I don't support political parties! Please stop calling us.

12:04 PM |

Once upon a time, I knew someone who was running for the Liberal nomination in South Delta.

I paid $10 to join the local party in order to vote for my friend. What a mistake.

I attended the meeting which was like a juvenile chanting experience with people marching around with placards. It all seemed very odd.

She didn't win. That is the only time I ever attended a political rally in support of a candidate and the only time I've ever paid anything to a political party that I can remember.

Later I found that not only was my name included on the Liberals supporter listing for all time, but so was my husband's. He accuses me of having signed him up for a party, when in fact nothing of the sort happened. It may have been enough that his name appeared on our joint account cheque.

Today, again, the Liberal party called. Each time they call, I ask that we both be removed from their call list. Each time the caller agrees they will ensure my name is removed. Until the next call.

Can anyone explain why our names remain on the call list when I have requested they be removed over and over?

I am registered on the www.DoNOTCall.ca listing. That isn't enough though, political parties are exempted from that registry. Guess who writes the rules...

BTW, if you haven't listed your cell phones on the do not call listing, that's now an option you may wish to take advantage of!

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PST in BC update

11:42 AM |

This is very odd. My husband, a teacher, received a letter addressed to him, from the Outreach Project Manager in the BC Ministry of Finance this week. It's about how to consult with PST specialists.

This is very odd. He's never been a registrant and he's definitely not an accounting professional. I wonder if all the teachers in BC received this letter, or somehow I've morphed in to his name in their files by some miraculous magic trick. Or, did they send the letter to the wrong list of people? It's funny, they don't seem to want to treat teachers as professionals and definitely don't want to pay them as professionals, they must have slipped up.

The letter informs him that professionals will be able to contact PST Tax Specialists by calling toll free 1 877 388 4440 or by email CTBTaxQuestions@gov.bc.ca

He can also request a consultation with a ministry tax specialist by requesting on a form a www.sbr.gov.bc.ca/ctb/ask_a_tax_specialist.htm

Someone will contact him directly. It says he can find out more at www.PSTinBC.ca and subscribe to what's new page at www.sbr.gov.bc.ca/msbr/whats_new?consumer_taxes/whatsnew.htm

I suggested he call or email now, as every teacher in the province likely received this letter and of course, is interested in how PST works. They'll all want to know is whether school supplies will once again be exempt from tax and whether kids clothing will qualify as exempt. And bicycle safety gear, that's high up on the list of concerns. After all they can't afford gas, so riding a bike to school is more affordable and tax free safety gear just makes sense.

Registration starts January 2, 2013 and apparently the registration process with be eTaxBC, which will include online registration, filing of returns and payments, as well as account maintenance.

I told him not to worry, I don't think teachers will have to register, but of course he's so sure that the politicians in BC have such a hate on for teachers that anything is possible. BCGEU get a 4% raise over two years and teachers get nada, zip, nothing. I'd like to know, do students who hated school become politicians just to get back at teachers?

Maybe they'll make teachers charge PST to the kids for free lunches, you know, all those power bars that I send with him to school to give away in his classroom. I guess I better stock up and send more food with him for the kids, since he just told me the VSB took away the free lunches, or at least restricted them and let go a bunch of staff that used to provide free lunches in the DTES because an accounting firm told the VSB this was the way to save money.

I'm sure hoping that accountants don't have to register for PST either... Sigh... guess I better start reading up.

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Tutoring for a person with a learning disability

11:35 AM |

Medical Expense Tax Credit

The cost of the following item may be eligible to be claimed at line 330 orused in the calculation for a claim at line 331 for dependent relatives on your income tax form.

Recently the question about tutoring has come up and I thought I'd share some work that Claudette Laroque, the communications expert on staff at LDAC and I co-authored in 2011. Claudette and I served on the Disability Advisory Committee to advise CRA about disability administration from 2005 to 2010.

www.ldac-acta.ca

Tutoring Services for persons with learning disabilities
For persons with learning disabilities, Canada Revue Agency has expanded the list of expenses eligible for the METC to include tutoring for persons with learning disabilities.

1. to remedy basic academic skills notably reading, spelling, written expression and mathematics when the delay in acquisition of basic academic skills is secondary to specific learning disabilities.

2. to remedy deficits and maximize strengths in the learning disabilities profile including organizational strategies, study skills, time management, coordination activities, social skills training, strategies to improve attention, memory, reasoning, logic, communication, and non-verbal visual-perceptual abilities.

