I understand Bill C-462 has been reviewed by the Committee in May, and is to be put to 3rd reading this fall. I have several concerns.
The Bill is unclear about who exactly is a ‘promoter’ of the DTC application. The Bill doesn’t provide any discussion on limitations on related tax compliance that may be possible as a result of the approval of the DTC. The Bill doesn’t explain whether this fee includes tax work for other taxpayers related to the person with the DTC approval. Couldn't ‘promoters’ could simply re-arrange their contracts to calculate their flat fee on another basis directly with the other family members to whom the credit transfers, and to whom the ability to make claims for other credits or income reductions, rather than the person with the DTC to avoid the effects of this Bill?
The flat fee charged by promoters may be similar in amount to the amount charged by the hour when a professional tax preparer prepares adjustments for the family who support the relative who has received approval of the Disability Tax Credit. As professionals, we are prohibited from charging a flat fee, but that doesn’t mean we don’t charge as much or more than the flat fee for similar tax work.
What's key is the person with the DTC usually doesn’t get a refund. They don’t have enough income. It is in the transfer or apportionment of the DTC to supportive family, plus claims for additional payments by supportive family that become claimable as expenses, medical, child care, attendant care, disability supports. Other family are able to claim a refund under the fairness provisions for up to ten years, upon approval of the DTC by the person with the disability. Now the person with the DTC approval has to prepare a tax return, maybe for the first time, but it's really not a big deal. They just report their minimal income, and claim their credits, making those credits transferable to supportive family.
It is the supportive family of the person with the DTC who are recipients of the majority of the refunds. The fee the promoter charges, that's paid out of refunds to third parties for their support role. The person who has the DTC status doesn't ever see a dime. It's refunds to the family who provide support, basic essentials, shelter, food, clothing, those are the people who are receiving the tax refunds. For ten years, a minimum of $1,400 a year for an adult, and upwards for additional claims like caregiver credits previously not claimed because they lived with you, medical expenses paid by not claimed in the past. There are a number of other claims that may be triggered by the approval of the DTC. These include four medical expenses from S> 118.2(2) that specifically require the DTC to make a claim.
Child care expenses for an adult child because once the DTC is approved, there's a $10,000 child care expense claim possible.
There is the ability to transfer a claim for medical expense tax credit over to “Disability Supports” expense, at a much more favourable tax rate.
It’s also possible to apportion the DTC between supportive family, for the portion of the DTC that isn’t claimable by the person or their spouse.
These amendments may cause other credits or expenses to be able to be re-arranged to minimize taxes for the family. Medical expenses claimed by the other spouse, donations switched from one spouse to the other, pension splits re-arranged... those are just some of the possible permutations.
This business of adjusting families tax returns upon completion and approval of the DTC, this is a LOT OF WORK! You don't just submit a letter with a request to adjust returns and actually get refunds. You must determine who is the best recipient of the apportionment / transfer of the DTC and who is the best person to claim medical, child care. Should the medical be claimed as 'disability support' on the return of the person with the disability rather than as medical expenses on the return of the parent... there are many choices to be made, based on the potential outcome of various tax filing positions.
CRA adds another layer of complexity. ‘Civil Penalties’ for tax preparers, we must do due diligence to ensure that when we make any amendments to tax returns, that we know our client. We must not only know them, but we must know what they filed is legitimate. This requires that we assure ourselves that if the return is adjusted, that everything else about that return is fairly presented. There we may find adjustments are required for investment income, rental properties, capital asset sales, self-employed income under-reported. In order to amend for the DTC, we may find ourselves re-doing the entire family's tax returns.
For an entire family’s returns with complex tax issues, it’s not uncommon that it takes a minimum of several days per year. Multiply that by ten years back under fairness, and you can see that at $125/hour, it doesn’t take long to reach $1,000+ per year. If the ‘promoter’ is doing this type of compliance on adjustment requests, it may be quite fair to take a 30% fee if the refund is in excess of $20,000 if the adjustment work is time consuming and complex, involving multiple parties.
Even though as a professional I can’t charge a flat fee, I definitely can and do charge by the hour.
Will I, as a professional tax preparer, charging by the hour, be subject to the limitations of this Bill because I write and speak to families (taxpayers) about personal tax credits and how families should be aware of tax law? Does that make me a ‘promoter’? It may. Since I haven't seen the Regulations, I can't tell if charging by the hour is a problem, or if it's only when it's a flat fee.
I fear Bill C-462 will discourage professionals who have the expertise to stay away from this type of work out of fear of being labelled a ‘promoter’ subject to unreasonable scrutiny and fines for doing tax work that helps families reduce the tax they pay so they can support those with a disability. That means that families will have no choice but to see out 'promoters' and 'promoters' will find a way around this legislation because of its ambiguity.
And for the professionals who claim that they don't charge for doing this type of work, really?
Are you doing the due diligence required to complete adjustments, ignoring the other credits, not asking enough questions?
I'm really having a tough time with claims that you do this work for free, as the adjustments for multi-person, multi-year tax returns take as long or longer than doing the work the first time. The complexity of personal tax credit claims adjustments combined with medical/child care/disability supports/ work can be extensive.
