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March 2013 T1 PROCESS – 2012 TAX RETURNS

SUMMARY OF CHANGES This year there are very few changes affecting tax returns. The most significant emerging issues relate to penalties and CRA audits.

Requirement to EFILE. Effective July 2013 taxpayers can choose to defer OAS payments or larger ones later.

(Just like CPP options). Reminder on CPP rules:

o Usually start to collect at 65, but can start at 60 or wait until 70. Timing of commencement significantly affects monthly amount.

o If you collect early you still have to pay CPP. If you delay collection until after 65 you have the choice to contribute but you must elect to not contribute.

o They are making it a little easier to qualify for the maximum benefit. CRA audits, areas of focus, and penalties:

o Real Estate sales people and whether their auto, travel and entertainment expenses are supported and reasonable. If the agent doesn’t have a log book then most of the auto will be denied.

o Income Vs. Capital: Is the sale of real property or stocks on account of capital or an adventure in the nature of trade (regular income)? If the taxpayer has not done an analysis then CRA may disagree and may assess gross negligence penalties. If the tax preparer has not done an analysis we may get hit with penalties.

o CRA focusing more on whether a business has reasonable expectation of profit (REOP) (which excludes capital gains). If there is no REOP then losses can be denied.

o CRA is increasing use of penalties to ensure taxpayers are compliant. Based on Auditor General report a few years ago. In particular CRA is increasing use of gross-negligence penalties which allow statute barred returns to be opened.

o Recent CRA project targeting unreported tips of servers. Expect more on this in the near future.

o Also increased activity in area of dispositions of principal residence. CRA finding more excuses to disallow the principal residence exemption. If at all in doubt we should file the principal residence election form.

o CRA continues to issue self-review letters and intent to audit letters. Areas of focus include R&M Vs capital, losses in rental or business statements, high auto expenses.

o CRA is starting to review land registry documents and property tax assessment rolls. Also tax slip matching and T5018 slip matching.

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o Because of the requirement to EFILE it appears CRA is expanding their risk assessment model to profile client of certain tax preparer firms. If they notice a trend of aggressive auto expenses by one particular tax preparer they may audit all the clients of that firm claiming a certain amount of auto expenses.

PREPARATION

1. Review prior year file

Familiarize yourself with the taxpayer and their sources of income, available deductions, etc. from prior year returns and leadsheet.

If client is new, obtain a copy of the prior year’s tax return and Notice of Assessment. For existing clients, copy the Notice of Assessment if available.

o Can go onto Represent a Client to verify carryforward balances. Ensure any file flags from prior year are brought forward to clear in current year.

2. Review Admin and T1 Leadsheets for partner notes and/or special filing

requirements Ensure we have an engagement letter and consent form signed. Otherwise this

should be noted on the Admin Leadsheet if required.

3. Open Profile Ensure audit issues screen is showing- Go to “Audit” and “Show Auditor”. When preparing a file, DO NOT sign-off the audit issues electronically. Ensure all returns for each family of taxpayers being prepared are open. If not, credit

transfers, etc. could be missed. DO NOT change the path for saving a return, unless the return is not being saved in

the taxpayer’s Caseware file.

4. INFO Worksheet For every file that you are to prepare, this is the first worksheet that should be completed (for new clients) or reviewed and updated as required (for existing clients). Please also check the Admin and T1 Leadsheets for updates to addresses, etc. Taxpayer personal information and Spousal Information Things to remember when entering taxpayer names and mailing addresses:

o # sign in ANY T1 field is not acceptable; o use a space to separate numbers (i.e.: no hyphens); o do not leave spaces in hyphenated names; o name fields must begin and end with an alphabetic character; o address fields must begin and end with an alphabetic or numeric character; o do not use titles in taxpayer name (i.e. Dr; C.A.; etc.) o If birth date, SIN or Postal Code is NOT correct, EFILE will reject it. o “Use preparer address for:” should be checked as “Nothing”

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o Enter date of any inter-provincial move during the year. o Answer if the home address is the same as the mailing address

Marital Status If marital status changed during year, indicate month/day of change. Ensure spousal information is entered/deleted and returns are linked/unlinked

when required. Residency If residency status changed during year, ensure the status is updated If immigrating into or emigrating from Canada, indicate month/day to ensure

credits are pro-rated accurately. Returns for immigrants, emigrants and non-residents CANNOT be EFILED. Returns with self-employment income earned in a different province from the

province of residence CANNOT be EFILED. Filing Check eligibility for EFILING. Unless ineligible, ALL returns must be filed or e will

be penalized. o If ineligible, ensure “No” box checked.

Indicate “Paper file” on Admin Leadsheet Ensure all slips and supporting receipts are bundled in such a way to

accompany the tax return when mailed. o If eligible, ensure “Authorization to Represent Taxpayer” is set to “Yes” o Cannot EFILE prior year or amended returns

If the taxpayer is a first time filer or has a last name change, ensure “Yes” boxes checked.

“Method of Contact”: o Pre-assessment = “Fax”, o Post-assessment = “Mail”

Answer the following based on client responses: o Canadian Citizen o Elections Canada

If mailing address is Wisemanco address, select “No” If not a Canadian citizen, select “No”

o Foreign Property if “Yes”, complete T1135 (remember- must be “yes” if at any time

during the year the client owned > $100,000 Cdn (original cost) of foreign property, such as Foreign stocks or rental property, does not include stocks in an RRSP account or Canadian mutual funds that invest in the US.)

o Disability amount- only if disability certificate is valid Check expiry of certificate and get new one completed if required In first year of claiming credit, return not eligible for EFILE. Watch attendant care expenses (see below)

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Spousal Information If married or common-law, ensure the spousal information is entered below.

o Use the same guidelines as above when entering name, etc. o If we are preparing the spouse’s return also, ensure the T1 files are “linked”

in Profile If we are not preparing the spouse’s return, obtain net income from taxpayer to

ensure credits are calculated accurately. o If no net income, ensure “Yes” box checked.

Additional Contact Information Enter information if provided on Admin Leadsheet

Mailing Label Check accuracy of Salutation

Office Use Please enter your initials under “Preparer ID” Ensure Partner initials and Client Reference # are entered. If a new client, indicate “New Client”.

o NOTE- must check if consent has already been requested or not. If already obtained, ensure T1013 turned off. If needed, ensure “Authorize a Representative” box on T1013 is checked.

Authorization Please complete section if authorization has been obtained.

o Year last submitted- if this year, enter 2012; if prior year(s), enter 2011 o Expiration year- leave blank o Authorization level- “2” o Online Access?- “Yes”

5. DEPENDANT SCHEDULE If taxpayer has dependants, ensure they are entered on dependant schedule. For various deductions and credits available for taxpayers with dependants, see

various explanations below.

6. INCOME SLIPS/SCHEDULES Employment/Pensions Slips

Remember that T4, T4A, T4A(P), T4A(OAS) and T4E slips are now available online under the Tax Returns tab. RC62’s are available under the Benefits and Credits tab. T3 and T5 slips are not yet available.

T4 o Indicate “Yes” if CPP and/or EI exempt (per “X” in boxes on T4) o Override CPP and/or EI earnings if it is not the same as Box 14

Employment income o Ensure all additional boxes at bottom of T4 are entered if required

Watch for Box 42- employment commissions

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T4A o Box 28-> enter the income onto the line that best describes the source of

income. To assist, look at Box 38 for the Footnote code, and any descriptions in “Footnote code explanation” area of slip. Medical premiums- for a retired person can be entered as Medical

premiums- NOTE- this will allow the taxpayer to receive the employment amount (CRA accepts this because the premiums are being paid as a result of past employment).

Self-employment income- select applicable T2125 under “Transfer income to” to forward income amount directly to T2125 and allow for expense deductions.

Scholarships, bursaries, awards- “Not taxable”- amount is a scholarship and the taxpayer is

claiming a tuition credit “$500 exemption”- amount is a scholarship and no tuition is

being claimed, “No exemption”- awards other than scholarships Exemption is now limited to the amount that can reasonably be

attributed to enrolment in an eligible education program. For part-time students this is restricted to tuition plus program-related materials.

TFSA taxable amount- if a taxpayer has a taxable amount of income from a TFSA, enter the amount from Box 28 (code will be 34) on this specific line.

Other income- any amounts that do not fall into any other line item in the T4 worksheet, enter as “Other income- line 130”

Patronage Allocations- “taxable” if the taxpayer deducts related expenses on their tax

return “non-taxable” if no related expenses are deductible on return

T4A(P) & T4A(OAS) o enter CPP and Old Age benefits per slips o Ensure # of months are entered for CPP (per slip)

T4RSP & T4RIF o enter amounts as shown in the corresponding boxes. o Ensure the “Spousal?” box is toggled to “yes” if spousal (per slip)

RC62 o enter the UCCB per slip. The amount will automatically go onto Line 117 of

the T1 for the lower income spouse. o Single parents can have the amount included in income of the child. To do

this the amount is still entered on the RC62 form but the election section must be set to Yes indicating the amount is to be included on the child’s income. Then on the dependent section the income of the child must be

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recorded and must include the UCCB amount.

T4E & T5007 o enter EI and WCB benefits received per slips. o Note- a corresponding deduction will show up for the WCB benefits received

on line 250. Enter other employment income not reported on T4 slips via “Other income”

worksheet. o Standby charges o Management fees-

NOTE- if management fees have not been included on a T4, discuss with partner whether to include it here or as self-employment income on a T2125.

o If entered as other income, ensure you enter the income on Schedule 8 so the proper CPP can be calculated.

