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Optimizations Worksheet

I have a couple who are married and both are earning a pension. The optimization is set to maximum refund and “yes” to optimize pension between spouse and to determine the pensioner and transferee.
By switch “Yes” to “No”, on both options and selecting the opposite spouse to be the pensioner, it actually saves the couple more money. What is the purpose of optimization when is not working in this situation? Or should I say why isn’t optimizing it in the first place?

There are numerous variables the software has to consider.

I live in a college town in the Bible belt. I have numerous clients with Donation receipts, Medical receipts and Tuition transfer from a child. With just those three variables, there are multiple scenarios.
Claims
His: D M T … Hers: N/A
His: D M … Hers: T
His: D … Hers: M T
His: N/A … Hers:D M T
His: M T … Hers: D
His T … Hers: D M
His: D T … Hers: M
His: M … Hers: D T
BEFORE pension-splitting was added to the mix, I manually checked the six scenarios and in one case had over $4,000 in savings for the best scenario as compared to the worst. Add whether or not to claim RRSP deductions so your medical expense claim isn’t lost or your donation receipt doesn’t expire, etc.

This is the third tax software I have used in my professional life and Cameron was involved in the development of all of them. However, given the complexities and almost infinite variables, I don’t expect the software to do it all.

That’s why you have the opportunity to provide this service. The D-I-Y software is a tool but without the professional, the bottom line may leave a lot of money on the table.

You realized one of the software’s shortfalls. I am sure there are more. I also know Cameron and his team will likely revisit pension-splitting calculations as they are constantly looking to improve the optimization of all the variables. If I was in their shoes, I wouldn’t know where to start.

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This is my third time with Cameron as well. I am along for the ride for the long term. The TAXCYCLE team is very responsive to users with prompt fixes and lots of user requested features implemented.

That said I would like some more work on the optimization calculations.

In my case the calculations worked but the client letter was inaccurate. The Client Letter did not match the actual savings.

Scenario 1
I have a couple who are married in T1 2018 and who are on the verge of a legal separation.
His income is much higher than hers and in a higher tax bracket.
He is disabled and turned 65 in 2018.
He had several types of income with only medical premiums deducted from T4A Pension Income as a deduction.
She had one T4 and one RRSP contribution claim.
She had only employment income.

They had the following items:

Husband

  • DTC
  • Wage Loss Income
  • Pension Income
  • T4A Pension Medical Premiums Paid @ $4500/yr
  • CPP Disability Income (part year)
  • CPP Pension Income (part year)
  • OAS Income (part year)

WIFE

  • T4 Employment Income
  • RRSP contribution

FILING SEPARATELY
If filing separately he would have owed about $3008
If filing separately she would have received a $107 refund.

FILING TOGETHER
When filing together and optimized he received a refund of $25.

HIS VARIANCE
If filing separately he would have owed about $3008.
When filing together and optimized he received a refund of $25.
His variance is $3008 + $25 = $3033.

HER VARIANCE
If filing separately she would have received a refund of $107
When filing together and optimized she owed $513
Her variance is $107 + $513 = $620

FAMILY VARIANCE
Family filing separately is $3008 - $107 = $2901 owing
Family filing together and optimized is $513 - $25 = $488
Family variance is $2901 - $488 = $2413 in tax savings.

CLIENT LETTER
According to the client letter only the pension split was considered.
… transferring $19113 in pension income to wife… you and wife saved a total of $2070 in taxes.

RESULT
The Client Letter did not match the actual savings.
I ran an excel to reconcile the before and after optimization amounts.

REQUEST
Please tweak the Optimization Worksheet, Internal Calculations and the Client Letter.

I have an additional scenario which does not exactly fit optimization but does involve some of the same underlying amounts concern carry forward worksheets.

I have had very large medical claims and donations amounts with carry forward reconciliation issues. I would rather have this included in TaxCycle than have reconcile in Excel every year.

Medical claims (in excess of $150,000 in year prior to and in year of death)

  • Issue is a multi-year optimization or at least the medical period end of the prior year claim.

Donation receipts for husband and wife (in excess of $100,000) with very large carry forward amounts due to moderate family and individual income.

  • Issue is a multi-year reconciliation of charitable donations reported in year of donation with large carry forward amounts.
  • I need to reconcile a large stack of charitable donations by year of claim, by year of carryfwd, and by expiry date .
  • These receipts were post assessment review every single year.

Another scenario is the caregiver and DTC claim for infirm parent or child.

Variations -

Infirm parent
Infirm parent moved from one married child to another. Need to track dates living with a particular adult child.

Infirm child

  • Year of separation based on separation agreement. Need to track the following on child forms for each child - Date of change, terms (joint/shared/sole), actual (which child with whom on how many days), and agreed (per signed document).

  • Changes based on divorce and child support agreements. Need to track the following on child forms for each child - Date of change, terms (joint/shared/sole), actual (which child with whom on how many days), and agreed (per signed document).

  • Need note for DEFACTO AGREEMENT. Sometimes one parent has full time physical custody, legally joint custody, but the other parent insists on making the claim. The physical custodial parent is tired of the arguments and grief and relinquishes all child claims.

Notes or forms re DTC claim and DTC transfers would be helpful.

  • Who filed the DTC claim for child or parent or taxpayer? Which person filed the T2201 form? When? When does it expire? In the event of separation, divorce, or death only the individual who filed the claim can receive a copy of the DTC certificate which may be needed for other claims or reports.

Analogous forms and recording of dates for infirm person and long hospital, palliative care, rehab care, nursing home, or lodge.

For all of the above a client organizer worksheet is very helpful for real time tracking.

I think Taxcycle is doing well with basic optimization. To expect perfect optimization under all settings is not realistic. And if the software would do it all for us, what’s the point in hiring someone to prepare a tax return? Understanding the tax laws and using the optimization that TaxCycle offers as a starting point is what separates between tax professionals and the “do it quick” seasonal number crunchers.