Accountants and Experience
The other day I was meeting with a new client to review their prior year tax file. He was a little unhappy with his current accountant, because he could never get questions answered. To add insult to injury every time he talked to them he got a bill. When he met with me he had some very specific questions, which I answered, and was concerned that he was paying too much tax. We went through some receipts which he informed me had not been deducted. I asked him what they were for and he told me. Much to my discomfort I realized that he had been given bad advice. Pretty much everything was in fact deductible either corporately or personally. I had always heard stories, but they always involved someone saying that something was deductible when it’s not, or some other story to get out of paying taxes.
There is an attitude out there that if “I don’t claim everything CRA will not bother me, or if they do CRA will owe me money instead of me owing them”. I call this the “fly under the radar” mentality, and it has no merit. I also believe there are more than a few accountants who either subscribe to this or just don’t know the tax law very well. The bottom line is that omitting a few expenses costs you money and will not affect whether or not you get audited. If it is deductible it should be claimed, even if it looks bad.
In the time I spent with CRA (15 years) I met everyone from bookkeepers to Vice-Presidents and CFO’s. I figured out fairly quickly that while designations and letters are good they don’t tell the whole story. I have met bookkeepers with more knowledge and experience than designated accountants. I have met accountants from every designation and found that experience and knowledge vary dramatically. The short answer is that no one designation has outshined the other, in my experience. It still comes down to personal experiences, training, and educational upgrading.
I bring this up because in another article, I wrote that not all accountants are created equal when it comes to dealing with CRA. The truth is that it costs money to fight CRA. Time is money, and it takes more time if you don’t have the experience. If you want to fight the CRA be prepared to pay some fees. They shouldn’t be outrageous, but expect to pay about $200/ hour. Most issues can be resolved with about 2 hours of work. So the problem becomes one of economics. If the issue is small, just walk away, or else fight it yourself. You don’t work for free so don’t expect your accountant too. That said you should be told what it will cost before any action is taken. I have done small issues for free and will continue to do so, as long as it does not take me a lot of time. A phone call here, a quick letter there, no problem. Just don’t expect me, or anyone else, to spend hours doing research and preparing an argument to CRA for free.
I have a client who is going to have a business loss of over $100,000 (bad investment). If you subscribe to the fly under the radar mentality it should not be claimed because it “looks bad”. Bottom line is, it is deductible, and qualifies as an ABIL, so I will deduct it. Yes the CRA is going to question it. So what? I will show them it is deductible and go to Tax Court if I have to. The thing is this. If the legislation says you can do it, then do it. Is it going to cost my client to have me fight it? YES, about $1,000 to $2,000 (tops), assuming we have to go to Tax Court. The tax savings from the ABIL is about $22,500 in actual tax dollars. Choice is yours, but I think it is a no brainer.
One thought I would like to share is, just because CRA question it or deny it does not mean you are wrong, that your accountant is wrong, or that it is somehow your accountants fault. If in doubt get a second opinion, or even a third. Just don’t ask the CRA. I believe that the CRA motto should be “when in doubt, tax it”.
The bottom line is this. If the Tax Act says it is deductible, deduct it. If the Tax Act says it is NOT deductible, don’t deduct it. Seriously, it is really that simple.