Split-pension amount o See split-pension deduction below

Investment Income Slips T3/T5

o If it is a joint slip and we are splitting income, enter 50% as reported by spouse Slips should be reported on a consistent basis from year to year, so if

a joint slip is reported 100% by taxpayer in prior year, should be 100% this year.

o If slip is in a foreign currency (will note on slip so look out for it) indicate Currency (use annual average) Name of foreign country from which the income is sourced.

Must ensure if all US, that the name of the country is consistent for all slips with US investment income to ensure that all US income and withholding taxes are reported on the same Foreign Tax Credit worksheet.

o Enter actual amounts of dividends- the taxable portion will automatically be calculated by Profile

o If foreign business income is reported in Box 24 and withholding tax is reported in Box 33 of a T3, enter as non-business in Box 25 and Box 34 respectively. Otherwise, will not be able to EFILE return.

o If there is an investment in a Swiss company the client may be able to file forms to recover excess withholding tax taken over the last 3 years.

o Return of Capital- There is a place in the T3 screen to input Box 42- Return of Capital.

NCN to report it here. Complete a Trust Unit Carryforward tracking sheet with the return of

capital details, or add it to the existing tracking sheet from the prior

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year file. The return of capital should be tracked separately for each trust unit in each account so we will require the breakdown from the client or their investment advisor of the return of capital for each trust unit held.

NOTE- some investment companies automatically adjust the ACB of the trust units for return of capital. However, this adjustment usually occurs in the subsequent year. Therefore, for 2011 the ACB will have been adjusted for 2010 return of capital and earlier. Any sales of trust units that occur in 2011 will still have to be manually adjusted for the 2011 return of capital. Investment companies that do adjust

RBC Investors Group Other??- If unsure if the ACB is adjusted automatically and the

ROC is small, take a conservative approach and deduct it from the ACB. If ROC is significant, ask the investment advisor to ensure we do not overstate the capital gain.

o Watch out for foreign spin-offs on T5 slips Income from spin-off will be reported on T5 If electing to defer tax, return must be PAPER FILED with an

accompanying letter reallocating the ACB. The following corporations made eligible foreign spin-offs in 2012:

MeadWestvaco Corporation Sara Lee Corporation Kraft Foods Inc. ConocoPhillips

T5008 o Do not report these in the T5008 screen. Enter them directly on Schedule 3

instead because often the T5008 does not report the ACB of the investment. T5013

o Ensure all of the Partnership information is entered as reported on the slip Industry code Partnership ID # Tax Shelter # Partner’s % share of income

o Ensure all income and expense amounts per the slip are reported (ie- if there is a line for it in the T5013 screen, enter the amount)

o Source of net income Code MUST be entered, otherwise EFILE will reject the return.

Refund interest o Interest earned on a tax refund is taxable. Check the NOA and enter the

amount on Schedule 4. Tax Free savings account

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o Minister of Finance has said they understand there was genuine confusion around the program and they will be as flexible as possible in determining if taxes apply to excess contributions.

Capital Gains/Losses (S 3) S3Details screen If gain is to be split with spouse, enter % reported by spouse Transaction type- select the type that best describes the property being disposed

of Enter a description of the property disposed of Report proceeds, ACB and selling costs, if any If amounts are in foreign currency, either convert prior to input, or enter FX rate

where indicated o When converting foreign currency transactions, be consistent with the FX

rate used within the current year, as well as with prior years For ACB- convert using the applicable rate when the property was

purchased. For dispositions of trust units, ensure ACB is adjusted for ROC when required. Gains realized on the sale of government T-Bills, etc may show up on a gain/loss

summary for the client. These are typically recorded as interest income- enter on Schedule 4.

Note that for individuals, we are not required to do accruals of interest earned on bonds / GIC’s to year-end.

Ensure that the contact information for the investment advisor is recorded on the T1 Leadsheet or on a capital gain/loss working paper for future years.

If you need to summarize the information yourself, please use the capital gain/loss Excel worksheet and save it in the Caseware file.

To request a loss carryback to prior years, use Section III of Form T1A. Indicate the loss carried back on the T1 Leadsheet.

Document losses to be carried forward on the T1 Leadsheet. Watch out for trust conversions into corporations

o May show up as dispositions on gain/loss summaries o May also be identified via T3 or T5 income summaries that accompany

the slips o Some of the conversions that occurred in 2009 are listed on the intranet

site. Keep you eye out for others. o When identified, we should confirm if an election was made to defer tax

on disposition. If so, gain/loss on disposition should be nil. o 2011 should be the final year for this issue but there may be more so be

careful. Rental Schedule (T776) Identification

o Fiscal period- will default to full calendar year. If it is a first year or last year of a rental property, adjust the dates accordingly.

o Final year of rental operation should be “Yes” in last year of rental.

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o Type of ownership- Co-ownership- will NOT split asset additions or CCA between

spouses. You will have to enter each spouse’s share of the asset additions/disposals on each spouse’s return.

