in June 2016 instead of receiving monthly payments from July 2015 to June 2016.

If your 2014 OTB annual entitlement is $360 or less, it will be issued in one lump-sum payment in the first payment month (usually July).

 

These items often changes and some situations may be applicable to you, while other’s may not.  Please speak to your accountant or tax professional to be sure they apply.  If you claim a credit you are not entitled to, the CRA will disallow the credit and charge you interest from the date the returns were due.

 

#inTAXicating