As part of our March Money issue, we asked you to send in your tax-related questions. We got Gabrielle Loren, CPA, CGA and Partner Loren Nancke & Company, to give you the answers you need.
Q: I wanted to know if you are supposed to claim contest wins on your taxes? Would really love to know.
Gabrielle Loren: No, contest winnings are not taxable in Canada.
Q: I’m told you can help a sister out with some tax confusion, and mine revolves around cohabitation. At what point does a couple need to file together, and what areas of the form are relevant to our common-law status?
GL: CRA considers a couple to be common-law when you are living in a conjugal relationship for a least 12 continuous months, if you have a child together, or the situation where your child is wholly dependent on your significant other for support.
Q: I’m asking because my partner still goes to the accountant with his parents to get his taxes done as a family, and I’m pretty sure that needs to stop once we are considered common-law. We have only lived together since mid-2014, so the “12 consecutive months as of Dec 31” will only start applying to us for the 2015 tax year, right?
Q: As a side note, I would also welcome advice for broaching the subject of “hey, I’m not so comfortable with you laying out our whole financial situation in front of your parents and maybe a 27-year-old man should start filing himself”, but I’m not sure it’s my place so I haven’t said anything.
GL: Yeah, that might be a bit awkward!
Q: If a couple is married or common-law, do they have to file together? Or can they still file as individuals?
This is actually a question I get asked a lot. The answer is that no, you do not actually file together but you will need information from each other’s returns in order to ensure that you are calculating the least amount of tax possible.
Let’s use donations as an example. The rule is that for the first $200 in donations you get a non-refundable tax credit of 17% but for any donations exceeding $200, that credit jumps to 26%. As a couple is allowed to pool their donations, lower tax will be paid if one person makes a claim for all donations.
Pooling medical expenses and then having the lower income person make the claim is another example and then there are also cases, such as with child care expenses, where the lower income spouse HAS to claim that expense, no matter who actually paid them.
As such, although you are filing separately, you should always have your returns prepared together to ensure you optimize all tax breaks and don’t end up having to give money back to CRA when they adjust your return for errors like the wrong person claiming the child care costs.
Q: So, I haven’t filed taxes in 5 years. Where do I start?
GL: The first thing you want to do is get all your tax documents together a compile them by year. Next, get yourself the paper tax return forms or software so that you can start preparing the oldest year first. Once the oldest year is done, just keep going until all the years are done. If you owe taxes for any of the years AND CRA has not contacted you about filing your delinquent returns, you can file that year’s return via the Voluntary Disclosure Program that CRA has so that all penalties and possibly even the interest charges are waived. Of course, you can always have all the filings done by your local CPA!
Q: What questions should I ask when choosing a new accountant?
GL: This really is a matter of what kind of income you have. If you are an employee, with slip income, a few of which look “strange” to you, then some good questions to ask would be:
1. Are you accepting new clients with few complicated tax issues?
2. Do you have a minimum fee?
3. Are you available to answer questions that I may have during the year and do you charge for this time?
If you have income from Rental Properties, stock transactions, flow through entities or claim employment expenses, then some good questions to ask would be:
1. Do you have expertise in the area of Rental Properties, stock transactions, flow through entities?
2. Do you have expertise in the area of employment expenses?
3. Have any of your clients ever been audited for the income earned or expenses claimed in these areas?
4. Are you familiar with the possible exemptions applicable to these sources of income?
If you have self employed income, have foreign income or other complex areas of tax affecting your tax return, then some good questions would be:
1. Do you have clients in the same or similar industry as me or with the same complex area of tax as me?
2. Are you familiar with special filing methods if my business is registered or required to be registered for GST/HST?
3. Have any of your clients ever been audited, and what support is available during the audit?
The real key when finding an accountant to work with is that you can communicate well with each other, that you feel like a valued client, and you are confident that you are getting the best advice possible. Interview prospective accountants in person or by phone and ensure you have a good feeling when you finish up – without comfort and confidence in who you chose to work with, you will never feel that the money spent on accounting services are monies well spent; first and foremost, you definitely have to have that!
Got a tax-related question? Email them to firstname.lastname@example.org and we’ll do our best to get them answered.
Chartered Professional Accountants of Canada (CPA Canada) is a national association that represents and supports more than 190,000 Chartered Professional Accountants (CPAs). CPAs are valued for their financial and tax expertise, strategic thinking, business insight, management skills and leadership. CPA Canada conducts research into current and emerging business issues and supports the setting of accounting, auditing and assurance standards for business, not-for-profit organizations and government. It also issues guidance on control and governance, publishes professional literature and develops certification and continuing education programs.
For more information on CPA Canada, visit: www.cpacanada.ca