Partnership- will automatically split asset additions and CCA between spouses. Only input the asset additions/dispositions on one CCA schedule and it will be split between the spouses.

Income and Expenses o Enter address and number of units o Enter revenue and expenses per client information.

If you need to summarize the expenses yourself, please use the rental income Excel worksheet and save it in the Caseware file.

Prepare the summary on a comparative basis. When grouping numbers together on schedules or working

papers, indicate the aggregation in order to make the checking process easier.

o If there is a personal use portion this must be entered to remove the personal portion from the rental schedule. NOTE- Profile will automatically calculate the personal portion based on the % entered. For expenses that are 100% rental, the personal portion must be overridden. Ensure any overrides that are made are documented on the T1 Leadsheet and/or on the rental working paper.

o Enter the % ownership of the spouse, or any other co-owner at the bottom of the Schedule.

Self-Employment Income (T2125) Identification

o Fiscal period- will default to full calendar year. If it is a first year or last year of self-employment, adjust the dates accordingly.

o Last year of business should be “Yes” in last year. o Enter business name and address, if different from taxpayer’s name and

home address o Enter main product or service and industry code that best describes the

business activities. NAICS codes are now being used. Income and Expenses

o Schedule is split into Part 1- Business income, and Part 2- Professional income. Enter the income in the appropriate Part (Professional = doctors, lawyers, accountants, etc.; Business = realtors, other)

o If business income consists of commissions- ensure this box checked under “Type of income” in Part 1

o Enter revenue and expenses per client information. If you need to summarize the expenses yourself, please use the

self-employment income Excel worksheet and save it in the Caseware file.

Prepare the summary on a comparative basis. When grouping numbers together on schedules or working

papers, indicate the aggregation in order to make the checking process easier.

If taxpayer is registered for HST, enter all income and expense EXCLUDING HST. If not, INCLUDE HST.

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o Motor vehicle expenses get entered on a separate schedule to ensure that the personal use portion is removed. CCA on motor vehicles- must enter kilometres to limit the CCA

deduction to the business portion only. Fuel is only subject to GST, not HST, so ensure the correct column

is used. Client’s need to be maintaining a log books or the expenses could

be denied. o If there is more than one partner in the business, enter the other

partner’s share of the net income where indicated. Note that the CCA will automatically get split between partners (ie-

there is no need to split the asset costs and report on separate CCA schedules)

If there are any expenses that only relate to the taxpayer’s share of the business income, there is a section on the schedule to enter this.

Business use of home is one of these and is calculated on the bottom of the schedule.

o If both spouses have separate self-employment businesses, remember to pro-rate the square footage of the home for purposes of calculating BUOH so that we are not double counting home office expenses.

Foreign Income Income from foreign sources gets entered in the “Foreign income” screen Currency (use annual average) Name of foreign country from which the income is sourced. Must ensure if all US, that the name of the country is consistent for all slips with

US income to ensure that all US income and withholding taxes are reported on the same Foreign Tax Credit worksheet.

7. DEDUCTIONS

RPP Will come right off of T4 or T4A slip.

RRSP Confirm the RRSP contribution room per the 2011 NOA (or online)

o If it is a new client, please enter the RRSP deduction limit under “Option 2” when possible.

RRSP contributions- o Confirm carryforwards of unused RRSP contributions per the 2011 NOA (or

online) If these do not agree to the CRA, EFILE will reject the return.

o You can combine contribution slips that are made within the same contribution period for the same taxpayer onto one line. If so, ensure you run a tape showing the aggregation and attach this to the slips.

o Ensure they are put in the spousal column if the contributions were made into the spouse’s RRSP.

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o Contribution slips received for the 1st 60 days of 2012 that were not reported on the 2011 return should be reported in the “First 60 days of 2011 (not reported on 2011 T1)” contribution period. You will get an audit issue saying that a prior year adjustment to

Schedule 7 should be made. You can ignore this. RRSP deduction limit

o Confirm the RRSP contribution room per the 2011 NOA (or online) If this does not agree to the CRA, EFILE will reject the return If it is a new client, please enter the RRSP deduction limit under

“Option 2” when possible. o Document the 2013 RRSP contribution room on the T1 Leadsheet.

RRSP summary o You may wish to override the amount of RRSP contributions deducted for

the year if the taxpayer does not need to use them. This would be done on line D in this section. If an override is made, please ensure you document the unused RRSP

contributions carried forward on the T1 Leadsheet. Repayments under the HBP and LLP

o Confirm the HBP and LLP required repayments per the 2011 NOA (or online) If this does not agree to the CRA, EFILE will reject the return If it is a new client, please enter the RRSP deduction limit under

“Option 2” when possible. RRSP over-contributions-

o If the taxpayer’s calendar year contributions are in excess of their contribution room for the year, they may be subject to tax on the over-contributions.

o If an audit issue comes up with respect to RRSP over-contributions and you are not sure if a T1-OVP form is required, please ask.