To be eligible, the following information must be provided:

tutoring services are supplemented to the individual's primary education;
a medical practitioner prescribes in writing that the individual is a person who because of a learning disability requires the tutoring services to supplement the individual’s primary education and;
a letter from the school principal/resource teacher confirming the diagnosis of learning disabilities, and the need for tutoring services to supplement the child’s education;
a letter from the tutoring business certifying that the child is in receipt of tutoring services because of his learning disability along with starting date and a detailed description of the child’s program with the tutor related to his/her learning disabilities;
tutoring is provided by someone ordinarily engaged in the business of providing tutoring services to the public and is not related to the patient.

For more information on medical expenses please visit the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/llwbl-eng.htmlits income tax guides or from any tax service office.

Tax decisions should not be made simply on the basis of this information fact sheet. You are advised to photocopy this post and give a copy to your tax advisor. For further information contact your regional taxation office. Addresses and telephone numbers are listed in the government section of most telephone books.

You may wish to refer to S. 118.2(2) of the Income Tax Act on the Justice website for the exact wording of the current version of the Act,

http://laws-lois.justice.gc.ca/eng/acts/I-3.3/page-168.html#docCont

referencing in particular these sub-sections:

(l.8) for reasonable expenses (other than amounts paid to a person who was at the time of the payment the individual’s spouse or common-law partner or a person under 18 years of age) to train the individual, or a person related to the individual, if the training relates to the mental or physical infirmity of a person who

(i) is related to the individual, and

(ii) is a member of the individual’s household or is dependent on the individual for support;

(l.9) as remuneration for therapy provided to the patient because of the patient’s severe and prolonged impairment, if

(i) because of the patient’s impairment, an amount may be deducted under section 118.3 in computing a taxpayer’s tax payable under this Part for the taxation year in which the remuneration is paid,

(ii) the therapy is prescribed by, and administered under the general supervision of,

(A) a medical doctor or a psychologist, in the case of mental impairment, and

(B) a medical doctor or an occupational therapist, in the case of a physical impairment,

(iii) at the time the remuneration is paid, the payee is neither the individual’s spouse nor an individual who is under 18 years of age, and

(iv) each receipt filed with the Minister to prove payment of the remuneration was issued by the payee and contains, where the payee is an individual, that individual’s Social Insurance Number;

(l.91) as remuneration for tutoring services that are rendered to, and are supplementary to the primary education of, the patient who

(i) has a learning disability or a mental impairment, and

(ii) has been certified in writing by a medical practitioner to be a person who, because of that disability or impairment, requires those services,

if the payment is made to a person ordinarily engaged in the business of providing such services to individuals who are not related to the payee.

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Students highlighted in Harper press release today

6:22 PM |

Harper highlights all the tax credit programs (click to access the press release) that could help families with back to school.

Not a bad refresher in case you'd forgotten about tax credits and students.

The one they forgot to mention? Moving...but CRA does have it on their student page...

Moving Expenses for students to / from university or college can be tricky and easy to forget about...

And sometimes in the thick of it all, with no income, you don't think to make the claim because there's no income in the year, but remember those moving expenses carry forward to be used when there is income to use them against.

http://www.cra-arc.gc.ca/students/

Print out T1M forms now while it's still fresh on your mind, and remember to complete one for each time there's a move.

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Q&A Master Quicken Software Webinar

3:53 PM |

I promised answers to the questions that were asked today during the webinar on Master Quicken Software Overview, at least those that were not answered during the workshop.

I managed to grab a snapshot before the workshop shut down, and I think I caught all the questions, but if not, or you need more information, or want a private consult, I can be bought...well, maybe not bought, but hired for an online consult on using Quicken...we can meet online using GoToMeeting.

email me @ eileen@taxdetective.ca or call me at 604-943-7414

Q: Can you import Microsoft Money into Quicken? Are there issues?
A: Yes, it appears you can, but I haven't tried it. Under the File > File Import, Microsoft Money is listed. There are instructions and it looks like they address the issues in Quicken's Help. When I first started using QuickBooks, I exported my Quicken files for small business over to QuickBooks (that was back when QuickBooks was version 2)

Q: Is there a difference between Quicken and QuickBooks Pro?
A: QuickBooks Pro doesn't have an Investment module. QuickBooks has an inventory module and it's possible to track ACB using the Inventory Items but there's no way to account for FMV and Comprehensive Income reporting requirements for unrealized gains and losses net of tax

Q: If you are a ProAdvisor, how can you reach the ProAdvisor Team to get your copy of Quicken?
A: Look on your letter that comes with your membership to find the phone number to call them. I really don't want to post that number in the blog. Email me if you can't find it.

