Situation: A business man passed away before doing their taxes and it’s impossible to know what their income was. No records, no statements. No executor of the wil. Widow is now trying to submit their own taxes but upon answering the question of whether their spouse had income with a ‘Yes’ but without providing their total income - creates an error in EFILE and will not let me transmit. The CRA said that I can do this but EFILE won’t let me submit when there is an outstanding error. Can I by pass this error?
Not letting you transmit is a bit different than an EFile error.
You likely just need to sign off on the alert and then try again.
It’s unfortunated, but you know there is income, just don’t know details, whatever you do is going to be wrong. By doing this return, you are putting yourself at great risk
What is tax evasion and tax fraud:
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falsifying records and claims
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purposely not reporting income
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inflating expenses
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claiming a fraudulent refund or benefit
Tax evasion is an offence under section 239 of the Income Tax Act and section 327 of the Excise Tax Act.
When filing your clients return I would ensure you are not taking deductions or transferring credits you are not entitled to.
There is no fraud here unless a deduction or transfer is made to the surviving spouse. What I generally do when the spouse’s income is unknown (as sometimes is the case) is to “plug” the spouse’s income at a level that is non-permissive to any transfer, credit, deduction or allowance. Typically that’s around $50K (Gernerally easily verified by separating the returns and/or buildiing a “single” return for the survicvor and ignoring the GSTC credits and similar items. Mostly it’s a problem only with Pensions/OAS clawbacks etc.)
When the deceased’s income is determined, if it’s low enough to allow credits, file an amended return.
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I agree with SmallBizGuy; I go to the S2 and add 50,000 of income; it is not fraud; it is just an amount so no incorrect credits are claimed by the spouse you are filing.
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It’s not fraud but you should be very careful about including information on a tax return that you have reason to believe is incorrect. The amount should come from the client, not from you, so that it’s covered when they sign for the return.
It’s going to be illegal, not fraud, like @iain.fyffe said, it’s something that’s got to come from the client, but when you have that on your represenation leter, it’s an indication that you know about it, so it’s going to be legally binding on you as the tax preparer too. If the tax authority is going to look at it. So, if you are planning on doing it, you should get the client to file a Voluntary Disclosure that’s what you as the client did, not tax preparer.
Preparer penalty, penalty for participating in a misrepresentation
16. The preparer penalty under subsection (4) provides a penalty targeted at third parties who participate in a misrepresentation.
17. The preparer penalty may apply to:
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every person who:
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makes
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participates in the making of
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assents to the making of
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acquiesces in the making of
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a statement either:
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to another person,
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by another person
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on behalf of another person
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that the person
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knows
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would reasonably be expected to know but for circumstances amounting to culpable conduct
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is a false statement that could be used, for a purpose of the ITA, ETA, or both, either:
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by the other person
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on behalf of the other person
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Wow…that’s really going to the extreme.
You CAN file a tax return for a married person without providing a spouse’s income….the point is NOT to claim credits that are not available UNLESS the t/p has the right to do so individually and regardless of spousal income. As long as you prepare the return as an “individual” without claiming sundry credits, CRA will process the return as-is. There is neither anything “illegal” or “fraudulent” or even wrong with doing so…there is NO third-party liability.
Let’s not go overboard here.
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I agree. You are not filing the return for the spouse that passed away. Just making sure no credits are claimed for the surviving spouse. I would have the surviving spouse make the guess though what the income should be on Schedule 2.
All I say is, I will not do it myself, I will help the surviving spouse do it, side by side, without charging, so I am not involved
Also, say, call yourself single instead of married, wouldn’t that be easier? you don’t need to by pass this error
Depends on the DOD. If it was in 2026 then status at year-end was “married” or C/L; if in 2025 then, “widowed”.
FWIW, I don’t think that “charging” or not has any bearing on being a third party, though that has not yet, to the best of my knowledge, been tested in Court. You aren’t doing anything “wrong” in this….not really sure where your concern lies?
Charging does not change anything, just to show the intent was not to profit, but agree, it means nothing, but even if no benefit was received, tax preparer will still be liable for something, It just seems too much to risk my professional life for nothing
- False statements in tax preparation (“Preparer Penalty”): Similarly, if a tax preparer or other advisor makes or contributes to a false statement in a taxpayer’s return – knowingly or under circumstances of culpable conduct – a penalty can apply even if the false statement was never actually filed, or even if no fee was charged. The preparer penalty is a minimum of $1,000. The maximum penalty is determined by a formula: it is capped at whichever of the following is less – (i) the penalty that the taxpayer would have been liable for if the taxpayer had made the false statement in their return (generally, the taxpayer’s gross negligence penalty, which is 50% of the understated tax), or (ii) $100,000 plus the preparer’s gross compensation related to the false statement. This “preparer penalty” can be applied regardless of whether the false statement ultimately gets used in a filed return and regardless of whether the preparer actually received payment – the mere act of knowingly (or recklessly) facilitating a false statement is enough to trigger the penalty.
Indeed, whether you charge a fee or not is immaterial, as the guidance above indicates. It is worth noting that in the case under discussion, it seems very unlikley that CRA would ever pursue a preparer penalty if no credits or other reductions in tax result from the amount used as the spouse’s income. But as a professional - if you are a professional - you still need to be very careful. Not just to avoid the financial penalty, but if you have actual professional standards to adhere to, filing a tax return with an amount that is known to likely be inaccurate can be an issue.
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I have spoken to a tax lawyer about similar issues in the past. He said it is VERY rare that CRA levies third-party penalties (i.e. goes after the tax preparer). You’d have to be doing something with intent to defraud, or causing large tax refunds by willful negligence.
Simply helping a widow file her own T1 (without claiming spousal deductions) is not going to get the tax preparer in trouble with CRA.
If you’re a CPA, maybe its a breach of their ethics or policies, so CPA might have a different take on it.
Not only it’s a breach of ethics, say, things turn sideway, your client report to CRA, saying the taxpreparer did something wrong, it’s under the guidance of the tax preparer, did you look at the consequence of what would happened? You are risking your whole professional life over a file that you think is so simple
Regardless, it’s not the right thing to say, and it’s not the right thing to do, that’s it
When I called the CRA they said to take a prior tax return of the individual who passed and use a similar income as to not cause any deductions or credits. When doing so, her return did not change in any significant way and was exactly the same as a prior year. No red flags and with CRA guidance that I can do this. The spouses return will be prepared by CRA due to section 152.7 of ITA and if the spouses income is ever is found out, you can do an adjustment to her return. Which wouldn’t cause any changes to her return. It didn’t matter which amount I added 30,000-50,000, no changes were made to the overall return.
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