dave@lsuc.uucp (David Sherman) (03/30/89)
Every so often I have this conversation with someone I just met:
X: And what do you do?
Me: I'm a lawyer.
X: [optional diatribe about what is wrong with our legal system
deleted] What kind of law do you do?
Me: Tax.
X: Tax? I thought accountants did tax.
Me: Umm, yeah, well...
Seriously, what do tax lawyers and accountants do? What about
tax return preparers who aren't qualified accountants? Where
does (gasp) H&R Block fit in? That's the topic for this evening's
musings.
By accountants, most people mean Chartered Accountants. CAs
must pass very rigorous qualifying exams, which include substantial
coverage of income tax. There are other accountants too --
CGAs (Certified General Accountants) and CMA (Certified Management
Accountants), whose focus is somewhat different (general accounting
and cost accounting respectively). For that matter, "accountant"
is often used to describe bookkeepers with no professional training.
CAs are, in most provinces, the only people authorized to practice
public accounting, meaning performing audits and expressing opinions
on financial statements. CGA and CMA are definitely less prestigious
qualifications than the CA designation. (And the insulted howls of all
the CGAs and CMAs who say that this is untrue doesn't change the fact.)
Their training in tax is also less extensive. When I say "accountant"
below, I mean CA.
Lawyers and tax are a peculiar mix. 95% of lawyers dread
tax and stay as far away from it as possible. The other 5%
do it all the time. (Actually, some lawyers in areas such as
family law know enough about the areas of tax that affect their
particular field of practice.)
There is no official specialization of lawyers in Canada (although
some changes are on the way in). Admission to the Bar in any
province entitles a lawyer to practice in any field. (The Law
Society of each province governs the profession, and every
qualified lawyer in Canada is thus a member of at least one
Law Society.) I am thus legally qualified to defend a criminal
charge or handle a real estate deal, neither of which I'm
remotely competent to do. At any rate, there's thus no such
thing officially as a "tax lawyer", but unofficially it's clear
who is. Most tax lawyers work in the large law firms, primarily
on matters for large corporate clients.
Because of the nature of the training in the two professions,
all accountants know a good deal of tax (although those who
don't keep doing it will fall behind quickly), but relatively
few lawyers do. Most law students learn some tax while in
law school, and all have to learn some while in the Bar Admission
Course, but it's relatively general knowledge, not the kind which
would really qualify the lawyer to deal with tax problems.
Now, who does what? Tax work for professionals falls into
three general areas: planning, compliance and litigation.
Planning is figuring out how to (legally) pay only the, um,
correct amount of tax :-). Compliance is filling in tax returns
and all of the related forms. Litigation involves appealing,
first within Revenue Canada and then, if necessary, to the
courts, when one's client is adversely reassessed.
As between the two professions, virtually all compliance
is done by accountants. Tax lawyers don't get into returns
and forms very often. Litigation is handled entirely by
lawyers at the higher court levels, but both accountants
and lawyers represent clients when dealing with Revenue Canada
and the first level of court (Tax Court of Canada).
Planning is the fun stuff. It's done by both accountants
and lawyers, with each taking a somewhat different focus.
In both cases, the goal is to minimize the tax payable by
the client in the future. The techniques available are
varied, but each case depends on the particular facts.
That's what makes tax planning so much fun: you have a
set of facts and proposed transactions, and a vast array of rules,
and the object is to find a way to structure the transactions
so as to minimize the tax payable under the rules. Something
like writing computer programs...
Accountants and lawyers differ a bit in their approach to tax
planning. There are exceptions, of course, but in general,
accountants are more willing to accept the rules as set out
in Revenue Canada Taxation's publications. Lawyers will tend
to look at the law as defined in the Income Tax Act, which is
determinative -- Revenue's publications are merely Revenue's
interpretation, not the law. Accountants also tend to deal
more with the numbers (i.e., figuring out the bottom-line
effect of doing something a particular way), while lawyers
tend to deal more with the law (figuring out whether doing
it that way will have the legal effect that's desired).
Of course, the fields aren't mutually exclusive -- there's
plenty of overlap.
Now, what does all this mean for you, the individual? Well,
your first concern about income tax is always the tax return
that's due in April. Should you do your own return? If it's
not terribly complicated, I'd say yes. It takes a while, but
you learn a little bit about our tax system in the process.
If you want a program to assist you, you can buy PC packages
for $50 or so (Henry Zimmer's CanTax, for example) which will
do the mechanics of your return.
(For my own return, which is quite complex, I just use a calculator,
plus some sh and awk scripts to track stock market transactions.)
What happens if you go to H&R Block, a department store income
tax service, or the nearest second-floor walkup with a sign
on the street, "INCOME TAX RETURNS-->"? Well, you will get
someone who has had a little training on filling in returns.
They're using a computer program which is likely no better than
one you could buy for your own use (and fundamentally no better
than your pocket calculator). They will know about the
basic things that come up very commonly. They likely will not
know how to handle difficult questions -- they just don't have
the training.
My (personal) view is that most people on the net should be able
to do their own returns. If you can't, it should be because you
have complex affairs which should be discussed with a competent
professional (chartered accountant or lawyer). Even then, you
may be able to do your own and simply have the professional check
it over. Note that for questions of the type "how do I report such
and such on my return", you might as well call Revenue Canada's
enquiries number. They'll be just as competent as the non-professionals
who come out of the woodwork every spring to do tax returns.
Examples of people who should consult a professional might be:
someone who is carrying on business rather than just employed;
someone who thinks they might be able to classify their relationship
with the entity that pays them as consultant rather then employee;
someone with dealings involving another country, such as the U.S.;
someone with substantial amounts of investment income, or capital
gains, or losses; someone who has an investment in any private
corporations.
Note in particular that if you are the type of person who should
consult a professional, then you should be doing tax planning at
any time of the year, not just in April. Filing your return is
only a small part of doing tax. The nice thing about tax is that
any savings you get from consulting a professional can easily
be measured against the cost of the fees you pay.
David Sherman
--
Moderator, mail.yiddish
{ uunet!attcan att utzoo }!lsuc!dave dave%lsuc@ai.toronto.edu