Q: What's the link to purchase your eBook?
A: You'll find a link to purchase the recording of this presentation and the e-book and case study here: http://www.taxdetective.ca/quicken.html

There's discounts, if you are an IPBC member, so log in as a member to www.ipbc.ca and then select Join IPBC > Our Partners and click on my Logo on the partner page to open my partner page. At the bottom of my partner page, you'll find a link to 50% off products I've co-produced with IPBC and a 10% off products I produced on my own. The recording is on the 50% off page, and the eBook/Case study called Laying Tracks is on the 10% off page.

Q: If you are a ProAdvisor who has the 2011 version of Quicken, can you get the 2012 version of Quicken?
A: I did, again contact the ProAdvisor team at their number found on your ProAdvisor letter (look for your QuickBooks disks, it's with the disks)

Q: How about accounting for Options trading?
A: I've done that once or twice and yes, it's possible.

Remember that if someone is doing serious trading they may have a business, and their income may not be on account of capital.

Q: How about puts and calls?
A: That's a type of Options trading.
I went looking for a good description in Google because not everyone will know what puts and calls are and found this:
http://daytrading.about.com/od/daytradingglossary/g/OptionsCallPut.htm
Basically you're buying something on contract before you are buying something, so yes, you might have to play around with which investment transactions you use and there is also a Short Sale / Cover Short Sale transaction type.
When it comes to accounting for investments, you're really following the money, and at times, when there is no money, like when you are assigned a change in ACB, there's income to record, but no money. I'll show you how to handle that in January or you can buy my eBook/Case Study now, or hire me to consult if you prefer.

Q: How would you handle a TFSA if it was in a self-directed stock account?
A: The same way I'd handle an RSP in a self-directed account. I'd set up a TFSA account, and start buying, recording income and expenses and sales.

Q: Marcel tells us he's been using Quicken since the 90's primarily for investment and loves it.
A: Marcel I've accounted for millions in portfolios with US currency too, and day traders with multiple identical properties in a variety of accounts held by various taxpayers. It's possible with a little imagination to be very creative and I've never met an investment I couldn't account for yet in Quicken.

Q: In January, 2013, will you please cover US funds vs CDN funds in investments and expenses
A: I will for sure. Between now and then, I and several others discovered it's best to use a clearing account to move funds in and out of foreign investment accounts if you're going to attempt it on your own.

Q: How do you keep track of investments that are done by an investment manager such as Investors Group? The person makes monthly payments into Investor's Group and they manage the mutual funds..
A: This is the perfect way to actually figure out whether or not those mutual funds are making money. I recommend you find out whether they are units or shares, because if they are shares, you can trade between funds without incurring gains until you sell outside the group of funds. One of my articles, Hot Tips for Mutual Funds in Canadian Money Saver covers off how this works.
http://www.canadianmoneysaver.ca/authors/eileen-reppenhagen
You can record it either way, depending on the legal structure in Quicken, basically you decide if you want to record gains or not.

I will cover that in January 2013 in the 4 part series hosted by IPBC. You can register for that series online at www.ipbc.ca when they post the webinars.

Need more information about the services I offer specific to mastering Quicken software?
http://www.taxdetective.ca/growyournetworth.html

And... if you're wondering how to ask your clients all the questions you need answered?

I have the perfect solution and it's cheap, only $3.95!

Click here to view the WorkBook (oh come on, do it, this is actually fun to see the pages flip)
and then...
Click here to purchase 24 Word fillable forms, an easy-to-complete, user friendly workbook

Some bookkeepers have bought copies for all of their clients and give them away for Christmas presents, so contact me offline by email if you want a bulk price! We can talk turkey.

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7 Reasons to attend tomorrow's workshop: Master Quicken Software: Overview

5:19 PM |

Why bother with keeping score on your finances?

1.To facilitate communication with partners, spouses, family, financial planners, tax preparers, accountants, auditors, bankers

2.To manage finances /aka cash flow, money, purchases, debt, leveraging

3.To calculate what to sell when, i.e. to utilize losses to minimize taxes

4.To motivate self to plan to grow net worth

5.To calculate ability to live within your means and to review retirement income expectations

6.To protect client’s interests; document lifestyle and cash flow in case of audit; cross reference transfers and explain deposits; list assets to assist Power of Attorney in case of incompetence, inability to function or Executor in case of death

7. To manage client risk; reconcile for identical property transactions, stopped/deferred losses, and ensure income, expenses and capital transactions are reported

Register now!

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eBook & Case Study

1:55 PM |

I've been hoarding this e-Book and case study about using Quicken software for way too many years, thinking I'd get around to re-writing it. The truth is that would be so boring for me as not much has changed, other than we've seen the addition of TFSA's.

