The second situation where two returns are filed is when a person has declared bankruptcy. In this case there are two returns
in the year of bankruptcy. One return is usually filed by the trustee and
includes all income up to the day that he or she was appointed trustee.
The second return
includes all income from that day to the end of the year. Both of these returns
contain full exemptions and since whatever income is earned results in a lower
marginal tax rate, there is usually enough in the first return to pay the
trustee's fees and the second return gives the bankrupt person a little boost to
help get started. Be careful though. I see some people sign away the second
refund with the first. To my knowledge, there is NO onus on the bankrupt person
to turn over the second refund to the trustee.
I did a lot of work
the summer of 1988 on one return, only to find out that the trustee had already
filed it and appropriated the refund for his fees.
As an example, if a
married person with 2 children and a non-working spouse were making a gross of
$1,500 per month and were to go bankrupt on June 30th, there would be no tax to
pay. Any tax deducted in the first nine months would be a refund because the
exemptions exceed the $9,000 earnings (plus 1/2 the family allowance) and the
taxpayer would receive a refund which would go to the trustee. The second return
marked "POST-BANKRUPTCY" would also have a total refund because the
exemptions would again exceed the $9,000 gross income. This second refund should
go to the taxpayer. In addition, the spouse would be entitled to the child tax
credit if the spouse was the mother. (If it was a non-working father and a
working mother, she would get her child tax credit with her refund).
Do not try to fool
the government when answering these questions " I guarantee that it
will cost you money. Why? Well, I personally know of nine other people with my
name. I have received a receipt in the mail for David "L" Ingram.
There are over 70 John Smiths in the Toronto phone book, and many J. Smiths. So
you must put down your correct date of birth and correct social insurance number
" as well as your name " to identify yourself properly.
If you do not, you
could be in the position of one New Westminster woman who received the wrong
Canada Pension Plan benefits; or, even worse, you could lose two and one-half
years of old age pension benefits " as happened to one lady in Vancouver.
This last case is
not uncommon because many people lie about their ages. I feel that apart from
personal vanity, there are at least two other reasons for not reporting your
correct age: 1) to keep a job after the age of 65, and 2) to get a job before
the age of 16 or 19. In both cases, people who lie may contribute needlessly to
the Canada Pension Plan (since contributions before you reach 18 or after your
70th birthday do not count for CPP purposes).
In one such case, I
was preparing a very nice lady's 1973 tax return in my Vancouver office. She
gave me a date of birth which made her 58. To put it nicely, I did not believe
her and casually mentioned that it was too bad that she was not seven years
older. Her ears perked up. "Why?" I explained to her that there was an
extra exemption at the age of 65, and that she would get more money back. She
then informed me that she was really 68, but had changed her birth date to keep
her job because retirement was mandatory at the age 65.
Because she could
not afford to retire, and in fact wanted to keep on working, this woman had
forfeited several thousand dollars. She had forfeited two and one-half years of
old age security benefits and two years of extra old age exemptions.
Yet employers do not
see their employees' tax returns, nor do they have the right to see them. So if
you want to tell a few white fibs about your age to your employer, that's
between you and your conscience. But for your own sake, set the record straight
on your tax return, otherwise it could cost you money.
Luckily, however,
all was not lost in this lady's case. By refiling her 1971 and 1972 tax returns,
we retrieved for her two years of old age exemptions, and we were also able to
get a lump sum settlement of over one thousand dollars from old age pension.
Today, in 1990, the same scenario could result in over ten thousand dollars.
So I take this time
to make an important point. If you see something in this book that you have
missed when filing past tax returns, you can correct and usually change your
return for three years back. Don't just sit there, do it!! Today, in
1991, I still see one person a month who is working with an incorrect age
because they changed it to get a job.
The social insurance
number is another important part of the heading section, for the S.I.N. is the
only record and control that the government has of your contributions to the
Canada Pension Plan. I have had a client with eleven social insurance numbers.
He was fooling no one but himself. He felt that with all these numbers the
government would lose him, and he was partly right. In fact, what this married
man with three children was doing was wasting the money he was contributing to
the Canada Pension Plan in different numbers.
If you are married,
the spouse's social insurance number must be filled in as it allows the tax
department to reconcile net incomes. If you do not fill it in, it could delay
your refunds until the tax department gets the correct numbers.
Finally, the type of
work you do and the name of your present employer is important for a very good
reason. I have never seen this information misused, but I have seen it used to
track down taxpayers for the purpose of sending them refunds.