Split-pension deduction (T1032) If a taxpayer wishes to split their pension income with their spouse to take

advantage of their spouse’s lower tax rates, use form T1032. o Ensure you are in the return for the taxpayer who is splitting their pension

income with their spouse o Select “Pensioner” at the top of T1032 o Go to Step 3 to enter the elected amount of pension to transfer to the

spouse. o You can use the pension optimization worksheet to assist you in

determining the optimal amount of pension income to be split. If using this worksheet, please ensure that the elected split-pension

amount is reasonable. If electing a split-pension amount, the income taxes withheld on the pension

income will also be split between the taxpayer and the spouse.

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This form will have to be signed by both taxpayer and spouse and will be kept in the file in case CRA asks for it.

Union and professional dues Union dues reported on a T4 will automatically be deducted. If not on the T4 slip, enter dues from receipts in “Other deduction” screen If the taxpayer qualifies for the GST/HST rebate, check “Yes” box.

Child Care Expenses (Dependant) Enter per client receipts/summary. If an individual is the caretaker, ensure their SIN is entered. If the expense is for a boarding school, sports school or camp, ensure the # of

weeks is entered. Expenses will automatically be deducted on the lower income spouse’s return,

regardless of which return the expenses are entered in (assuming the returns are linked, which they should be).

Moving Expenses (T1M) Ensure all of the pertinent information is entered. Can use either the detailed or simplified method of reporting meals and travel.

Whichever method is used, ensure the proper boxes are checked. Moving is an expense that is often reviewed by CRA, so ensure that

receipts/documentation is available to support the claim. Carrying charges and interest (S 4) Enter all carrying charges per client summaries Note- interest paid on money borrowed to invest in RRSPs or TFSA’s are not

deductible. If taxpayer has self-employment income, accounting fees should be reported on

T2125 instead. Report carrying charges consistently with prior year with respect to whether they

are on the taxpayer’s or the spouse’s return. Employment Expenses (T777) Ensure the employee has a signed T2200 to allow deduction of employment

expenses Enter revenue and expenses per client information.

o If you need to summarize the expenses yourself, please use the employment expense Excel worksheet and save it in the Caseware file. Prepare the summary on a comparative basis. When grouping numbers together on schedules or working papers,

indicate the aggregation in order to make the checking process easier.

If taxpayer is eligible for the GST/HST rebate, check “Yes” box. An employee is eligible if they paid GST/HST on expenses and their employer is a GST/HST registrant. In this case the employee should complete for 370 which needs to be signed by the employer so the employer verifies that they are not also claiming the ITC’s. Again remember to put fuel in the GST column.

Commissioned salespeople can only deduct commission expenses to the extent of

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their commission income. This area is under increased scrutiny from CRA so it is important to ensure expenses are reasonable. If auto is being claimed CRA is enforcing the logbook requirement.

Motor vehicle expenses get entered on a separate schedule to ensure that the personal use portion is removed.

o CCA on motor vehicles- must enter kilometres to limit the CCA deduction to the employment portion only.

8. REFUNDABLE TAX CREDITS

Senior’s Home Renovation Tax Credit To assist individuals over age 65 with cost of permanent home renovation to

improve accessibility or help a senior be more functional or mobile at home. Eligible costs incurred AFTER April 1, 2012 include improvements to home or

land, assisting with mobility functions and reducing the risk of harm within the home or land.

Credit is 10% of qualifying expenses to maximum of $1,000 credit. This is a refundable credit so could create a refund despite no income.

If expense also qualifies for medical expenses then can claim both! 9. NON-REFUNDABLE TAX CREDITS

Spouse/Eligible Dependant If we are not completing a spouse’s return but have added their information on

the INFO page, ensure that we obtain and enter their net income so that the spouse credit is not incorrectly claimed.

To claim an eligible dependant, say “Yes” to the “Claim as eligible dependant” question on the Dependant screen.

o Ensure the dependant’s net income is also entered, if any. Amount for children Check the “Yes” box in the Dependant screen in the return for the taxpayer

claiming the credit. Credit is $2,191 per dependant under 18. Credit can only be claimed by one parent.

Public Transit Passes Enter amount on the Other Credits screen. Does not have to be amount paid- it is based on the service period of the pass

(ie- amount paid in 2010 for a 2011 annual pass. An amount paid in 2012 for a 2013 pass cannot be claimed until 2013.)

A parent can claim the amounts paid for passes for children or their spouse if not claimed by the child.

Transit pass amounts can be split between spouses on a % basis. Students can obtain this information from a detailed breakdown of their tuition

payments that will specify the amounts allocated to the Upass. Children’s Fitness Amount Enter the amount of eligible fitness expenses paid during 2012 for each child in

the Dependant screen If the amount also qualifies as a child care expense it must first be claimed as

such, any unused amount can be claimed as fitness amount.

