Q&A #2/4 series on Mastering Quicken Software In depth Jan 9 2013

Q: Would you keep your brokerage accounts in a separate Quicken file for CRA audit purposes? Or would you consolidate all your accounts into one file? Pros and cons to keeping personal banking separate from investments.

A: I would keep all accounts for a taxpayer or a taxpayer and spouse in one data file. I can't imagine why you'd want to hide that information, in fact it's likely to be helpful in resolving an audit much more quickly if there's a really clear trail with reasons for all deposits to all accounts. CRA is interested that all of the deposits are matched to revenue or income from all sources. If there are deposits which aren't income, they need to be explained. And what better way than right in the file so they can be vetted? I've seen lots of tax cases where the reason for the re-assessment is that CRA claims there is undisclosed income because there are deposits over and above the income/revenue in the case of property or business, that weren't reported as income and now, years later, no one can remember why they got that money. You are guilty until you can prove your innocence when it comes to tax. More info is better.

Q: Would you have a top level account and then have sub-accounts for separate investment accounts?

A: No, Quicken doesn't have a hierarchy like QuickBooks. But there is a built in hierarchy for types of investment accounts, for example, retirement, TFSA, brokerage, those are together as sets on the Account listing.

Q: Would you enter a single adjusting amount for the DRIP change to ACB?

A: No, I would record transactions by the correct date, in order to track the ACB at various dates.

Q: Some brokers don't show total ACB on the statement as this figure would not be correct if security held in multiple brokerage accounts.

A: Absolutely correct. If you are trading 'identical property' in multiple accounts, it's necessary to record and track the average cost of those properties across the accounts. One way to do this is with a separate data file where you record all of the units or shares of the identical properties all together in one account to track the ACB / average cost for all the units.

We'll be dealing with how stop losses and superficial losses work in the next two sessions.

Q: We talked about T5008's and how deemed dispositions aren't required to be reported.

A: See my next post in this blog for more information about T5008's and this link
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slps/fnncl/t5008/menu-eng.html

Q: I have many clients who never claimed capital losses. They thought that their CA had told them not to report the capital loss.

A: It's possible to request under fairness to go back and report but I'm not sure how far you could go back. They were told they report the loss in the year they incur the gain.

Report losses in the year you incur the loss.  If there are other capital gains in that same year, they can offset those capital losses and you should note that in that year, they offset the gains above the Net Income line (as they are recorded on Schedule 3 of the T1), which means that if they have benefits that are calculated using Net Income as the basis, those benefits may be affected. 

When the losses aren't applied in the year, then they can be claimed for 3 years back, and forward forever, and on death, claim those losses against regular income on their final date of death tax return. Those losses are reported below Net Income and before Taxable Income on the T1.

If you visit the My Account records, you'll find that there is a report there of the capital gains and losses and their disposition back as far as 1988. Capital gains and losses go back to 1971 when they were first introduced to the Income Tax Act.

If you have losses, you should be checking those reports to see that the losses were recorded and amending if they weren't.

Q: Can you get T5 and T5008 from Quicken?

A: No, but you can compare the income reported and the acquisitions and proceeds on sale against these reports from the investment company.

Q: Can you import downloads into Quicken?

A: Yes, you can download into Quicken from banks and investment companies that allow for such a download of transactions. I've not downloaded investments, preferring to go slowly through, reconciling each period. I think it would be overwhelming to download investments. Bank transactions, Credit card transactions, not a problem.

Q: You did mention using QuickBooks and Quicken together for a corporation... maybe next week?

A: Remind me, but yes, I have a spreadsheet to show you how to think through the transactions between the two sets of books.  It's like having a sub-ledger for your Investment, where you record the cash out of QuickBooks, and the cash into Quicken.  Then you work in Quicken, and record transactions.  At year end you run a report, prepare working papers, and record the income and losses and changes in investment.  It's also possible to record comprehensive income because Quicken prepares unrealized gain/loss reporting whenever you change the prices and we showed you how to do that today.

I encourage all of you to download the sample file found in my shopping cart.
http://www.taxdetective.ca/Quicken.html

For anyone who hasn't been attending the video recording of the second session in this 4 part series will be available for sale tomorrow morning.

I mentioned the articles from Canadian MoneySaver which can be found here:
http://www.taxdetective.ca/growyournetworth.html

And if investment accounting isn't something you've tackled before, read the Capital Gains Guide found on the CRA website (hopefully before next week's session, at least visit this page)
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/menu-eng.html