# Accountant Liability for an Incorrect Tax Return?



## 2mchtx (Sep 8, 2017)

This is a bit complicated so I will try to summarise the sequence of events.


Spring of 2016 the taxpayer knowing he is negligent hires an accountant (CA) to complete the 2014 back tax and 2015 tax returns. 
As part this the CA is also given permission as an authorised representative authorisation level 2 with the CRA.

At the same time the taxpayer decides to top up his RRSP.
Unbeknown to both the taxpayer and the CA the 2013 'notice of assessment’ used was superseded by a later ‘notice of reassessment’ and the actual RRSP limit was zero.

The CA first completes the 2014 return and the taxpayer receives the 'notice of assessment’ showing the corrected RRSP limit. The taxpayer did notice this but assumed the CA as an ‘authorised representative’ would look at this data on the CRA website when completing the 2015 return.

CA then completes the 2015 return using a tax program based on numbers from the superseded 2013 notice of assessment and missed the RRSP over contribution.

The taxpayer consequently had to pay the fines and penalties for the excess RRSP contributions, close to $2000.

In hindsight, the root cause for all this is the CA did not correctly follow the instructions on Schedule 7. That is, obtaining the correct RRSP limit: “as per latest notice of assessment”

How liable is the CA for this series of events?

Other professions like Doctors & Engineers would be liable if they did not reference the correct documents as required. Normally if the reference document is not available the professional would ensure they have the correct document before proceeding.

thank you
2mch


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## kcowan (Jul 1, 2010)

Yes the CA is responsible. They will naturally be reluctant to agree. Put your request in writing. Be prepared to go to their professional organization for support.


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## Mortgage u/w (Feb 6, 2014)

I'll play devil's advocate:

You say the taxpayer is negligent, yet is able to assess the situation after the fact. How negligent is the taxpayer, really?
Were instructions given to the CA to verify if the current NOA provided was indeed the most recent; because he's "negligent"? Or does the taxpayer excuse he provided an old NOA because they're "negligent"?

And who gave the recommendation to contribute to the RRSP? Was is done at the "negligent" taxpayer's own will? Or recommended by the CA? FA?


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## OptsyEagle (Nov 29, 2009)

The taxpayer made the RRSP contribution, not the accountant. It is that contribution where the problem and penalties arose. Taxpayer is at fault. Seems pretty straight forward to me.

Anyway, the taxpayer will always be at fault. The CA is there to help the taxpayer, not take over all responsibility. In a perfect world you could get a CA that offers some form of guarantee but I doubt you would get much of that in this world.


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## Nerd Investor (Nov 3, 2015)

I can't see how the CA is at fault here. 
He was engaged to prepare the 2014 and 2015 tax returns and proceeded based on the information provided to him (ie: the 2013 Notice of Assessment).


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## Eclectic12 (Oct 20, 2010)

2mchtx said:


> ... In hindsight, the root cause for all this is the CA did not correctly follow the instructions on Schedule 7. That is, obtaining the correct RRSP limit: “as per latest notice of assessment” ...


I am having difficulty coming up with a scenario that would make this true.

The root cause is that the 2016 RRSP contribution made was greater than the accurate RRSP contribution limit in 2016. As soon as that happened, fines/penalties started. 


The 2014 NOA was the first chance notice then deal with it and the 2015 return was the second chance ... which could have reduced the penalties/interest charged. It would not get rid of all of the fines/penalties as the only way to do that is to avoid making the over-contribution in the first place.

At the most, it would be seem that the CA may be responsible for part of the fine/penalties.


Cheers


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## Mukhang pera (Feb 26, 2016)

I do not see the matter is particularly clear cut one way or another.

To me, the CA's liability falls to be determined on ordinary law of negligence principles, namely: Was there a duty of care? If so, what is the applicable standard of care? Was that standard breached? Did the breach cause the loss of which the plaintiff complains?

Here, the central issue would seem to be that of standard of care. That a duty was owed is not in question. The question becomes: did the CA exercise the standard of care of a reasonably prudent CA carrying out the particular retainer? Did the standard of care require him to look beyond what was provided to him by the taxpayer and to carry out a review of what was available online? The responses above suggest that lay people cannot agree. That tells me that to prove negligence, one would probably require expert opinion. 

I mention expert opinion because I regard it as likely that to recover damages from the CA will require an action in the Small Claims Court. It has been suggested above that the OP seek to enlist the CA's governing body against him. Maybe the CA's governing body involves itself in these matters, although I would doubt it. They might deal with public complaints of misconduct, but not negligence. Professional bodies are commonly constituted as disciplinary tribunals, but not as courts. The governing body might try to foster some kind of settlement, but I doubt it can order payment to a disgruntled client. That is a matter for the courts. So be prepared to go to court.

So that takes us back to expert opinion. You can proceed to court without it and hope the judge will agree that it almost goes without saying that any competent CA would take the step that was missed here. Maybe some discussion over a beer with a CA friend might give some insight as to how the matter would be viewed by other CAs. If they would agree that it's less than obvious, then most likely the court will expect a CA to come to court to give expert evidence as to what should have been done. The point here is that mustering expert evidence is expensive. The cost of retaining the expert will probably exceed $2,000. In Small Claims Court, that cost will probably not be recoverable, even if the lawsuit succeeds. 

