Keeping it informed could gain some clients more benefits and save others taxes
More than half of Canadians don’t know that they need to keep the Canada Revenue Agency (CRA) up-to-date on their marriage and family status, so they may be missing out on receiving important benefits, but advisors can let them know to help them correct that, says one tax expert.
“People who don’t do that could be losing out on income or benefits that they’re entitled to,” Robin Taub, a CPA and CA and spokesperson for TurboTax Canada, told Wealth Professional.
“I think the best example is when someone gets divorced. It can be very difficult financially to go from one household to two as a taxpayer with less income. But you might be entitled to more benefits because you’re no longer combining your income with your spouse for income-tested benefits. So, you want to let the CRA know right away to get those as soon as you’re entitled.”
Taub said many Canadians also don’t know they can set up a “My Account” with the CRA, which will contain their notice of assessment, tax refund statis, how much they can still put in the Registered Retirement Savings Plan and Tax-free Savings Accounts, and where the CRA can direct deposit their tax return.
Learn more about Canada Revenue Agency’s (CRA) notice of assessment in this article.
If advisors could remind their clients to do that, and then keep it up-to-date with their partner or child status, then clients would receive the most recent benefits as soon as they’re entitled. That includes the Canada child benefit and tax credit for an eligible dependent (usually a child) plus income that they may be entitled to if their relationship dissolves and their single income is lower than their previous family income.
“The problem is if your status changed earlier in the year and you didn’t let the CRA know, you may not be receiving all the benefits that you’re entitled to,” said Taub. “They may have been sending you the wrong amount because you didn’t tell them on a timely basis.”
TurboTax Canada did a recent study that also showed that 55% of Canadians were not aware that married, or common-law (defined as being in a conjugal relationship for 12 months or having a child together), Canadian couples can transfer their non-refundable credits to their spouse or partner to reduce their tax liability. Another 30% did not know that parents can join together to submit various medical and childcare costs as expenses on their tax returns.
A couple can combine, or transfer, their medical expenses, donations, tuition, or child care cost credits in order to get the best tax impact for one member of the couple. That sharing could allow one part to reduce his or her net income to pay less tax.
“The lower income person in a couple would have a lower threshold and they could claim more medical expenses,” said Taub. “So, you want to pull those onto one person’s tax return.”
While advisors are important for planning, they can also help clients by reminding them to update their status with CRA to help them gain the best financial return.