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Can claim up to $500 per dependant under 16. Fitness amount can be allocated between parents (ie- one parent can claim a

child and the other parent can claim a child). o To allocate, enter amount the taxpayer is claiming under “Percentage

claim” Children’s Arts Tax Credit

Similar to fitness tax credit but for the arts. Eligible expenses include fees for artistic, cultural, recreational or developmental activities. Ineligible expenses include purchase or rental of equipment for personal use, travel, meals or accommodation.

Common expenses will be art classes, music lessons. Math tutoring could be considered developmental and therefore eligible.

Minimum $100, max $500 of expenses for child under 16 (or 18 if disabled) An expense (for example dance classes) may qualify as either fitness or arts,

but can only be claimed under one. Costs related to a school curriculum do not qualify as eligible expenses.

Volunteer Firefighter Tax Credit After obtaining written certification from the chief, a delegated official or fire

department of hours worked (min. 200) you become eligible to claim the credit of 15% of $3,000 = $450.

You CANNOT claim both this credit and the $1,000 honoraria credit already available to volunteer firefighters. If applicable, determine which is more advantageous.

Family Caregiver Tax Credit (Not until 2012) For caregivers of dependants with mental or physical infirmity. Dependants

include spouses, partners, minor children. Credit is 15% of $2,000.

Medcical Expense Tax Credit for Other Dependants Under old rules no limit to claiming mecical expenses of yourself, spouse /

partner or child but had $10,000 for other dependant relative (parent or grandparent. NO cousins, aunts, uncles)

Under new rules the $10,000 limit disappears for parent or grandparent. Child Tax Credit Eligibility Under old rules only one CTC could be claimed per household. Now more than

one claim can be made per household (say if have 2 families living at one address)

First-time Home Buyer Amount Entered in Other Credits screen Each family (taxpayer, spouse and children under 18) can claim $5,000 upon

purchase of their first home. Credit can be allocated between family members/persons buying the home. Check “Yes” box if the taxpayer qualifies Enter any amount claimed by another individual on the purchase of the home,

if any. Tuition/Education Amount Enter per tuition slips from educational institution If transferring unused amounts to parents, ensure the dependant’s information

is reported on the dependant schedule including taxable income and NRTCs o If we do not prepare the student’s return, request a copy of their tax

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return to ensure all amounts necessary are picked up in determining the transfer amount.

o Document on T1 Leadsheet where indicated that the tuition transfer occurred.

o Tuition slip will have to be signed by the student authorizing the transfer of tuition to another taxpayer if the CRA queries the transfer.

Examination fees are now eligible for the tuition tax credit if paid to an educational institution, professional association or provincial ministry for exams required to obtain professional status. Fees must exceed $100. Final exams allowable, entrance exams not allowable.

For foreign tuition, all the old requirements are still in place but now the course can be as little as 3 weeks to allow for condensed courses

Information for tuition carryforwards is now available online. Medical Expenses Two sections to Medical schedule: line 330 for taxpayer, spouse and

dependants <18; line 331 for ‘other dependants’; Both sections must use same 12 month period;

o Sort and use the best 12 month period. o If claiming expenses from 2011, ensure they were not claimed on 2011

tax return Limit for older dependants is medical expenses must be > 3% of dependants

net income (max = $2,109); Can only choose from individuals entered in dependant schedule, cannot use

‘both’/ ‘spouse’/ etc description; Must enter Yes/No for attendant care / nursing home expenses – must have

disability certificate to claim attendant care expenses. Residents of retirement homes can claim expenses related to attendant care provided they meet the requirements of the disability credit. The home must determine the total amount paid for attendant care and allocate to residents – most are familiar with the requirements and it should be detailed in a letter – this is the most common expense rejected by CRA;

o Attendant care expense credit is limited to $10,000 is the disability amount claimed. If medical expenses > $17,546, would be better to claim medical and say “No” to disability amount.

Medical expense portion of Travel Insurance premium can be deducted as Private Health Premium;

Profile will put medical expenses on most beneficial return if Optimize box is set to “Yes” at top of schedule. If you want to change which taxpayer claims medical or to allocate a percentage of medical to each, choose “No” for Optimize, then answer “Yes” to the ‘Claiming medical expense?’ question. Allocate a percentage to claim, if the taxpayer is claiming all, it should be 100%;

For “Other Dependants”, names are taken from dependant schedule or can be entered directly. For those on dependant schedule, net income will transfer automatically;

24 month claim on DoD returns does not have to be only on deceased’s return; See chapter 12 of PYITR for changes to qualified medical expenses;

o They have now clarified that only medicine and drugs purchased from a licensed pharmacist on medical prescriptions are deductible. Therefore,

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cannot deduct naturopathic medicines or other medicines bought off the shelf.

o Also cosmetic surgery after March 4, 2010 is not a qualified expense Do not have to enter each expense separately- you are encouraged to run a

tape and enter one amount for common expenses (eg- group all dental as one line item)

o Ensure when grouping expenses they are clipped together with a tape. Watch for reimbursed portions of expenses from benefit plan summaries. If medical insufficient to claim, hold in file for next year.

o Hold in an envelope in the file or attach them neatly to the T1 file jacket. o Mark them as “Hold for 2013” o Enter the unused amount on the T1 Leadsheet where indicated.