So today, I've posted it up for sale for $9.99 and for IPBC members, they should find a link to get 10% off later today or tomorrow.

On Thursday, I'm doing an overview of using Quicken software for www.ipbc.ca and if you haven't already signed up, this is the link to find the webinar to register.

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Best practices for Mastering Quicken software

4:23 PM |

•Obtain Authority

•Establish Legal Authority

•Engagement letter

•Determine CRA Authorization Level 1, 2, Power of Attorney, Executor, etc.

•Complete Forms, T1013, RC59

•Monitor Election deadlines

•Registration with My Account, Represent a Client or My Business Account

•Access Information from client or their financial advisors

•Accounts

•Assets including prepaids and receivables, registered and unregistered accounts

•Insurance

•Liabilities

•Income

•Expenses

•Ask informed questions

•What do you own?

•What do you owe?

•Insure?

•Cash in?

•Cash out?

•Compliance?

•Keep current

•Update

•Reconcile

•Report in Draft

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Historical Backgrounder on Investment Taxation

4:12 PM |

Investment Accounting for Tax Purposes

Taxpayers must report all investment activity on personal, corporate and trust tax returns.

Challenges given the range of investment opportunities available include:

· Obtaining complete historical records and documentation

· Complexity of transactions

· Tax treatment

· Accounting treatment, timing, allocations, methods

There are many risks inherent in tax preparation when investments are involved:

· Accurate calculation of the adjusted cost base

· Accurate calculate of capital gains and losses and utilization of carry forward/back

· Reconciliation of the change in ACB each year to the T slips and other transactions that should be reported as income or expenses

· Calculation of comprehensive income net of tax for mark to market investments

· Giving of advice

· Monitoring source of cash (Proceeds of Crime, Money Laundering and Terrorist Financing (FINTRAC)

· Classification of investments as capital or current assets, for example land held as inventory

Comprehensive Income

Accountants also account for investments for financial reporting purposes and calculate tax consequences in order to report under the new Comprehensive Income reporting requirements

October 1, 2006, it became mandatory for Reviews and Audits of reporting entities for interim and annual reports (including non profits) to provide Comprehensive Income statements and to record certain assets as fair market value.

How does one keep track of ACB, FMV and the tax consequences and prepare working papers for this new reporting requirement?

October 1, 2007, non reporting entities were to begin to comply for both interim and annual financial statements but that has been postponed (check the current status).

The workshop I'm presenting in January 2013 hosted by the Institute of Professional Bookkeepers of Canada (www.ipbc.ca) will provide practical solutions to meet the challenges and mitigate the risks of accounting for investments for tax purposes.

Significant dates to remember regarding investment taxation:

n 1917 Income Tax Act

n 1927 CRA founded

n 1966 CPP program commencement

n 1971, Valuation Day, inception of Capital Gains

n 1972 EI

n 1988, Cumulative Investment Income Limit (CNIL) calculations commenced

n 1991 GST

n 1993 Child Tax Benefit

n 1994, the last year $100,000 Capital Gains Lifetime Exemption claim, cost basis may have been adjusted if election filed

n 2004 CGE flow through pool eliminated after 10 years, ACB adjustment for un-utilized remainder of pool

Benefits of accounting for your portfolio and conferring with a qualified accountant

n Legal fees can be significantly reduced for asset listing required when probating the estate of a deceased person

n Portfolio calculations will be beneficial for life cash flow and growth planning

n Portfolio calculations are beneficial for estate planning

n Investment analysis combined with a knowledge of taxation may reduce tax during lifetime, at death and for the estate

n Analysis of earnings and growth may lead to better choices, reduced risk of missing out on changes in the market

n Net worth and portfolio analysis lead to planning opportunities for:

q Net worth maximization

q Income tax minimization

These are just a few of the 27 reasons for keeping track of your ACB. You’ll find all 27 reasons on my blog (just type 27 reasons in the search this blog box)

What four steps would you take to account for investment?

Step One – Verify Opening Balances

At the heart of accounting for investments is tracking the adjusted cost base (ACB) of your client’s investments.

The ideal situation is to request clients with active investment portfolios provide their documents frequently throughout the year.

One way to handle this is to request a duplicate statement and additional reports from investments such as flow through investments are sent direct from the broker/banker/insurance advisor every month.

Record the bulk of the year’s investment transactions prior to tax season. This affords more time to verify complex items with third parties such as brokers and bankers.

Warnings before embarking on investment accounting:

Premature greying can occur when calculations of flow through investments are undertaken in the middle of April.

