Filling out Canadian tax documents

Few clients verify the accuracy of tax information slips issued by their advisors’ firms. Some may review the slips for reasonableness and perform a cursory reconciliation, but most just accept that the slips are accurate.

If the slip is inaccurate, various parties, including the advisor and firm (as well as the client, Canada Revenue Agency and tax return preparer) act to resolve the error. Hopefully, an amended slip is issued in a timely fashion so that the client’s economic loss and stress are minimized.

To rectify the slip error, the client incurs incremental professional fees and, in the interim, may be liable for taxes owing, arrears interest and penalties. Plus, the time value of money must be considered. Until resolved, the financial and emotional stress persists related to tax debt, and taxable income per the original notice of assessment may be overstated, which may impact benefits such as old age security and the guaranteed income supplement.

When I act as a power of attorney (PoA) for property or as an executor (a.k.a. estate trustee), I prepare the accounts in a manner that is consistent with “passing of accounts” requirements. Passing of accounts refers to the process of submitting the financial records (accounts) to the court for approval in a specific format.

Accordingly, there is a detailed accounting of every transaction incurred during the estate and PoA administration. Ultimately, I should be able to reconcile financial records to the tax information slips issued. This is one of my tests to verify the accuracy of my accounting. However, I have encountered tax slip errors associated with investment activities in registered and non-registered accounts. I typically deal with death of a taxpayer scenarios, for which there sometimes seems to be a tax reporting hiccup.

Let me share a recent example.

I’m the acting attorney for a client under the PoA for property. The client lost her spouse in late 2020, and she had never looked after the couple’s finances. She maintains a modest lifestyle, has no debt, pays her bills immediately upon receipt and relies on an array of government benefits and supplements. She uses her annual tax refund for TFSA and RRSP contributions. She doesn’t understand the time value of money and wants incremental funds deducted at source on her government benefits so that she gets a larger tax refund. She equates the size of her tax refund with the performance of her tax return preparer.

The T4RSP slip issued to the client (the transfer from her deceased spouse’s RRSP to her RRSP) was incorrect. When I contacted the advisor to bring the error to his attention, he said the financial institution was in the process of issuing another slip.

Prior to the 2021 income tax year filing deadline, another T4RSP slip was issued, but it was a duplicate of the original. The new slip had no indication that it amended or adjusted the previous slip.

I once again contacted the advisor and asked why the financial institution issued two identical slips. The advisor responded that he’d escalate the matter to the tax department, and he’d contact me when he heard back.

Three weeks later, the advisor said the tax department claimed it issued only one slip, and he asked if the client’s CRA account showed that two slips were uploaded.

I confirmed as much and sent the advisor an email with attachments of the two slips and the dates they were received. The advisor again asked the tax department to escalate the matter.

Two weeks later he told me the institution’s tax department cancelled the second slip in the last week of May.

But the client has been assessed based on the two T4RSP slips, and the original amount is still incorrect, I said.

Any delay in cancelling the second slip is on the CRA’s part, the advisor said, explaining the institution’s process of transmitting data to the agency.

I told the advisor that this response was disappointing, given there was no explanation or accountability for the first incorrect slip and second duplicate slip. And given the slip issuance deadline, it shouldn’t take until the end of May to rectify the duplicate error. Further, the matter was causing unnecessary stress to the client and impacted her ability to receive certain tax-related benefits.

The advisor said he understood the frustration and inconvenience, and apologized. The only information he had was provided by the back office, he said, and he didn’t hear of these issues happening often.

As of mid-August 2022, the error remains unresolved, and the client is receiving collection calls from the CRA. Her tax-related benefits were reduced, and she’s stressed. I have explained to her that, in time, this issue will be resolved, and the tax debt will be eliminated. But for someone who has never owed anyone a penny, my comments fail to relieve her anxiety.

Also, the advisor’s statement that the errors don’t happen often may be incorrect. They may happen often, but, because clients don’t reconcile their tax slips, the errors aren’t acknowledged.

Regardless of frequency, tax slip errors happen, and they can be fixed. Advisors and firms must be willing to acknowledge an error and be active participants in rectifying it.

When discovered, these situations provide an opportunity for an advisor and firm to find a way to collaborate, resolve the discrepancy and, ultimately, be advocates in supporting the client’s financial well-being.

Michael Kulbak, MBA, CPA, CMA, TEP, is principal of Kulbak Trust Solutions in Mississauga, Ont.