Tuesday, 7 April 2009

CRA Comments on "Accuracy" of NETFILE Certified Web Tax Software

The folks at CRA called me back last Friday after checking the huge differences in taxes owing that I found after testing the eleven web tax preparation software packages which have been NETFILE certified by the CRA.

CRA says this is entirely possible and acceptable to them! How so?
  1. CRA only tests that all the income is correctly transferred and summed - that lines 150 Total Income and line 236 Net Income are correct. In my test line 150 was identical across all packages. All but one package - TaxChopper - had the same line 236 and the CRA confirmed that TaxChopper's application of foreign tax credits to line 232, which had the effect of reducing my taxes owing by about $35, is legitimate.
  2. CRA does NOT test whether deductions and tax credits are claimed, nor whether taxes could be reduced by allowable transfers, such as tuition costs from student to parent or spouse, pension income between spouses or other optimizations. It is not CRA's job to lower anyone's income tax. Thus, the fact that a number of programs neglected to claim foreign or provincial tax credits, causing the big differences in my tax owing, is not a concern to CRA.
  3. CRA has itself noticed differences amongst the programs in the course of their testing, though it is not their job to recommend any program as being worse or better than others. But for those taxpayers like me who want to legally pay the least amount, it is significant to receive confirmation the differences I found are not erroneous, anomalous or rare. CRA is considering adding words to its disclaimer on the various NETFILE packages to say that taxpayers should shop around.
What's to do now?
  • Everyone should shop around and enter their data into several of the programs to see which gives the least tax owing or biggest refund for them. After all, most of the work of doing taxes is gathering the slips and data, so re-entering it a couple of extra times isn't a lot of extra effort. Is that effort worth the possible hundreds of dollars or more difference? With the web programs, there's nothing to download and install, nor is it necessary to pay before seeing what the bottom line is. Based on my own test, I'd suggest TaxChopper is worth a try - if they have incorporated a fairly subtle deduction that no one else does, chances are that they might be more thorough in claiming other advantages.
  • More testing - I think it's time to go back and try a couple of other optimization scenarios such as pension splitting and tuition transfers to see which package performs best. I'd be curious what other people may have found for their own case.
The words "most accurate" are not the best way to describe the differences among the bottom line tax amounts calculated by the web packages. There isn't only one correct, CRA-acceptable, number. It is better to think of the lowest tax result.


Jordan said...

Great detective work!

I have to say I'm disappointed in the CRA to say it's not their responsibility. The CRA is an authority, and they can be intimidating even if they don't mean to be.

I think they've started some initiatives to improve their image like the Tax Payer's Bill of Rights and the YouTube underground economy video contest, but they should take it further.

It should be their policy to strive for accuracy, not revenue. If they find a software package is missing an obvious deduction they should be required to notify the creators.

It would be a lot easier then suggesting deductions to individuals, it would have the greatest benefit with the least effort and would even improve their own image.

Also Intuit should be warned because they have a "Maximum (biggest) refund guaranteed or your money back" for QuickTax.

If someone has a small foreign tax credit they might be better off buying the overpriced QuickTax software then requesting the refund guarantee.

CanadianInvestor said...

Jordan, CRA did tell me, as did a representative of one of the software vendors, that CRA does pass along informally and without obligation, its comments to the companies when they notice problems, so I guess that helps a bit but not enough obviously based on my limited testing testing that found such differences.

Anonymous said...

I filed my tax return using StudioTax. I was satisfied with it, but I did have to manual add in the child amount.

I just ran my numbers through TaxChopper and got a $117 bigger refund. I was intrigued until I noticed TaxChopper mistakenly treated my savings account interest as dividends.

Anonymous said...

How did Quicktax compare to others? It is one of the more expensive ones....

TaxChopper said...

To the first Anonymous:

It is Benjamin from TaxChopper. Can you specify at which page you entered interests but the program took them as dividends? I think you did not use the right box. The slips have been there for years, and those pages have been tested thousands of times, if not millions. So hope you can clarify this if you have time.


Benjamin @ TaxChopper

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