Do your homework before paying to get your taxes done
Come prepared, and know what services you need
From the time of my first job, I did my own taxes — first, with the guidance of my parents; then later on my own.
I initially filed paper returns by mail and later joined the growing number of Canadians who use Netfile.
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All that changed, however, when my wife incorporated a business a few years ago. We turned everything over to an accountant and joined the ranks of Canadian tax filers who pay somebody else to do their returns.
Electronic filing mandatory for tax preparers
As of 2013, any tax preparer paid to file more than 10 T1 individual returns or T2 corporate returns must file electronically. The preparers can be fined $25 for each T1 and $100 for each T2 if they do not do so.
According to the Canada Revenue Agency (CRA), 53 per cent of the 28.3 million tax returns filed in 2014 were filed using EFile, the system tax preparers use to file electronically on behalf of clients.
With so many Canadians opting to use somebody else to do their taxes, here's a quick look at some things to consider when you hire a tax preparation service or an accountant:
1) Understand your circumstances
Do you have a simple return with a T4 and not many deductions, or do you have a myriad of other items to report, such as income from rental properties or a small business or estate issues? Take a good look at the qualifications of the tax preparer you are thinking of hiring and find out what kind of returns they can prepare.
- File by April 30 or face potential penalties.
"Do you feel that that person has the ability to do your return for you?" said Cleo Hamel, formerly a senior tax analyst at H&R Block Canada.
Making sure you're comfortable with who is doing your taxes is key, she said.
2) Know what you want from the preparer
Decide if you just need someone to fill out your tax return or if you also expect to get some advanced tax planning.
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"There are a lot of tax preparers out there who I would not call tax planners," said Tim Cestnick, Toronto-based author and president of the wealth management firm WaterStreet Family Offices. "They'll do a fine job at filling out the forms if you give them information, but they won't necessarily be able to save you much tax in terms of particularly creative planning."
3) Compare prices against services
Some tax preparation services have set fees that can vary according to the complexity of the return while the services of a professional accountant can cost hundreds or thousands of dollars.
A tax planner who does preparation of returns will generally cost more than someone who just does preparations, Cestnick said.
We see quite a large number of people come to us from the year before and we check their return, and they've missed credits.- John Dobbs, Liberty Tax Service Canada
"You pay a little bit more, but you also hope to reap the benefits of tax savings because of taking that approach," he said.
Find out what is included in the fee for preparing your return. For example, does it involve year-round support if you wind up being reviewed by the CRA?
"We do all the follow-up," said John Dobbs, director of Canadian operations for Liberty Tax Service. "When the CRA does the audits, we do it for [the clients]. There's no extra fee for that."
That's one big advantage of paying a tax preparer rather than doing your taxes yourself, he said.
"When the CRA audits you at home because you did it from the kitchen table with software, who's there to help you out?"
Community volunteer clinics
There is another tax preparation option for Canadians who meet certain income criteria.
Under the CRA's Community Volunteer Income Tax Program, low-income Canadians with simple tax scenarios can have their returns prepared by trained community volunteers.
To be eligible, a single person's income must not exceed $30,000; a couple's family income must not be more than $40,000; and an adult with one child can't have income higher than $35,000.
But beware, community tax clinics don't offer the option of receiving your refund up front like some discounters do.
The CRA volunteers also won't do returns for:
- Deceased persons.
- Individuals who file for bankruptcy.
- Self-employed individuals.
- Individuals who report capital gains or losses.
- Individuals who report employment expenses, business or rental income and expenses.
Accounting associations and some private tax preparation firms also offer free tax clinics to low-income individuals.
Some tax services offer to pay out their clients' CRA refund up front in exchange for a commission on the refund amount. This practice is known as tax discounting and is regulated under the Tax Rebate Discounting Act.
Caroline Battista of H&R Block Canada points that there are also situations where the 15 per cent discounting fee ends up being cheaper than the usual tax preparation fee and is a way to get your taxes done and walk away with money in hand.
4) Be prepared
If this is your first time filing a tax return, call and make a preliminary appointment with your tax preparer. Ask questions, and give the preparer some information about yourself. You may find you have more information and documentation to gather before the preparers can start doing your return.
Tax preparers have a way of teasing out information that may not otherwise occur to you, says Dobbs.
"In an interview process, tax preparers always know what to ask for," he said. "They'll notice something [you didn't]: you're getting child benefits? Well, did you put your kids in day camp? Did they take piano lessons?"
And if you have doubts about whether those previous returns were filled out properly, you can always have the preparer take a second look.
"We see quite a large number of people come to us from the year before and we check their return, and they've missed credits," he said. "It's money left sitting on the table or if they've had to pay, they didn't have to pay as much. We can get it back for them. It's just they could have had it sooner."
5) File electronically
Cestnick expects electronic filing will be mandatory for individuals soon, so he encourages people to start doing it now, if they are not doing so already.
Not only does it mean getting a faster refund, but it also starts the "three-year clock" sooner, he said.
Under the Income Tax Act, the CRA has three years from the date of your notice of assessment to audit or reassess your return, provided you haven't done anything illegal, such as tax evasion — in which case, you could be audited beyond that period.
"You start that clock ticking sooner when you electronically file because your notice of assessment comes faster," Cestnick said.
6) In the end, it's your return
If you neglect to provide a piece of information to your preparer, there may be negative consequences.
"Regardless of who does your tax return ... when you sign that tax return, you're accepting full responsibility for it, and if anything comes back to bite you in the butt, it is you, not the person who did your return for you," Hamel said.
"If you find a place that is not as reputable because you got a great price on [your return], if it does come back, you might be on the hook."
With files from Kazi Stastna