Some advisors prefer to outsource tax-filing for clients, while others say the extra work pays off.Justin Tang/The Canadian Press
Advisors are divided on whether to outsource or manage income tax preparation directly for their clients. Either way, they acknowledge the importance of staying involved.
David McGruer, certified financial planner (CFP) at McGruer Financial Foundations Inc. in Ottawa, says he files around 250 individual tax returns a year. He notes they’re all personal income taxes and not corporate returns, which are more complex.
“It provides clients enormous stress relief,” he says.
He knows some of his peers prefer to outsource income tax preparation to accountants, or simply have clients submit their notice of assessment from the Canada Revenue Agency (CRA), because preparing taxes on clients’ behalf is too much work. Still, he believes the benefits outweigh the heavy workload in the spring.
“There is no one better suited to understand how the tax return should be constructed,” he says. “We get a first-hand experience with the information.”
He notes advisors are already aware of what’s supposed to be on the client’s tax return, including RRSP contributions, pension income-splitting and realized capital gains.
“The advisor is more intricately connected with the data when we handle the data ourselves,” he says.
Jason Heath, managing director and CFP at Objective Financial Partners Inc. in Markham, Ont., had a similar epiphany. After doing income taxes for clients for 14 years quietly, he noticed tax planning took on a life of its own, growing at the same pace as fee-only financial plans.
So, earlier this year, he launched a separate firm, Objective Tax and Accounting Inc., which shares an office with his advice-only financial planning firm. The tax and accounting side has 14 staff members.
Mr. Heath says the addition has allowed Objective to extend their offerings beyond personal income taxes. They file corporate tax returns and offer bookkeeping services, and now handle Quebec tax returns, Mr. Heath says.
“We’re leaning into this so much because tax is the most important component of financial planning,” he says.
Most advisors work with senior clients who are withdrawing from their assets or focused on estate planning, he says, both of which have tax ramifications.
At this point, his firm isn’t filing U.S. tax returns for clients, he says. Some clients move back and forth between Canada and the U.S. or own U.S. real estate and require more than Mr. Heath’s firm can provide.
“You need to know when to stay in your lane and when to seek outside support from experts,” he says. “Filing U.S. tax returns for Canadians requires a lot more expertise.”
Brandon Davies, founder of Clarity Cross Border Planning in Edmonton, focuses on cross-border clients, but his firm doesn’t provide tax preparation and filing in-house.
While he says in-house tax filing is convenient for clients, he also emphasizes the complexity of cross-border taxes. Instead, he’s built a network of four accountants in different locations, all with different areas of focus.
Mr. Davies sees his main role as “triaging” clients’ tax issues and pairing them with a cross-border tax expert suited for their situation. He briefs the accountant in advance about the client’s situation, which clients appreciate.
Some cross-border clients postpone seeking tax services because they’re not sure what they need.
“One may have a simple need, so I’m not sending them to the accountant who might charge a lot more than for what they need,” he says.
“We go over their reporting obligations and who is the right professional … to bridge the gap between financial planning and tax,” he adds. “A lot of clients don’t understand the obligation they have.”
Some clients who have their own accountants assume all cross-border tax returns are taken care of. Unfortunately, that’s often not the case, Mr. Davies says.
He has seen American accountants prepare U.S. returns for their clients without any recognition or acknowledgment of the fact that their client has moved to Canada, for example.
“There’s a lot of complexity and room for error,” he says. “Half the clients who come to us have a tax reporting issue ... even though most clients we meet with have accountants.”