I’m curious to hear how other Canadian practitioners do this: When preparing T1 returns with investment portfolios (T3s, T5s, capital gains/losses), what is your firm’s standard practice for claiming T1 prep(accounting) fees as deductions?
Tax preparation by itself is not deductible. Unless you need to do some significant analysis related to calculating capital gains or other investment income, it’s really not deductible.
no expense claimed unless some manual calculations were required to determine cap gain.
I don’t unless there is a ton of record keeping I have to do as part of it.
I guess I’m the odd one here; I always deduct my fees, and it’s never been questioned. My rationale is that the [ahem] brainiacs in charge have made filing tax returns so {freaking} complicated that the average taxpayer is totally lost. Therefore, it’s only fair that they claim my fees. I’ve done this since I started my one accounting business (30+ years) and have never had a claim rejected.
Just my $0.02!
I generally don’t deduct unless there is biz or rental income involved (or extenuating circumstances as others have mentioned). We all know that CRA wouldn’t reject it unless/until picked for review & I’m not willing to gamble on that…
I only claim if there is a decent amount of investment income besides interest.
@kajave I am with you on that. The line is made available to claim so i claim - been doing that for 20 years. (Only if there is investment income, or for business clients.) Not when it is personal return with only T4 type income.
+1
I always do
“It’s only fair” does not apply to the Income Tax Act. Paragraph 18(1)(a) serves to prohibit the deduction of general tax preparation fees. The fact that you think someone should be allowed to deduct the fees doesn’t change anything. If you’re deducting your fees on general returns then you’re filing incorrect tax returns, and you should change your practices ASAP before one of your clients suffers consequences for it.
Thanks for all the great insights on the last thread! Following up on that: has anyone actually gone through a CRA audit or processing review where accounting fees claimed on a T1 for investment income (T3/T5) were questioned or disallowed? In my experience, the CRA regularly allows accounting fees when they are deducted against rental or business income, or when the fees relate directly to assisting a CRA audit. However, I have never personally been through a review or audit where the deduction was claimed strictly against property income from T3s and T5s.
The counter to this is that tax cases often arise from “it’s not fair” kinds of arguments…and many are won by the taxpayer because..well…it’s not fair AND the taxpayer/agent has made a compelling argument to the Court for its successful acceptance.
Certainly something that is expressly prohibited likely fails…but oddly, not always, and not always if presented in a manner the Court likes. There are also equally well-documented cases of well-argued losses (my favourite always being Symes 4 SCR 695).
Nonetheless, chances are that claiming a few hundred bucks that is assessed as ineligible is unlikely to be regarded as “consequences” for a decision. CRA will just disallow and move on.
FWIW, I only claim where there is significant manual effort required (usually business, rental or significant investment transactions).
I’m retired now but I can tell you I claimed my fees on t1s for more than 40 years and never had one questioned. Even when they audited the return. Give your clients a break and don’t be so strict.
This thread is a good example of why tax preparation should be a regulated industry in Canada. “We know it’s not allowed but do it anyway because you’ll almost certainly get away with it” is something that wouldn’t fly if there were professional standards and regulations in place.
Which is probably the next thing CPA will “standardize” making it illegal for anyone other than themselves to perform (like they did for Compilations by publishing CSRS 4200)…
That comment might be a little snippy…
At least CPA’s are guaranteed to have actually read (and likely memorized) the text of Income Tax Act Sections 18(1(a) and 9 and know what they mean, prior to preparing tax returns, providing the public with some comfort in that regard.
Yes, making sure that someone is actually qualified to provide an important service to the public is a good thing.
CSRS 4200 includes standards not only on the statements that are produced but the procedures that go into producing such statements. Those procedures require certain professional standards. As such, anyone who cannot demonstrate that they have qualified to meet those standards is excluded from the standard.
Yep. I’ll grant you that. But CPA isn’t the only association that requires members to have some tax knowledge. Other organizations like ATAP and RPA have entrance exams and experience requirements, too.
But, my main beef with CPA is that Compilations were never considered “professional services” per the original definition, which included only assurance services. The provincial accounting acts were passed in every province based on that understanding. But, there is a loophole in the act that says professional services include anything that CPA publishes (or will ever publish) as a “standard”. And, once they published the CSRS 4200 standard, Compilations became “professional services” protected by the act. If I had known CPA was going to do such a sneaky thing, I would have converted to the CPA program after finishing my CGA. But, I never intended to do assurance work, so there was no reason for me to become a CPA (I joined other professional accounting associations instead). Now I’m not allowed do Compilations anymore, and I’m too old to put in another 3-5 years studying and doing audit work for a CPA firm to get my designation, while my own practice is put on hold and my clients go elsewhere.
Given that loophole in the act, CPA could shut us all out of doing tax prep work, as well, just by publishing a standard on how to do taxes…
As a CPA I don’t just prepare tax returns I also give advice. I deduct the fee on S4 if I’ve given advice related to their investments.
Anyone with a business, rental or commission income the fees are deductible for preparing the return on the appropriate schedules.
So because I don’t do simple returns almost every one of my clients does deduct the fees, but they are all defensible if CRA had ever audited any of them. Which they have not in over 20 years.
This thread is a good example of people knowing the law and deciding for themselve how to interpret it in specific circumstances, as are many other examples here. Tax is found in shades of grey, and is rarely, if ever, black and white.
Professional Standards require judgment in all aspects of practice. If you’re not pushing the boundaries, you are also doing your clients no favours. “Regulation” of preparers also does clients no favours. If people didn’t try new things, as I said previously, law would never advance.
Otherwise, we’d all be using CRA-produced AI software to make sure that only “what CRA says” (ie their opinion of the law) is what is done and individual respnsibility and judgment would become a thing of the past. No thanks.