It’s tax season in Canada. And while some taxpayers prefer to leverage online software to prepare and file their returns, many opt for professional accounting practices to maximize their returns and minimize the chances of an audit. With more than 29 million personal returns filed across the nation in 2019, another busy year is on the cards for accounting firms and bookkeepers, as the April 30th filing deadline looms.
Before the rush hits, however, it’s worth laying the groundwork for successful, streamlined tax filings. Here are ten practical tips to help your practice prepare for Canadian tax season.
1) Find out what’s new
Before you start filing tax returns for clients this year, make sure you’re in the loop about 2020 Canadian tax changes. These include:
- Basic personal amount increase — Announced in the 2019 budget, the basic personal amount (BPA) will increase to $13,229 in 2020 as part of the federal government’s plan to reach a BPA of $15,000 by 2023.
- Home buyers plan expansion — The HPB allows first-time homeowners to withdraw $35,000 from an RRSP to buy or build their home without paying taxes on this withdrawal, then repay that amount over time. In 2020, the HPB is being expanded to cover “individuals who experience a breakdown of a marriage or common-law partnership in the year of making a withdrawal of in any of the four preceding calendar years.” This expansion applies even if they do not meet the first-time home buyer requirement.
- Additional types of annuities under registered plans — Beginning in 2020, two new types of annuities will be permitted for certain registered plans. These include the purchase of advanced life deferred annuities from an RRSP, RRIF, DPSP, PRPP or RPP, and the purchase of variable payment life annuities under a PRPP and defied contribution RPP.
For a full list of tax changes in 2020, check out the CRA website.
2) Remember the deadlines
For most individual tax returns the filing deadline is April 30th of the following year — so April 30th, 2020 for any 2019 personal tax returns. On-time filing is critical to ensure the continuation of Child Benefit and Old Age Security payments.
There are also exceptions. For example, self-employed persons have until June 15th, 2020 to file their 2019 tax returns but must pay any balance owing by April 30th, 2020. If your firm is filing returns for a deceased person, meanwhile, the date of death affects the filing date. If the death occurred between January 1st and October 31st of 2019, the return is due on April 30th, 2020. If the individual passed away between November 1st and December 31st, 2019, the return is due six months after the date of death.
If you’re filing on behalf of a business or corporation, different rules apply: Returns must be filed no later than six months after the end of each tax year — which is defined as the fiscal period of the company. For example, if a company’s tax year ends on March 31st, 2020, their return is due no later than September 30th, 2020.
3) Connect with current clients
It’s worth reaching out as soon as possible in the New Year and connecting with current clients. Maybe they’re decades-long regulars, or maybe they were referred to your firm for the first time last year. Either way, it’s a good idea to make contact, remind them tax time is almost here and encourage them to file as soon as they’ve got the right paperwork — such as T4 slips and RRSP receipts — in-hand. While you may not be able to confirm bookings in the first month of the New Year, you can get clients thinking about their returns and make sure you’re the first call they make when they’re ready to file.
4) Define Your workflow
As tax season Canada gets into full swing, define your workflow to ensure returns are filed as quickly and accurately as possible. Take a look at your filing numbers from last year and consider the number of current staff available. Estimate the approximate time for each return and create a booking schedule. As you confirm client meetings, enter key data such as name and contact information, preferred method of communication, filing preferences and any special requirements — such as back-tax filings, business closures or first year of operations for new companies — to identify the right mix of time and resources.
5) Get the Right Data
When it comes to filing taxes, it’s all about the data. If clients come unprepared to their appointments, it’s a waste of time for them and a waste of effort for you. After confirming every client booking, it’s a good idea to follow up with a email detailing exactly what they need to bring. This should include:
- Identification — Social insurance numbers (SINs) for all taxpayers and their dependants.
- Tax slips — These include employment income (T4), employment insurance (T4E), tuition (T2202A), Universal Child Care benefit (RC62) and all other income, pension or compensation slips.
- Receipts — Here, you’re looking for RRSP receipts, child care expenses, transit pass receipts, moving expense documentation, charitable donations and interest paid on student loans, to name a few.
- Other documentation — Clients should bring their notice of assessment/reassessment from CRA along with any business expense logs, custody arrangements or other relevant documents such as their volunteer firefighters certification or disability tax credit certificate.
6) Keep Clients Informed
To keep clients coming back year after year, you need to do more than file accurate returns: You need to keep them in the loop. This means providing a high-level overview of key filing data such as income, deductibles and investments and how that impacts their refund or balance owing. Be prepared for questions about RRSP contributions and beneficiary designations, especially for clients who have never used a tax filing service before. If clients do have a balance owing, ensure they know how to pay their balance and when it is due, or provide proof of receipt that you’ll be mailing their check or money order to the CRA on their behalf.
7) Offer multiple options
According to CRA data, more than half of all individual tax returns were filed using EFILE, while 30 percent used NETFILE — paper returns made up just 12 percent of all filings in 2019. What does this mean for your firm? That clients want multiple options, and typically prefer the convenience and speed of electronic filing. With software-based, at-home filing solutions becoming more popular, even tax expertise isn’t enough to bring in new business if you’re still relying on error-prone paper processes. Before starting any tax return, confirm with clients which filing method they prefer and make sure you’re equipped to meet their expectations.
8) Recognize potential risks
Individuals are ultimately responsible for the accurate filing of their tax returns, but accounting firms and bookkeepers also assume some liability for ensuring tax returns are accurate, truthful and on-time. While tax filing firms are protected from risk if clients supply falsified or incorrect information, the CRA describes a “Preparer Penalty” which applies to “any person who makes, or participates in, assents to, or acquiesces in the making of a statement to, by or on behalf of another person that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by or on behalf of the other person for a purpose of the ITA/ETA.”
In practice, this means that if you deliberately misrepresent information on a client’s tax return at their behest or of your own accord, multiple legal and financial penalties apply, as described on the CRA’s Third-Party Civil Penalties web page.
9) Know your limits
When tax season Canada hits full swing, typically in mid-March and early April, it’s easy for accountants to get overwhelmed by current client requests and new client bookings. To make sure you’re delivering the best — and most accurate — service possible, don’t overbook your schedule during these months. Whenever possible, stick to a 5-day workweek and don’t prepare tax returns on the weekend. If you opt for extended hours and extra days toward the end of April, make sure you balance this extra workload with time off to de-stress and clear your head. Ultimately, your goal is to provide comprehensive and reliable tax services — and that’s not possible if you’re not at your best.
10) Say “No” when necessary
Last but not least on our list of tax preparation tips? Say “no” when you need to.
While your phone will likely be ringing off the hook as April 30th approaches, decide in advance how many clients and bookings you can take on and then stick to that number. Here, it’s a good idea to have a few referrals on deck — other accountants or reputable bookkeepers who are willing to take on new clients. This lets you provide help without risking your business or your sanity, especially given the complex nature of tax returns. If potentially straight forward days suddenly get more complicated thanks to missing files or inaccurate information, you may need to spend more time than expected working with specific clients or searching for lost data. Saying “no” when necessary provides a critical buffer if bookings don’t go as planned.