For some discussion on the topic, see:

_Gelt Holdings Ltd_. v. _Doane Raymond Pannell _, where the following was said about the need for expert evidence:

[37] It is not every case of professional negligence that requires independent evidence of the appropriate standard of care to apply. When the negligence alleged is of a technical or complicated nature then it is helpful and sometimes even mandatory that there be independent evidence of the standard of care. But I do not find that it is necessary in this case. [38] Accountants, as in the case of other professionals, are bound to have the knowledge of the practical rules of law which affect them in the exercise of their profession (Percy, R.A. Charlesworth & Percy on Negligence, 8th ed. (London: Sweet & Maxwell, 1990) at 567).

http://www.courts.gov.bc.ca/jdb-txt/sc/97/14/s97-1492.txt


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## twa2w (Mar 5, 2016)

Based on the timeline you have given as to when the rsp contribution was made, I don't see how the CA is liable. You made the contribution in 2016 which really has no bearing on your 2014 and 2015 returns as it could not be deducted on those returns or reported on those returns.
That reporting would not take place until the 2016 return was filed. Your contribution would not show on CRA records until much later when reported by your RSP holder.

Unless of course your CA gave ypu advice around contributing to the RSP but it appears youdid this before he completed the returns.


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## Nerd Investor (Nov 3, 2015)

As the situation is laid out, this is really beyond any reasonable definition of due care. The CA was engaged to do the 2014 and 2015 tax returns. As a starting point for correct carry forward information, he would want the 2013 Notice of Assessment, which he was provided. That provides the necessary information for 2014 and what he enters for 2014 in turn provides the carry forward information for 2015. What doesn't make sense to me is why the taxpayer didn't provide the 2014 Notice of Assessment when he received it, particular if he noticed there was a change.


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## Eclectic12 (Oct 20, 2010)

twa2w said:


> ... You made *the contribution in 2016 which really has no bearing on your *2014 and *2015 returns as it could not be deducted on those returns or reported on those returns.*
> That reporting would not take place until the 2016 return was filed. Your contribution would not show on CRA records until much later when reported by your RSP holder.


Depends on what "spring of 2016" means. 

If the contribution was made between Jan 1st, 2016 and March 2nd 2016, the RRSP contribution *must* be reported on the 2015 tax return, where the deduction is at the tax payer's choice for this return or applied to a future tax return. It would not surprise me if CRA requires financial institutions to do a transfer of these contributions to their computers before the 2015 tax return is due and long before the 2016 tax return is due.


Cheers


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## redsgomarching (Mar 6, 2016)

so you don't file your taxes for 2 years, give somebody what one could expect a pile of **** paperwork and then without consulting (judging by your first post) you do an rrsp contribution to find that you didn't have any room because you (the person who failed to file their taxes) thought you would be smart. 

get a life, you are responsible here. you hired the ca for your 2014 and 2015 tax returns which have no bearing on your 2013 rrsp contribution room - assuming you aren't a nitwit and filed your taxes back for 2013 in 2014 you would have received an NOA with your RRSP contribution on it.

People like you make me sick.


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## twa2w (Mar 5, 2016)

Eclectic12 said:


> Depends on what "spring of 2016" means.
> 
> If the contribution was made between Jan 1st, 2016 and March 2nd 2016, the RRSP contribution *must* be reported on the 2015 tax return, where the deduction is at the tax payer's choice for this return or applied to a future tax return. It would not surprise me if CRA requires financial institutions to do a transfer of these contributions to their computers before the 2015 tax return is due and long before the 2016 tax return is due.
> 
> ...


Spring starts March 20 th ;-) 
But I agree we dont really know what dates OP is referring to nor when and what paperwork he supplied to the CA.


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## RussT (Jul 11, 2016)

This is a very confusing story.

How could a reassessment reduce the RRSP contribution limit to zero? Was 2013 income reported incorrectly as earned income for RRSP purposes but later reassessed as not eligible for RRSP purposes? Was a contribution made in 2013, not initially claimed, then claimed via T1adjust? Wouldn't the taxpayer know this? Are there other situations that the taxpayer could not reasonably know about?

I'm finding it hard to understand how a reasonable person would make the mistake of contributing to his RRSP when there was a zero limit. Personally I would be embarrassed to admit I did this and even more embarrassed to blame someone else.

Maybe the accountant should have caught it, but this to me is a pretty unusual situation. There are no red flags suggesting the NOA had been superseded in a way that would affect the RRSP limit to such an extent.

Edit: Just thought of another error - failure to enter the 2013 pension plan adjustment from the T4. This would be corrected by CRA and would affect the RRSP limit although probably not to zero.


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## Eclectic12 (Oct 20, 2010)

RussT said:


> ... How could a reassessment reduce the RRSP contribution limit to zero?


Don't know for the OP ... but in my case, it was a mistake that a CRA data entry clerk made. I was supposed to have additional RRSP room added as I had left a DB pension. The clerk typed in the smaller number as the new limit instead.

Say that I had $20K as I don't remember the number. The pension adjustment reversal (PAR) for leaving the DB pension was calculated at $10K, which should have been added to end up with $30K. The over writing meant my limit dropped from $20K down to $10K. This meant that contributions made/deducted from four or five tax years back were reassessed as over contributions, triggering the penalty for years and increased by interest charges for not paying the penalty for years.

When I called CRA to get an explanation, it took twenty five minutes to convince the agent that I needed details and five minutes for the error to be found. Then I had to fill out four or five requests to adjust the bogus returns then send them to CRA for review as I might choose to leave the returns as-is to pay $$ I didn't owe.


One would hope the OP has sorted through what caused the RRSP limit to be changed to zero but that is not clear.


Cheers


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