Changing past tax returns (T1-ADJ)

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Peculiar_Investor
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Changing past tax returns (T1-ADJ)

Post by Peculiar_Investor » 14 Dec 2017 00:06

I've recently taken over handling some of my parent's financial affairs. They are in their 80s. Back a couple of years ago I started helping them by using software to prepare and NetFile their tax returns. I had them grant me to Represent them with CRA so I could review their Notice of Assessments, etc.

But here is where it gets a bit interesting. When I looked back at their tax return history I was a bit surprised to find that their filing both of their tax returns is spotty at best and not optimal. There are a couple of years where CRA indicates the return as "Not received", for one or both of them. My father is old school: a hardcopy tax guide, a pen, and a calculator. Unfortunately I have discovered that he has missed a number of optimization opportunities such as pension splitting and Ontario Trillium Benefits.

I have spent numerous hours reviewing their paperwork against what CRA says exists, have paid all outstanding balances and penalties showing on their accounts. I am somewhat surprised that CRA has not been chasing them for the "Not received" tax returns, on the CRA website we can see that CRA has all their tax slips for those years.

I have reached the point where I have almost all of the missing tax returns ready to be filed, both for 2012, and my mother's for 2008-2010. But I have hit a bit of a roadblock, or perhaps a bump in the road. My parents are low income seniors with a very small RRIF, CPP, OAS and GIS as their sole income source, so any past tax relief would be helpful.

Since Pension splitting was introduced in 2007, they completely missed this opportunity, which would have saved them significant dollars. I was all ready to prepare and send in a decade's worth of T1-ADJ forms to claim the pension split until I found the linked TaxTips.ca page
TaxTips.ca on Pension Splitting wrote:If you should have split pension income in a prior year but didn't, it's not too late - you can adjust your prior tax returns to do so. However, make sure that combined taxes payable are reduced by doing this, and keep in mind that the taxes payable of one spouse will probably increase, resulting in interest on the tax amount payable. A late or amended election, or revocation of an original election can only be done if the application is made on or before the day that is three calendar years after the filing-due date for the year that the election applies. The taxpayer must be resident in Canada at the time the application for amendment is made. If the taxpayer is deceased at the time the application is made, the taxpayer must have been resident in Canada immediately before the time of death. This means that an application to amend the pension splitting for the 2011 taxation year would have to be made on or before April 30, 2015, because the original 2011 tax return was due on April 30, 2012.
This would seem to rule out most of their potential claims. But I'm wondering if the fact that I'm catching up and filing one or both of their 2008-2010 and 2012 tax returns and each of "Not received" returns involves a T1032 Joint Election to Split Pension Income, will the three year rule apply?

Does anyone have any suggested strategies for playing catch-up with CRA? For sure we are going to get the "Not received" tax returns filed and I'm thinking that along with those returns we should send them T1-ADJ requests for pension splitting going all the way back to 2007 and see how rigidly CRA applies the three year rule.

Just when you think you have your financial affairs well under control, along comes a curveball like this one.
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Re: Changing past tax returns (T1-ADJ)

Post by kcowan » 14 Dec 2017 05:13

Well I have no experience on filing arrears. But I would immediately file for the 3 years 2014-6 before this year is out. Then I would file the further arrears as a batch once the current submission is accepted with an NOA. If they pick up on the pension splitting, then I would appeal on the basis that CRA is preventing you from getting them current. At that point, a direct communication might be appropriate. You might get one of the agents of the 30% that get things wrong? After all, you are dealing with pretty obscure rules. Good luck!
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Re: Changing past tax returns (T1-ADJ)

Post by Peculiar_Investor » 14 Dec 2017 07:20

Thanks. I originally started using UFile to prepare and file their returns for the 2015 tax year, so 2015 and 2016 were optimized with pension splitting. That is where I learned about the pension splitting provision, and where I discovered that my father hadn't been claiming the pension split optimization since it was introduced in 2007. Their tax returns are very basic, RRIF and CPP income, and some medical and charitable donation claims.

From How to change your return - Canada.ca I am aware that:
CRA wrote:Generally you can only request a change to a return for a tax year ending in any of the 10 previous calendar years. For example, a request made in 2017 must relate to the 2007 or a later tax year to be considered.
I am trying to wrap this up before year end and get things sent to CRA via registered letter, to ensure we meet CRA's deadline. I cannot use CRA's My Account functionality to change the return because of the pension splitting, it must be paper filed. It is clearly a bit more complicated than that because over the ten year period back to 2007 there are five returns between the two of them that have never been filed according to CRA.

