Nine questions your tax preparer should ask
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: For all intents and purposes, today's tax laws are
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 tax returns. But if you
decide to hire someone to handle the task for you, you should be
Professional tax preparers complete hundreds of returns 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
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
To help, we've prepared a list of nine basic questions your accountant
should ask you when bring him your T4s, T5s and assorted receipts.
And if he forgets to ask these questions, you should give him the
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 dependant, 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 term "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
Your age affects your tax position in a variety of ways. For example,
if you are 65, you may be eligible for a tax credit of as much as
$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
Your age is also an important consideration in rules governing
your RRSP, since once you turn 69, 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?
The answer may not be as obvious as you think. Employers generally
issue T4 slips in February, which list key information such as your
employment income and the amount of federal and provincial taxes
But even if your employer doesn't issue you a T4 slip, it is still
your responsibility to declare all your employment income, including
income from 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
Owning a business changes your tax position in a variety of ways.
For one, you have to file a statement of revenues and expenses with
your tax return. 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 not available to salaried workers.
Typical deductions include 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 also be able
to deduct a portion of its operating costs.
The typical test is that any expenses must be reasonable and must
be incurred to earn income. Your accountant or tax preparer will
be able to help you navigate the many and complex rules governing
Do you own
a home or income property?
In general, there are few income tax consequences governing your
home or principal residence, as the Canada Revenue Agency likes
to call it. Capital gains made from the sale of one's principal
residence are exempt from tax, making real estate a good investment
However, this exemption does not apply to rental units or secondary
residences (such as a cottage) that you may own. The limit on principal
residences is one per couple. That means you can't tell the CRA
that one house is your principal residence, and the second is your
husband's. You must choose one principal residence as a couple,
and the second property will be considered your secondary residence.
If you own a rental unit, you 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 you own are taxable,
including assets held overseas. Make sure 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
Do you have
any kids? How old are they?
If you have children, you are eligible for a slew of write-offs,
including deductions for childcare expenses and tax credits for
university or college tuition fees. 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
your accountant or tax preparer needs to know. Any contributions
you make to an RRSP (as much as 18 percent of your 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 don't talk to your accountant about your RRSP, you
may miss out on some significant benefits.
Did you incur
any medical expenses?
Canadians are generally eligible for a tax credit (16 percent in
2003) of a portion of their medical expenses. There is a long list
of expenses that are eligible, which include private health and
dental plan fees. However, the eligibility amount is reduced by
the lessor of $1,755 or 3 percent of your net income.
Although these questions are only a start, they should give you
a good idea of how important it is to provide your accountant or
tax preparer with the information he needs to complete your return
properly. If you don't, you could end up paying a lot more income
is the Montreal Gazette's management columnist.