Sudden death can precipitate the requirement to calculate all investment transactions since 1971 in order to determine that appropriate actions were taken by the taxpayer in years past that would not block a Clearance Certificate (or if not caught until later, and if fraud can be proven) would require payment of taxes, penalties and interest by the beneficiaries.

First Time Clients

The first time a client with assets and investments asks you to prepare a personal tax return, determine the opening ACBs and capital loss carry forwards (LCFs).

Both ACBs and LCFs are ongoing, necessitating an accurate starting point.

To accomplish this, the client’s entire investment and tax history must be obtained.

Obtain information both from the client and corresponding verification that was the client has recorded was accepted and recorded by CRA.

Document all investments, registered and unregistered, assets of all kinds including principal residence, cottages, boats, cars, RV’s, timeshares and don’t forget insurance products, especially Segregated Funds. Oh yes, include any associated debt because you will need to ensure that attribution rules are not a problem.

Don't forget to include principal residences where a portion of the residence was utilized as a home office or a corporate office (commercial tenancy rules apply here and GST/HST applies from $1 rent).

Verify that the changes in their holdings each year were reported correctly on the tax returns. Often capital gains or losses are not reported at all or calculated incorrectly. This may necessitate a discussion with the client about a voluntary disclosure or it may require a deemed assumption of a disposition and resultant adjusted cost base without the benefit of a claim for the gain or loss if only the current year is adjusted.

Source – False Statements in Prior Years – IC01-1 Voluntary Disclosures P.67

Below is a checklist ofitems the accountant will need to calculate the ACB and capital LCF and verify that income and expenses were claimed in prior years:

· Tax schedules and returns

btain applicable prior years’ tax returns, keeping the following significant dates in mind

1971 includes valuation day
1988 was CNIL commencement
1994 was the last year for the Capital Gains $100,000 lifetime exemption claim
2004 end of flow through pools from 1994

· Statements from:

o Brokers transaction reports by month for all previous years since inception of each account or computer generated cash transaction reports which denote all transactions including cash dividends, reinvested dividends, buy, sell, split, etc.

o Bank accounts by month to verify source and transfer of funds

o Wills or Estate documentation to verify inheritances and contracts that survive the will

o Documentation to establish source of funds for other capital transactions or windfalls

o Registered (RSP, RIF, RDSP, RESP, TFSA) accounts for all previous years since inception

· Documentation of special transactions not reported on statements

· Calculations for special transactions

· Contracts for purchases and sales of assets not recorded on the broker statements

· Reports from third parties

· Insurance contracts

o Tax consequences and insurance? yes, Seg Funds, dividends…etc.

Comparison to Canada Revenue Agency (CRA) records available in My Account

To obtain CRA records, have the client sign a T1013 form or an RC 59 for a corporate or trust client. These forms allow CRA to communicate directly with the accountant about the client’s tax matters and allow the accountant to access the records available on the CRA My Account system.

Request older returns in writing. It may take weeks/months to receive printout’s of older tax returns for all prior tax years, and may no longer be available back to 1988. If you request copies of those and older returns, it may take months for them to send someone to hunt them down in storage.

It’s better to request the online printouts where available, not the copies unless it’s absolutely essential that you see what was actually filed.

Often everything needed except returns more than 3 or 4 years old are available on My Account is available at the CRA website: www.cra-arc.gc.ca

Step 2 – Record the Current Year’s Activity

Accuracy of the current year’s opening ACB and capital LCF for the new client, and reporting of capital and income transactions for prior years must be verified first.

Only then is it possible to account for current year transactions. Adjusted cost base is calculated using weighted average cost. Calculations should be done in chronological order in order to determine new average costs.

It’s important to remember this caveat does not always hold true. Sometimes the broker will date the receipt of a return of capital after the shares have been sold. The ACB of those shares should be reduced by the return of capital first before the shares were sold. Sometimes it’s necessary to amend the dating of transactions in order to effectively deal with situations like this one. Every year there are a few transactions that must be adjusted to sort them logically in order to end up with the right result.

Gather Data

Current year’s investment activity will likely include these main transaction types:

1) Income, such as interest or dividends

2) Capital, such as capital gains or losses, reinvested dividends

3) Purchases

4) Sales

5) Other, such as investment tax credits, stock splits, spin-offs

6) Return of capital (decreases ACB)

7) Income allocated to increase ACB

8) Cash transactions in the account

Differences between what is recorded in the accounts and what the T-slips record may require reconciliation and investigation or explanation. Often the company whose shares are held will have an explanation for their particular transaction in the shareholder information section of their website. Look there first, then call the broker/agent if you can’t find what you need. Usually the client will not have understood that the explanation they received was necessary for you to calculate their taxes and have relegated it to the shredder or the recycle bin.