Donations Do not have to enter each donation separately- you are encouraged to run a

tape and enter one amount If there are small donations from 2011 that were not claimed on 2011 return,

can pick up this year. However, if large consider a T1 adjustment request. Document inclusion of any prior year donations on T1 Leadsheet.

Can claim separately or grouped onto one spouse’s return Donations to US organizations can only be deducted against US sourced

income- ensure US net income entered on Donation schedule if necessary. If there is unused donations carried forward to 2013, document this on the T1

Leadsheet where indicated. Consider transferring to spouse of possible. Political Contributions Enter federal contributions on Other Credits screen Enter provincial contributions on BC 428 schedule

Instalments Confirm all instalments made by taxpayer online or via telephone Enter on Other Credits screen

Working Income Tax Benefit Will calculate automatically on Schedule 6 If it applies, ensure the questions at the top and in the middle of Schedule 6

are answered and the spousal information is correct.

10. REGISTERED PENSION PLANS

RRSP’s New anti-avoidance rules in effect similar to recent anti-avoidance rules

affecting TFSA accounts. Detail not required RDSP’s More flexibility for withdrawals is available to beneficiaries of an RDSP if they

have a shortened life expectancy. See rules if applicable. RESP’s Now family plans can be opened that allow assets to be shared among the kids.

IPP’s New rules for minimum withdrawals at age 72 and rules re contributions made

for past service.

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11. SELF-REVIEW

Review Comparative summary and detailed schedules to ensure they are complete

and reasonable o If there are missing slips (ie- columns from last year that do not have any

reported amounts) Check with client to confirm that they are not expecting the slips this

year Can also check with CRA, however they may not have

processed them in their system yet. Document confirmation with client on the T1 Leadsheet Delete the column from the applicable slip screen

Keep in mind that there are penalties of up to 20% of the gross income amount when a client has missed reporting a slip on more than one tax return in the last 4 years.

o Review 5 year comparative schedules for businesses and rentals to ensure allocations and variances are reasonable. Document explanations of variances.

Ensure all preparer queries on the T1 Leadsheet have been dealt with and signed off, and all significant issues/assumptions have been clearly documented.

Ensure all working papers are in the paper file and in Caseware and are referenced, supported, and reconcile to the final T1 schedules.

Ensure there are no outstanding audit issues in Profile that should be dealt with prior to submitting file for review.

12. FILE ASSEMBLY Printing Print return for review

o Sort the return schedules with the summaries on top (Comparative, Carryforward, 5 Year)

o Sign off each audit issue separately- if a question is asked, provide an answer, not just a tick mark.

When correcting review queries, it is not necessary to print the whole return again. Just print the Comparative Summary and any schedules that change, unless directed to do otherwise.

Slips/Client information Ensure slip bundles for each taxpayer are separate, organized, and ordered as

they appear on the “Slip Summary” printout. Ensure that for those slips that are split 50/50, a copy is in each spouse’s slip

bundle and the slip is clearly identified as “Split 50/50”.

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If there are information notices, other “junk” that is attached to slips, please ensure that these are either put in the “Return to Client” bundle, or discarded.

Items being returned to client should be neatly bundled and put in an envelope clearly marked as “Return to Client”.

o DO NOT put copies of slips or other information directly used on the return into the “RTC” bundle. The reviewer will do this upon review of the file.

Some slips are not returned to the client and are held in our files. These should be stapled (or clipped if bundle too big to staple) together with a tape total, sorted based on order of appearance on the tape. Leave duplicate copies of RRSP slips, etc. attached to the slip to be retained and the reviewer will separate when reviewed. Slips to be retained include:

o Tuition slips o Donation slips o RRSP slips

If we decide to retain medical or moving receipts in the file in case CRA queries, ensure they are identified as “To Be Retained” and neatly bundles together separate from the slips.

If a return is to be PAPER FILED, copies of slips must accompany the tax return. o Ensure the slips are neatly bundled and separated from copies of the slips

to be returned to the client/retained in the file o Clearly mark the copies to be sent to CRA as “CRA copies”

The only documents that should be pinned into the file when submitting it for review are supporting working papers. All slips, leadsheets and engagement letters should be held loose in the file. The reviewer will pin all necessary slips, etc. into the file upon review. The number of “bundles” of information in the file should be limited to the following:

o Slips to CRA (if paper filed), clearly marked as CRA copies o Slips for each taxpayer (include the ones to be retained in the file in each

taxpayer’s bundle of slips- these will be separated and pinned into file by reviewer upon review)

o Neat bundles of receipts for medical, HRTC, etc. ordered based on appearance on the supporting tapes.

o Envelope with all “RTC” information not used in the return that is to be returned

Scan client working papers (rental, business or other schedules) into the taxpayer’s Caseware file when possible.

Client documents such as disability certificates, support agreements and other “perm”-like documents should all be scanned into the Caseware file when they exist.

Other If the return is to be EFILED, ensure a T7DR(A) payment voucher is completed for

each taxpayer with a balance owing. DO NOT enter the amount owing. If instalments are required for 2013, ensure the required instalments are accurate

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and updated when required on the client letter. To do so, go to the Instalment screen. If HST instalments are required this should be flagged so CM can update the client letter.

Ensure the Admin Leadsheet is complete with: o details any special mailing instructions o forms to be signed o records to be returned to client o preparation time is updated and correct o Initial and date the “prepared” area

Ensure return status in Profile is set to “In Preparer Review”. If a spouse return exists but we are not filing their return, ensure their status is changed to “not filing” and the EFILE statue is changed to “No” on the INFO worksheet.

Place returns in “Files to be reviewed” box.

REVIEW Reviewer will review the returns and document any corrections that are required. Return will be given back to the preparer to clear review queries. Only minor changes

will be made directly by the reviewer. All others should be directed back to the preparer. Upon correction, the file should go back to the original reviewer. Once the reviewer is satisfied that the return is complete, the reviewer should print the

file to the printer by Jaine’s desk (HP 4015). o Ensure that a consent form and/or engagement letter is printed when required.

Reviewer should initial and date the “reviewed” section of the Admin Leadsheet. Ensure status of return in Profile has changed to “Printed” and the return has been

locked. If it is a PAPER FILE, change status to “Paper filed”. Take files down to the office supply room and place in the left-side cupboard on a regular

basis for processing by admin. RE-RUNS

If changes need to be made and the return has not yet been EFILED or PAPER FILED, we can change the return. Otherwise, a T1 adjustment request must be made.

The file will be given back to the original preparer to make the necessary corrections. In updating a return, often it needs to be unlocked in Profile. Ensure ALL family

returns are unlocked so any transfers or changes that may affect other returns are reflected on the appropriate returns.

You do not need to reprint the whole return when adjusting re-run returns. Just reprint the Comparative Summary and the schedules that changed.

Re-run returns should be put in the “Files to be reviewed” box or given directly to the original reviewer and clearly marked as “RERUN”.

Upon review of the return, the reviewer should remove any of the original returns from

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the file or ensure they are marked as “to be shredded”. Ensure that the file is still clearly marked as a re-run when put in the cupboard for re-processing.

A new T183 must be obtained from the client if the tax balance changes by > $200.

DELIVERY Admin have detailed tracking sheets to ensure all returns are processed, delivered and e-

filed. If ANY staff member is handing out a return directly, you MUST communicate this with the admin team to ensure that the tracking sheet can be updated.

STAFF RETURNS Staff members may use Profile and EFILE returns via Wisemanco for themselves and

immediate family members ONLY. Please refrain from preparing returns for friends, other relatives, etc. This is not just a firm policy but also a requirement of the profession.

Please clearly indicate staff returns by entering “STAFF” as the Partner ID on the INFO page in Profile.

Save all staff returns either in a Family Caseware file, or in the T1 Misc. folder on the G drive.

Staff returns are not reviewed, unless specifically requested. Therefore, ensure all references to Wiseman & Company as preparer are removed from the return

o T1 Jacket o Rental schedules o Business schedules

The returns can be EFILED or paper filed. If EFILED, please notify Jaine and she will record them on her control sheet and ensure they are submitted with the next batch of returns.

o Remember that a return cannot be EFILED while password protected

DECEASED TAXPAYERS Change to the INFO worksheet as follows:

o Remove Title o DO NOT change first name to “Estate of XXXX” o Change address to C/O our office o Provide Elections Canada with information should be “No” o Enter date of death if taxpayer is deceased

If early filed or elective, check “Yes”. These CANNOT be EFILED. Can EFILE Date of Death returns for taxpayers who died during 2011 or

in early 2012. o Override client salutation to “Dear Executor”

Will need additional documentation for our file:

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o Will o Death Certificate o Probate disclosure document

May not exist, but ask lawyers. If a trust return (T3) is required for the Estate, document on T1 Leadsheet and notify

Janet. We will require a new consent form, signed by Executor

o To be submitted to CRA with a copy of the Will and death certificate. We will require a new engagement letter, signed by the Executor Please draft a custom enclosure letter If the return is paper filed, attach a copy of the Will to the return. Ensure the Admin Leadsheet details all of the customized attachments/mailing

instructions, etc.