I have had to track down UFile versions going back to 2007 to get their taxes completely sorted out and have reached the point where I am ready to send CRA two packages because none of this can be Netfiled. The plan was to send one package or returns for each of them, to cover both unfiling tax years and/or T1-ADJ forms containing claims for pension splitting. For the years that CRA indicate tax returns that are "Not received", on a least one of the returns there is a small amount of taxes owing, mostly around $100 or so. So I'm expecting interest and penalties to be involved. But they also trigger refunds for the other spouse, in the neighbourhood of $300-500 per return, so it it net positive for my parents if CRA will accept pension splitting going back to 2007.

As I have now discovered from the TaxTips website, the three year rule on claiming pension splitting would seem to indicate that there is only one year (2014) to adjust for this specific claim. I remain hopeful that given all the circumstances involving unfiled returns and catch-up that CRA will be more adapt to allow the pension splitting claim further back. I guess if we don't file and claim it we will never know. I just was hoping that someone on FWF may have had some experience with this and could educate me on ways to proceed that stood a higher chance of success.
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Re: Changing past tax returns (T1-ADJ)

Post by AltaRed » 14 Dec 2017 12:32

I guess it depends on how much money is at stake. While I understand even a few hundreds of dollars may be important to your parents, I'd think of it as 'past money no longer missed' by your parents as they didn't have it for the year, e.g. 2007, in question. It's a judgement call on the amount of entanglement you wish to pursue for the potential reward to be gained.

What I might suggest is:

1. Firstly get 2014 out of the way before year end.

2. Then I might do a trial with the years tax returns (T1 Generals) were NOT filed, and include pension splitting in those returns....but send in both Mom and Dads under the same clip/staple (by year) to emphasize the pension income splitting opportunity. All in one envelope. Include a note explaining you are playing catch up for elderly parents. CRA may well allow pension income splitting here because nothing had been filed in the first place.

3. For the years that tax returns were filed, but pension splitting was not done, send the T1-ADJs in pairs (mom and dad) for each of those years, again all in one envelope. Include a note asking for compassionate consideration given their low incomes. CRA may disallow but at least you tried.

The complication by grouping it this way is if they were entitled to GST/HST credits because of the way these are processed, but I'd worry about that later..... after the tax returns themselves were dealt with. Might be 2019 before all this is settled.

That is my 5 minute 'thinking' of a process..... Good luck.
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Re: Changing past tax returns (T1-ADJ)

Post by Peculiar_Investor » 14 Dec 2017 14:27

Thanks for the suggestions. I have been thinking along those same lines myself.
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Re: Changing past tax returns (T1-ADJ)

Post by AltaRed » 14 Dec 2017 14:51

Peculiar_Investor wrote:
14 Dec 2017 14:27
Thanks for the suggestions. I have been thinking along those same lines myself.
Geez... two engineers thinking alike? :wink:
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Re: Changing past tax returns (T1-ADJ)

Post by kcowan » 14 Dec 2017 15:37

I have probably mentioned this before, but DWs cousin worked for CRA and was subjected to hiring rules and quotas that forced her to hire under-qualified people just to make quota.

When you are dealing with them, remember that you engineers can ring circles around these people mentally. Just let them save face. When they asked me to justify my claim for US tax paid last year, I dutifully should them the T-slip on their site and applied the US exchange to show the amount claimed. You would think they could have figured that out themselves but they are probably just following rules because that return has a T1135 filed with it.
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Re: Changing past tax returns (T1-ADJ)

Post by Peculiar_Investor » 29 Dec 2017 19:18

The waiting begins as I now sent everything to CRA with a cover letter explaining the situation, along the lines that AltaRed suggested.

Due to timings of sign-off from my parents, I ended up sending two mailings, one with 2012-2014 materials, subdivided into separate envelopes specific to each parent, then a second mailing for 2008-2011, again subdivided into separate envelopes specific to each parent.

I will monitor the CRA Represent a Client website to see how CRA handles everything and report back any educational learnings. I can already see that CRA is showing the 2012 returns as now received.
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Re: Changing past tax returns (T1-ADJ)

Post by Peculiar_Investor » 01 Feb 2018 11:43

Tracking the timeline on this odyssey. I periodically check CRA's website to see the current status of the various returns/T1-ADJ.

As of this morning, nothing new to report. The CRA website clearly indicates that everything has been receiving, but nothing further.

Based on other reports about the pace of processing of anything non-standard at CRA, I'm not expecting this to get resolved quickly, but if and when something happens I'll try and come back and update.
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Re: Changing past tax returns (T1-ADJ)

Post by amphitryon » 07 Feb 2018 21:07

You might be in for quite a wait!

For the year 2014 I started dealing with a very simple T1 ADJ for my mother-in-law, which I submitted for her back in 2016. After several conversations and re-submissions (one the CRA seems to have ''misplaced''), this matter is still open. Towards the end of 2017 the CRA finally acknowledged to ''be working on it'', but to date nothing. Similar adjustments in the past went through quite routinely and timely, but there seems to be a new batch of staff not versed in the ''avoidance of double taxation'' (mother had a German pension and paid tax there as well).
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