Here are some of the most frequent errors I’ve noticed in my practice as a chartered professional accountant. Since no one is infallible, it’s even possible that your accountant makes these errors. So pay attention; you could save a few hundred dollars or a few thousand. Yves Chartrand, a tax expert, has developed a list of 80 common errors, of which some, that I’ve noticed, are listed below.
Personal income tax is much more complex than most people, even certain “accountants,” think. Even if your tax return seems simple to you (and even simpler when you prepare it on a computer) it’s probably that you’ve let some errors slip by.
If you have questions or comments, don’t hesitate to contact me at 514 493 (FISC) 3472. A question costs nothing, but the advice is worth gold!
Visit my site at http://www.celestin-comptable-agree.ca and send me email.
9 unfortunately too-common errors are listed here in quick succession
1.Trusting completely in the quality of telephone responses given by functionaries of tax authorities (N.B. The auditor general of Quebec has already indicated that the rate of “bad responses” exceeded 36% at Revenue Quebec!…)
2. Claiming a deduction for depreciation or RRSP when you are not in a situation of payable tax! These deductions must be avoided, since they are reportable.
3. Not claiming accountant’s fees in the real estate lending statement of expenditure.
4. Claiming losses of leasing of more than $10,000 and setting off a tax investigation (Revenue Quebec has already declared, in the APFF, that these losses of $10,000 and more come under the scrutiny of auditors.
5. A too-high automobile usage percentage or a too-high KM cost of use, setting off a tax investigation. Also, ignorance of alternative methods of calculating the automobile benefit can cause taxpayers to lose a lot of money.
6. Owners of a household that has undergone a significant reduction in income not claiming land taxes; for example, during maternity leave or loss of employment…
7. Claiming childcare expenses at the federal level when this deduction does not generate any more tax savings, and claiming these reduces the Canadian tax benefit for children.
8. Not claiming the exemption for a principal residence when selling a chalet or secondary residence abroad (e.g. a residence in Martinique or Florida) if it is more advantageous.
9. Not claiming a tax deduction forgotten for as long as the last 10 years.
10. Software that messes up your tuition in Quebec!
You must pay attention to software. Software programs are absolutely essential, but they are not a substitute for the judgment of a professional. For example, a few years ago you could choose between a simplified or general tax return in Quebec. Obviously, software programs chose the form (simplified or general) that would bring you the biggest tax refund. Since the simplified form didn’t allow you to deduct your tuition, software programs could choose to use the general form to deduct your tuition, even if you needed $3000 of tuition to get $2 more refunded! Sometimes, it’s better to trust a certified professional accountant (CPA) with your tax preparation.
11. Medical costs – you may wrongly believe that you can never deduct them
An amazing number of people forget to deduct their medical insurance premiums or medication costs as medical expenses. In fact, people misunderstand the tax system associated with their group insurance payments. Let’s say, for example, that you have a typical group insurance for which you pay 60% ($1500) and for which your employer pays 40% ($1000) for a total of $2500.
At the federal level, the employer’s portion is not taxable. In Quebec it is taxable, and this amount is indicated in box J of statement 1. Since you will be taxed on the amount paid by the employer, in Quebec, you have the right to deduct this sum (box J) as a medical expense. Most software does this calculation well. The problem is that most people forget (just like software) the portion that they themselves paid. The total paid by the employee is normally found on the last check stub of the year. So it is essential to give this stub to your accountant. If he or she didn’t ask you for it, check your tax return (and those from years past). They may contain an error…
Thus, at the federal level, even with $1500 in medical expenses it is easier to pass the limit of 3% of income (or $1813). In Quebec, it’s almost guaranteed that you will reduce the taxes you have to pay with a box J of $1000 and a $1500 portion paid by you (that’s a total of $2500 of deductible medical costs).
Rental buildings and common errors (5 common errors)
Errors in the statement of expenditure for rental buildings are common. There are five major errors.
Depreciation- So poorly understood!
First, many people neglect to claim a depreciation expense, a small error that makes you pay a little more in taxes.
The biggest error is especially when taxpayers forget to distribute the land / building for the purchasing cost of a property and claim a deduction for depreciation on the total purchasing cost. In fact, only the cost of the building can be the object of a depreciation deduction. Imagine the surprise when the tax authorities send an assessment, refusing hundreds of dollars of depreciation deductions.
A frequent error, when the taxpayer uses a software program, is the order in which he or she records the categories of depreciation. The first category in the table of depreciation will normally be the first to be depreciated to reduce the rental income to zero. Thus, if you have furniture in a category 8, recorded just after the category of the building, it’s quite probable that you have never used the depreciation of this category 8, because the rental income is already reduce ti zero using the depreciation on the building.
The spending breakdown – a box of errors
Often, taxpayers own a building where they live in one of the apartments. For a triplex, taxpayers calculate 33% of all their expenses as relating to their personal part. This calculation is often erroneous, since most of the time certain maintenance expenses are 100% attributable to the apartments other than the proprietor’s and are therefore deductible at 100%, not 33%. Unfortunately, given their design, software also fosters this error.
For maintenance expenses, taxpayers frequently forget to fill out the TP-1086 (with a possible fine of $200 for each expense omitted). This form must be filled out for all maintenance expenses made with regard to your rental properties. The TP-1086 is a tool for the department to combat undeclared construction work. On this form, you must indicate either the QST or the social insurance number of the contractors who have provided you with goods or services.
Next month’s article:
Acquiring a rental property – Has your accountant talked to you about the R.H. strategy?
The R.H. strategy is one of the best strategies for possession of a rental property. With this strategy, real estate will seem even more essential than ever. Even better than an RRSP for people in real estate. Learn how to get unexpected deductions and make a rental property profitable…. You will see how much money good advice is worth.
If you have questions or comments, don’t hesitate to contact me at 514 493 (FISC) 3472. A question costs nothing, but the advice is worth gold!
Visit my site at http://www.celestin-comptable-agree.ca and send me email.
Goodbye for now
