Ring...another phone call with the same story as the last one...these boomers are all being sandwiched between parents, friends with no kids, and their own kids...
... “you have to help me. My friend in the condo complex, has dementia. I am Diane’s Power of Attorney. Canada Revenue Agency just called and they are demanding that I arrange to pay my her tax bill. She doesn’t make that much income, how could she owe? Why did they call me? “
We learn Diane decided she couldn’t cope with the collections caller. She told CRA her friend would deal with it. Power of Attorney exists, once she loses competence it would mean a trip to court to obtain the right to act on her behalf. Expensive and risky, someone else less reputable than you could win the right to represent Diane.
Diane’s tax preparer only reported T-slips were presented. Diane apparently never produced all of her T4-RIF slips, medical expenses, donation receipts....There was no attempt to compare income reported against prior years; no reporting of a foreign pension, no questions, and no returns filed for 2008 or 2009, T4’s for caregiver not correct. This is early 2010.
The penalty? 20% of income not reported for three years in a row. Not a tax on income, but a penalty on income not reported has been assessed, in this case almost $10,000. This is in spite of tax credits that bring taxable income to nil, even with unreported income. We will look at fairness when the re-assessments arrive in mid 2011.
All of the financial documents and tax returns back to the early 1990’s must be obtained for all accounts with financial institutions and mutual fund companies. Diane’s financial consultant/broker kept changing firms, and every change, new accounts and underlying that, new mutual fund accounts for every single mutual fund. Paper is almost non-existent, but T-slips tell enough of the story to get us started. Little do we know there will be over 50 accounts to account for.
This documentation is required to piece together the Adjusted Cost Base (ACB) of the investment holdings and to ensure that Diane’s holdings are identified and protected. That is, after all the responsibility of the Power of Attorney, to act for that person within the bounds of the law, whether or not that person respected the law. ACB is required to calculate the gain or loss. At date of death, there is a deemed disposition of everything mom owns.
1995 to 1999 tax returns are never found. The tax services office no longer stores those years. Why would this matter? The capital gains election in 1994 was for a pool to use against mutual funds capital gains, both from T-slips and from sales proceeds. If those mutual funds were still held in 2004, you could add any remaining pool to the ACB of the holdings.
Each year mutual fund earnings reported on the T3 slip would may include a portion of the income as capital gains. We could not ascertain if those capital gains allocations had been reduced by a claim against the 1994 election pool or not. As a result, can’t add back the unused pool from 1994 in 2004. We don’t know how much to add back, if anything.
10 months later, we have sufficient information necessary to file returns for the previous three years, and adjustments for six years prior to that on a voluntary disclosure, submitting the extra $5,000 for unpaid taxes. We added RRIF and investment income, deducted expenses, amended tax credits, reported caregiver income and benefits for room and board on T4’s.
Who are you likely to be financially responsible for? Your parents, a sister, a neighbour, friend or child? What would you do if this was you making the call?
1.Would you ignore tax returns and T4’s filed incorrectly, and investment losses?
2.Would you wait until Diane dies to deal with her affairs, accepting what’s in her portfolio, maintaining status quo? Is there an emotional attachment to Diane’s investment choices expressed by beneficiaries? Would you move to protect Diane’s assets from deteriorating in value? Would you work to simplify active accounts, amalgamating & closing accounts, shop for interest rates?
3.How would you know if the investments were generating or ever had generated income? Would you organize the documents and do analysis of the accounts and tax returns? How would you know the terms, when for example, GIC’s would be maturing? What if you weren’t getting statements of account because they had asked for them to stop?
4.How on earth would you tackle such a project?
This book, with all it’s checklists, is my answer to how to take over their financial affairs. You never really know someone until you walk in their shoes. This books is about how to walk in someone else’s shoes. Sometimes it's not a bad idea to start practicing now; and when the time comes, you will be prepared to take that walk.
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