With the deadline for filing 2015 income tax returns drawing ever closer, investors are wise to pay attention to troublesome myths and avoid the common tax mistakes that go with them.
According to Aurèle Courcelles, Assistant Vice-President of Tax and Estate Planning at Investors Group, “While Canadians are trying to minimize taxes by doing their best to take advantage of the tax credits and benefits they are due, they can be thrown off track by unfounded assumptions or errors.”
A variety of tax myths can catch investors off guard. Among them, is a presumption that if you don’t owe tax, you don’t have to file. Not true, says Courcelles, who notes that you should file a tax return even if your income is under the basic personal exemption. In fact, doing so affords Canadians a number of advantages including:
- Opening up RRSP contribution room,
- Generating a return of tax withheld at source,
- Triggering a potential GST/HST credit,
- Supporting eligibility for child- or other income-based benefits,
- Serving as proof of low income to support applications for federal/provincial loans and bursaries.
Another common myth is that forgetting to file one year somehow justifies not filing in subsequent years as well. On the contrary, CRA’s Voluntary Disclosure Program offers an opportunity for taxpayers to correct past mistakes and put their tax affairs in order, says Courcelles.
For those who mistakenly believe that if they e-file they don’t have to worry about receipts, Courcelles cautions, “Whether you e-file or send in a paper return, you must keep all supporting documentation. Otherwise, should CRA ask for it, your claim can be rejected.”
Making inadvertent mistakes can also bring headaches.
For example, if you owe tax and fail to file by the deadline, you can expect penalties including a late filing charge of five per cent plus one per cent for each month your return is late, up to 12 months.
Failing to report all income is another big mistake that can invoke penalties. “It is important to report all income for the year,” says Courcelles. “If you are missing a slip, you can access a copy by registering and using CRA’s My Account service.”
Similarly, taxpayers must be careful when making claims for expenses against employment income. “You can only claim personally paid expenses required by your employment contract and for which you have not received reimbursement,” says Courcelles, noting that a T2200, signed by the employer, must be filed with your return to support a claim.
Canadians facing particular household scenarios are eligible for certain tax benefits, however, the onus is on the taxpayer to file correctly.
For example, if you claim for a caregiver, be sure to consider the eligible dependant’s net income, including social assistance when calculating the credit.
Additionally, reporting common-law relationships can bring tax advantages, but a failure to report can do the opposite. Those living in a conjugal relationship for at least 12 continuous months must report their status as common-law. The rules apply equally to same-sex couples.
A life event, such as being a first-time home buyer, becoming a parent, or experiencing a health related issue during the year may result in certain credits being available to you for the first time, notes Courcelles. “A professional advisor can help you sort it all out to your best financial advantage at tax time and for all the times of your life,” he says.
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Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant.