Late T2091

Taxpayer disposed of principal residence in 2022- didn’t file T2091.

Some Points:

  • Self-employed (filing date June 15th)
  • In 2022 taxpayer mentioned moved out of matrimonial home (martial breakdown) - said it would sell in 2022/2023
  • For 2022 tax year, on the tax checklist they did not check off box Disposed of principal residence

Also, this was on CLIENT LETTER page of 2022 T1

So I moved on.

Started working on 2023 taxes (this month) while reviewing their tax checklist I was expecting to see a check on box beside sold Principal Residence but did not see it.
Immediately asked them about PR and they said it sold in 2022 and they asked why it needs to be reported if no taxable gain for which I explained it is mandatory as per CRA.

I have told them they need to address the PR from 2022 ASAP (multiple times) as there may be penalties but being met with resistance.

Under proposed changes, the CRA will be able to accept a late designation in certain circumstances, but a penalty may apply.

The penalty is the lesser of the following amounts:

1. $8,000; or
2. $100 for each complete month from the original due date to the date your request was made in a form satisfactory to the CRA.

They’re very reluctant and don’t want to provide inform about property. I’m not sure if it’s a “fee” issue because no tax payable (PR for all years owned).
I’ve never worked with a taxpayer before who didn’t want to claim PRE/had an issue with it.

I’m considering telling them to contact CRA directly to rectify the late filing themselves - this way they won’t have to pay me a fee for T2091 filing (if that’s their concern)

What would others do in this situation?

I had an old client return back to us after her previous accountant wasn’t including proper deductions for her. We found out that she had sold her principle residence in 2022 so we told her that it would be in her best interest to file for an adjustment. It’s be almost two months now, so far CRA has not imposed an late penalty.

Now if I had a client who was not willing to listen the advice that I was giving just so that they could save some money from my invoice, I would immediately drop them as a client. You could also give them an engagement letter stating that your firm will not be held liable for any gross negligence.

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Do a voluntary disclosure…

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Ask yourself, “Can this get ME in trouble?”

CRA could ask you, “Did you file the client’s tax return knowing that the client had sold property which must be reported, and wasn’t?”
If you must answer “yes” you could become an accessory to the client’s tax fraud. Tell that to your client. Often, client’s don’t mind taking such risks themselves, but they usually don’t want to get YOU in trouble. Then, they either follow your advice or go somewhere else.

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Communicated to taxpayer it’s MANDATORY (even though there is no tax owing) and sent them details from CRA website verbatim. They’re now willing to co-operate.

Now my question is do I simply do an adjustment to the previous year or a VD?

I cant remember where but I feel I read VD’s are not accepted by the CRA for the principal residence exception because it’s an election.

Should the taxpayer decide to go the VD route? How much are others charging for a service like this for a similar situation? @Nezzer @GuyWhoPlaysGolf @BertMulderCGA

Last time I was involved with a VD filing was 10 or 12 years ago - when I was working for one of the big accounting firms (before I went out on my own). It involved several years of T1 and T4 filing. I believe they billed the client in the range of $20,000. I’ve never done one on my own.

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How much I charge? That is not for a public forum such as this. Let me put it this way, an amount that is fair for either party…

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20k sounds about right … I’ve seen VD for assets in excess of millions overseas going back years and the bill was upwards of 20k easy. It’s the waiting process and paperwork that gets you.