This is our first column and, at the beginning of the year, a good time to discuss getting ready to file our tax returns properly. As a tax preparation professional, I will talk about problems with receipts that we often see and, secondly, about some general errors made by taxpayers. These are only examples and not a complete list by any means.
Information slips. I have listed below several items that seem to come up regularly. It is important that you have these items and retain them in case the Canada Revenue Agency later asks for proof.
Income: It may seem common sense to be ready, but it is common for clients not to have all their income slips: T4s, T5s, T3s, T5013s. We make a point of comparing prior years’ slips to this year’s slips, but unless you tell your accountant, he or she may have no idea what is missing. Most income slips are supposed to be sent to you no later than the end of February; however, T3s have until March 31st to be mailed. If you have investments that will earn income that will be reported on a T3 (usually mutual funds), check your regular monthly or quarterly reports to make sure you aren’t missing any.
Tuition:. Students often do not have their tuition receipts. Most universities and colleges require students to go on line and download their tuition receipt for the year. These receipts are used to calculate the tuition, book and attendance (full and part time) credits. The student is the first one to claim the credits and, if he/she doesn’t have the income to claim all the credit, the remainder can be claimed by a spouse or parent or carried forward to future years, but has to be entered in the year the tuition is paid. It is usually best to claim the credit as soon as possible so take advantage of the opportunity to transfer the credit to another person. The person (spouse or parent) can pass the additional refund on to you when they receive it. As well, in Manitoba, this record is needed in the future to claim the Provincial rebate for students who remain in Manitoba after graduation. This rebate is available whether the student attended universities or colleges in Manitoba or approved institutions outside of Manitoba.
RRSP: You can contribute to RRSPs anytime in the tax year or in the 60 days after in the following year – March 1 this year. That means you should claim every RRSP purchased until March 1, 2013. You are allowed to purchase in a taxation year up to $2,000 more in the year than the allowable deduction without penalty. Purchases of RRSPs in the first 60 days do not attract a penalty for over purchasing in the year of purchase.
Medical; Taxpayers are entitled to deduct all medical expenses that exceed the lesser of 3% of their net income for the year or $2,109. The expenses can be paid during any 12 month period ending during the tax year and are limited to medical expenses approved by the Province of Manitoba. For example, medical insurance premiums, eyeglasses, physiotherapy, prescriptions and medical appliances are deductible but acupuncture in Manitoba is not. There may be an additional qualification required such as a doctor’s approval for certain medical expenses such as devices for individuals with mobility problems, powered chairs for stairs, air conditioners, etc.
Child Care Expenses: Be sure you have receipts with the name and address of the organization and, if it is a private person providing the service, the Social Insurance Number.
Examples of Things to Watch
One of the stranger incidences, I experienced, happened a few years ago when a client come into the office. He had gone to see a tax preparer who, apparently for religious reasons, did not believe he should claim his common law spouse as a personal exemption. He wanted a fast refund, filed his taxes and came in to see us later to amend his return.
The charity deduction is a good deduction, but has been abused by many organizations. It appears that the most egregious of these schemes have come to an end. Over the years they have included everything from selling art at inflated prices to taking donations with receipts greatly exceeding the amount of cash donated. The best that can be said is if it sounds too good to be true, it probably is. Consult a professional if the scheme seems to be complicated. Also ensure that the charity is a listed charity and you can do this by going to the CRA site http://www.cra-arc.gc.ca/menu-eng.html. Probably the best approach is to contact a professional.
For many years, there has been a disability credit. All disabilities require a doctor or other professional to vouch that there actually is a disability which means the medical professional must fill out and sign a T2201 form. There have been some problems with this claim over the years resulting in changes to the rules and careful monitoring of the claims. Some organizations have been extremely aggressive in encouraging people to make the claim including the sales people having doctors that they made referals to and have charged large fees as a percentage of the claim. Several of these claims have been refused or reversed and repayment demanded where it had previously been allowed. I don’t know how many have got the fees returned. Often, it is obvious whether you are entitled to the disability credit, but if in doubt, my best recommendation is to see a professional or at least read the required form, T2201, very carefully.
Business expenses: If you operate a business either part time or full time, you are allowed to deduct expenses. One basic principal is expenses must be reasonable, although there can be some complaints that the rules are not all reasonable from the taxpayers’ point of view. If the business is operated from your home, you cannot use the home office expense until you make a profit and home office expenses are limited to a percentage based on the office square footage over the total square footage. You will not want to claim depreciation on your home. All business expenses are deductible but some are written off in the year when they are incurred and some, capital expenses, are deducted over time by way of depreciation. All revenue and expenses are treated on an accrual basis as they are earned or incurred and not on a cash basis as money is transferred.
If you are claiming expenses as an employee where you are not reimbursed for all expenses which you are required to incur, there are further limitations. The first requirement is you must have a form, T2200, signed by your employer indicating you were required by your employment contract to incur these expenses. An employee can deduct a proportionate share of his home office expenses if the contract requires him/her to have a home office, limited to fuel, hydro, water, cleaning and minor repairs. If the employee earns commission income this is expanded to include the same proportion of property taxes, insurance and mortgage interest.
That is all the room that I have for this time, but I will have more information in future columns.
Terry Robert B.A., C.M.A., C.G.A.
R. T. Robert Certified General Accountant
Please note that this column deals with details and circumstances in a general way and comments are meant solely as a guide. For your protection, a professional accountant is recommended and should be consulted before making any decisions regarding anything discussed in this column.