- File your tax returns! On time.
Many people are of the belief that they do not need to file a tax return (personal tax – T1 – GST/HST, Corporate Tax – T2 – or payroll taxes) because either they do not have any income to report or because they had no activities in that period / year.
Failing to file a tax return is a criminal offense, whereas filing a return but owing a balance is not. Additionally, once a due date for a return has passed the CRA automatically charges a Late filing Penalty (LFP) once it has been filed. It’s money you do not need to be paying.
Additionally, even if you have no income to report, you still have to file a return because you might be eligible for a refund, for Input Tax Credits (ITC’s) and for child tax benefits.
Even if you don’t have all your slips / information, file because you can always amend the returns after – but don’t forget information on purpose because the CRA is all too wise for that trick and they will still assess LFP’s.
2. Gather as much information as possible (all year).
If you have not received, have lost, or misplaced any slips for the taxation year you are filing for, try to get it. If it’s a T4 slip, as your employer / HR department. If it’s an investment slip, as your investment dealer, or log onto your investment dealer’s website and print off a copy.
If you have already registered to the CRA’s My Account you have access to electronic copies of your slips. Your employer / investment dealer must provide you a copy and a copy to the CRA of each slip.
If you are missing information, use any documents you have and enter estimated amounts.
New for 2016 is the CRA’s Auto-fill service which allows taxpayers who file their returns online to automatically fill in certain parts of their income tax and benefit return. In order to use the service, you must be fully registered for My Account. For more information, go to www.cra.gc.ca/auto-fill.
If you were quick to file your personal tax return and then a new or amended tax slip arrives, My Account has a “Change My Return” feature which is very helpful, or you can go old-school and complete Form T1-ADJ, T1 Adjustment Request, and send the completed for to your local tax centre.
3. Know your credits!
Don’t rely on your accountant or tax preparation firm to know what you are eligible for, especially if you only see them during tax time when they are already busy.
Without the benefit of a relationship with your tax professionals, they are just filing the return for you based on the information you give then, and would never know what credits you are eligible for or what slips are missing, unless you tell them.
The CRA posts information about new tax credits, benefits, and deductions on their website, some of which may apply to your tax situation, so before filing your return or before signing it confirming that it is accurate, go to www.cra.gc.ca/getready to learn about the new and existing tax measures.
Remember, once you sign your tax return, the CRA believes that you have gone through the return and agree with all the information on that return. If something is denied by the CRA, you cannot blame your accountant / tax preparer.
4. Use someone you trust!
A common excuse given to the CRA when tax credits and deductions are denied is that your accountant or tax preparer did it and said it was okay. This may work to convince the CRA that you are not knowingly trying to commit fraud, but any infraction is noted in your permanent tax file and going forward may result in the CRA not giving you the benefit of the doubt where there are disputes.
If you’re concerned that you are paying too much tax, or paying to much to your accountant, or that your tax professional is recommending convoluted tax schemes involving holding companies, incorporation and other complicated processes, it could be to pad their bottom line, or because they have no idea what they’re doing.
It’s okay to ask.
If you don’t like the answer, ask again, or ask someone else.
The last thing you need is to find out that a complicated structure set up to help you pay less taxes, costs you a lot of money each year and then will be denied by the CRA – costing you penalties and interest – not the mastermind behind the scheme.
5. Donate wisely!
With all the tax shelter scams and schemes floating around, be very careful when donating.
Make sure the charity issuing the tax receipt is registered with the CRA. That is the first step, but there is an additional step which must be adhered to, and that is the common sense rule. If you donate $100, and are provided a tax receipt for $1000, you likely need to run and not include that slip, or include it for the amount you donated.
The CRA has been under a lot of criticism lately for their treatment of Canadian taxpayers who had donated to tax schemes like GLGI, but the issue here likely will be solved in court. The participants have argued that the CRA provided GLGI with their charitable status, thus endorsing the scheme, while the CRA has responded with the fact that they have warned Canadians for a long time about donation schemes and that they provide the registered charity number to charities which comply with the CRA’s requirements and the CRA was not aware of the full extent of the scam until they investigated.
It’s a hot button issue which can be avoided by not trying to reduce taxes by fudging donation receipts.
If, at any time, you owe a balance to the CRA, make sure to keep in touch with the collector, respond to all notices and change your address with them if you have moved.
I also disagree with the CRA’s Direct Deposit initiative because it provides your main bank account to the CRA so that their collectors can take legal actions right away if you do not pay your balance.