Income should be reported on required T-slips which should be reconciled against the transactions recorded on account. Capital transactions may have a variety of sources.

Both categories require data to be supplied by your client, including the following:

· T-slips that report interest income, dividends or other income or investment related expenses include:

o T3 Statement of Trust Income Allocations & Designations

o T5 Statement of Investment Income

o T101 Statement of Resource Expense

o T600 Ownership Certificate

o T5008 Statement of Securities Transactions (doesn't include deemed dispositions and this can be very dangerous if you assume this report is complete, it's not)

o T5013 Statement of Partnership Income

o Foreign income slips

· RSP & RIF Data

Dependent on where these are held, obtain statements and the following

T-slips from broker or bank

o T4RSP Statement of RSP Income

o T4RIF Statement of Income from a RIF

o RSP and RIF withdrawal slips / Transfer documents

· Broker’s statements and transaction slips for non-RSP and non-RIF investments

o Annual broker account summaries of purchases and sales

o Mutual fund statements for each fund held in a broker’s account

o Mutual fund annual reports

· Contracts from third parties for purchase and sale of investments, changes in the status or valuation of investments

· Provincial and federal tax credits for investments

· Deal sheets and original documentation for complete real estate deals plus closing statements of adjustment (including any side deals)

· Commission confirmation from real estate brokers

· Appraisals for change in use for real estate

· Documentation of debt acquired and payments to verify payment of principal and interest deductability

· NEW! RDSP’s and TFSA’s are trusts, just like RSP’s and RIF’s and the same rules apply. It’s necessary to ensure there aren’t identical properties involved between related parties.

Ownership of Investments

Ownership of investments for individuals can take a multitude of forms. The following is just a sampling for the accountant to keep in mind.

· Co-owners (real estate)

· Tenants in common (real estate)

· Direct ownership such as in

small business shares, qualified farm property, share certificates, real estate, depreciable property, bonds, debentures, promissory notes, mortgage foreclosures, conditional sales, repossessions, personal-use property, listed personal property, life insurance and annuities, segregated fund insurance contract which holds mutual funds

Ownership held in trust in accounts like RSP’s, RIF’s RESP’s, RDSP’s, TFSA's and non-RSP broker or bank accounts

Ownership held through third parties such as trusts or corporations

NOTE: Absolutely imperative!

No matter what form of ownership, ensure that the name on the documentation is the same name as the taxpayer/trust/corporation/etc. recording the transactions for that property on their tax returns.

And just because there's joint ownership doesn't mean that the income and capital gains/losses are shared jointly. Attribution rules require that income attributes back to the original owner of the asset. If that's an inheritance, income earned on the income may be attributed, but the original capital, and it's capacity to produce income will result in the income attributing back to the original holder. That's why it's important to consider co-mingling of funds before the calculations overwhelm you every year at tax time!

Data Entry

Each asset, debt, bank or broker account should have a separate account in a ledger to record the transactions since the inception.

Each account for all related family members must be recorded in order to check for stop or superficial losses.

Record all transactions including:

Transfers of cash/shares/units between accounts, taxpayers, to or from registered or non registered accounts
RSP , RIF, RESP, RDSP, RPP,TFSA etc... contributions and withdrawals
Purchases net of commission
Proceeds net of commission
Interest income
Expenses including margin interest, interest on debt, property taxes, accounting and legal fees
Deferral of property taxes
Cash dividends, reinvested dividends, ETF (exchange traded fund) distributions (no cash/no units), Flow through income (ACB adjustment)
Capital gains distributions
Employee stock options (exercised, expired, granted, vesting)
Return of capital
Stock splits
Short selling/cover short sell
Puts and calls
Switches (between mutual fund shares of corporation can elect tax free transfer)
Swaps

Held by Brokers

To ensure that all transactions have been included, the accountant should make certain that the wide variety of information possible from a client’s broker is complete. Examples of this would be:

· Mutual funds

o T3s report income distributions. They do not report capital gains and losses on the disposition of units of the mutual fund. These must be calculated in the same manner as for non-registered fund shares through the use of annual tracking of purchase and sales transactions.

o It is important to identify segregated funds as the units for these funds are included on the T3 slip and you would be double counting if you accounted for the disposition again.

o Switches between mutual fund corporations are identified because losses can be delayed under S.51 Convertible property

· Shares

o Capital gains and losses must be calculated through annual tracking of purchase and sales transactions. Also, remember to watch out for stop loss rules. (30 days before and after)

· Bonds

o Various types may require calculation of capital gains and losses

· Treasury Bills

o Requires correct timing of recognition of income

· Segregated Funds

o T3s for these include capital gains and losses

o Insurance contract that pays out to a beneficiary outside of probate and estate

o Estate may be left holding the tax liability while beneficiary has the capital

o Guaranteed amount of % of principal may require an insurance injection but that does not make it a non taxable investment, as the insurance that bumps the proceeds on settlement is likely treated as capital gain rather than insurance proceeds (not clearly defined and insurance companies are taking the conservative approach)

· Others:

o Guaranteed Investment Certificates

o Term Deposits

o Unit Trusts

o Real Estate Investments Trusts (REIT)

o Resource Investments

o Limited Partnerships

o Working Opportunity Funds (WOF)

o Employee Stock Options

o Exchange Trade Funds (ETFs)

Timing

Fall or winter check ups for clients with asset sales are suggested. Suggest clients check before a sale to ascertain tax consequences. Of importance is that the accounting period to consider is more than the calendar or fiscal year. Consider one month prior and one month after the year end for stop loss rules and as current as March of the current year for reconciliation of RSP contribution purposes.

Reconciliation

Each asset, debt or account is reconciled to substantiate the calculation of changes in adjusted cost base. Verification to source documents is required for:

Income from all sources such as income slips, contracts or other documents
Expense claims
Sources of cash (Proceeds of Crime, Money laundering …)

Each security or other type of holding is updated to Fair Market Value in order to provide reconciliation to the broker statement which is reported at Fair Market Value and to provide the client with a means of making decisions about minimizing tax consequences on dispositions and acquisitions in the future.

Special Considerations

There are many special considerations when reporting on assets no matter how they are held or by whom. Let’s consider the following:

Swaps (RRSP to non-RRSP or vice versa) - losses are superficial
Switches (election to delay gains or losses on units in the same group of mutual fund corporate shares (not trusts as S. 51 only applies to corporations)
Transfers to other family members, non-family members at FMV or not
Transfers between spouses
Return of capital
Stock splits
Flow through shares
Foreign currency translation
Foreign income and asset reporting in US $ for Americans living in Canada
Allowable Business Investment Losses
Cumulative Net Investment Losses
Capital losses – ability to carry back and forward forever
Date of death returns– valuation and income prior to and after death
Treatment of accounting fees - capital cost vs. expenses (See IT-99R5 P 14)
Trust rules
Charitable donations
Personal use property
Partial and full change in use rules for Rental Properties
Deemed dispositions and dividends
Reserves on sale of mortgaged property
Non-resident rules
Attribution of income
Capital gains for example (iShares) where there are no new units and no new cash distributions but ACB is affected – sort of like a negative Return of Capital – (record a dividend with .0001 shares and then remove the shares (will affect ACB by pennies)
Losses may also be stopped under S. 112 when certain dividends received. See CRA IT-328R3 Losses on shares on which dividends have been received http://www.cra-arc.gc.ca/E/pub/tp/it328r3/README.html

ACB Bumps

Adjusting the cost base for reinvested dividends bumps up the cost base. The cost of the new units is added to the cost base, changing the average cost of each unit. No money, more units, change in average cost to include more units at a different cost than the original units.

Adjusting the cost base for iShares or ETF’s or Closed End Funds may involve a bump of a different kind. This is a distribution of income you must record on your tax return, without any money being paid out. Units or shares are consolidated back into the original units or shares. Result is an increase in the cost base. You own the same number of units, but the cost now includes the income you just added to your income on your tax return. Later, when you sell, the gain, which is the difference between Proceeds and Adjusted Cost Base is less because the ACB is higher. Consequences of a distribution, no money, no more units, income on which you may pay tax now, and later when you sell, pay less tax. All fine in theory as long as you actually pay tax.

ACB Grinds

Adjusting the cost base for return of capital grinds down the cost base because the cost of the units is reduced. Part of the funds used to purchase the units you hold has been returned to you. You could say it’s a discount on the price, dolled out each year. The result is your average cost per unit increases as you hold the same number of units for fewer dollars. Yesterday, I had 100 units at $100 cost. Today, I have 100 units at $90 cost because I received a $10 return of capital. My ACB is now $1.11 per unit.

Step 3 – Providing Reports

The accountant should generate reports summarizing investment activity to be included on the client’s personal, corporate and trust returns. The client should also be provided with these reports and have the reports explained. Some or all of the following reports may be applicable:

Adjusted Cost Base of each investment compared to Fair Market Value, for both the current and prior years

Summary Investment Income report which reconciles to the change in ACB and the change in FMV (with inclusion of the Unrealized gains and losses) with reports in detail for:

Capital gains and losses by investment, sorted by date to check stop loss rules.

This requires the reporting of one month prior and one month after each year end.

Dividends and interest listed by T-slips

RSP contributions:

March 1-Dec 31 of current year and

first 60 days of the following year

RSP withdrawals for the calendar year

Carrying Charges

Statement of Changes in Assets by account and by investment

General Ledger or Item transaction reports

What Software could you use?

There are several software programs available to assist with the tracking of investments.

1) Quicken XG

One of the most common and inexpensive programs to use is Quicken. It has been on the market for over 20 years. The user must understand capital asset accounting. Data entry, reconciliation between Cost and FMV, plus a full set of working paper reports can all be generated using this program

2) Write-Up

This program allows creation of a general ledger, data entry of investments including broker transactions, as well as generation of reports in detail or summary formats. It is fully exportable to most common formats, including CaseWare and Excel

3) Microsoft Money

Both the deluxe and premium versions of Microsoft Money 2004 include portfolio tracking and account integration capabilities

4) Excel

The most basic of methods to track investments is using a spreadsheet program such as Excel, although it does have its disadvantages if there is significant volume and complex transactions are involved

5) Profile PA

Intuit attempted to create software for investment accounting in 2005. It lacked the ability to do ACB adjustments or comparative reporting. It had a great layout and potential if Intuit spent more time and money developing it. It was possible to export reports to Excel to manipulate reports. In 2006, the project was shelved (I"m still in mourning, can you tell?)

6) QuickBooks Premier

Is it possible to use the Inventory module to account for investments? Maybe if you are extremely creative or the units are easy to account for. It does do average costing after all…

Step 4 – Maintaining Records

Set up a separate file folder for each account, asset and each associated debt with all contracts, statements, and other documents since inception, with the most recent statement on top. There could be multiple file folders if there are RSP, RIF and non-RRSP accounts with the same broker. Keep the same file going for a few years unless it’s too fat.

Set up a mutual fund statement folder for each mutual fund. There could be multiple mutual fund accounts on one broker statement for RSP, RIF and non-RSP funds. It is too confusing to put the mutual fund statements in with the broker statements. Have a file folder for each non-broker asset or debt.

Minimizing Risk

To minimize risk in the reporting of investment transactions during preparation of a personal tax return, the accountant should:

Understand the Income Tax Act, and interpretations, as the calculation of capital asset transactions can be complex. Know when to ask for help.

Understand that Brokers make mistakes in calculation of income and adjusted cost base is often stated when in fact it is not calculated correctly as there is no way for the broker to perform the calculation as they do not know whether the client elected to claim something different and has no history if there is a transfer from another broker.

Understand that clients do not know what documentation you require

Know the clients and have considered sufficient information per Code of Ethics R306

Know that accountants have a professional obligation to care, which has now been legislated in Third Party Civil Penalties legislation (IC 01-01 Para 26). As professionals, we ought to have known.

Know that The Proceeds of Crime (Money Laundering) and Terrorist Financing legislation makes it abundantly clear that we must be aware of the source of funds for investments

Know that CICA Handbook now requires FMV reporting and calculation of estimated tax consequences of disposition of assets on both annual and interim financial statements effective in October 2006 for public and non profit, October 2007 for private.

Maximizing Value

Accountants can provide value added services to their clients with the information gleaned from tracking investments. For instance, legal fees can be significantly reduced for asset listing required for probate purposes. Also, net worth and portfolio analysis leads to planning opportunities for net worth maximization and tax minimization.

Summary

Risks and challenges abound for the accountant dealing with their clients’ investments. The key to minimizing risk is using software that allows for calculation and reconciliation, as well as maintaining adequate records of transactions in case of audit.

REFERENCE MATERIALS

The following publications are available by visiting Canada Revenue Agency website at www.cra.gc.ca

Capital Gains Guide T4037

http://www.cra-arc.gc.ca/E/pub/tg/t4037/README.html

Rental Income Guide T4036

http://www.cra-arc.gc.ca/E/pub/tg/t4036/README.html

Preparing Returns for Deceased Persons T4011

http://www.cra-arc.gc.ca/E/pub/tg/t4011/README.html

T3 Trust Guide T4013

http://www.cra-arc.gc.ca/E/pub/tg/t4013/README.html

T4037 lists these forms with direct links on the last page of the publication:

Forms