Ah, tax time. Everyone’s favourite time of year.
Oh, is that just us?
We just love the numbers, the details, and executing the tricks of the trade that save our clients money (or a visit from the taxman).
But we also get that it can be a stressful time of year—an extra thing to do on top of your already busy schedule.
And it’s not something you can just do slap-dash in the morning before you run out the door, or multitask your way to completion with one hand on the steering wheel, and one hand on your laptop.
If you do something wrong because of missing a pesky detail or some changes to the tax code and you don’t pay your dues, there are some serious penalties to pay.
We have also seen too many clients pay far too much in taxes because they aren’t aware of all the tax breaks the government provides.
Call us Albertan, but we think you already pay enough taxes.
At times, it’s a good idea to bring in a professional to ensure your taxes are done right and to get through tax season headache free.
But perhaps your taxes are simple, or maybe you just don’t mind going through all the nitty gritty required to file taxes flawlessly yourself.
If that’s you, great. We’re kindred spirits.
But please, avoid these seven common personal-tax filing mistakes.
7 Common Personal-Tax Filing Mistakes
This is number one, and hopefully the most obvious mistake. But unfortunately, many people just “forget” to file their taxes.
Or perhaps you had your company’s corporate taxes filed, and since the business is in your name, you think that should be sufficient.
Let’s make this really clear:
EVERY adult must file a tax return each year.
Even if you didn’t earn anything that year.
Even if you are retired.
Even if you really really don’t want to.
If you fail to file and you owe taxes, you will be subject to the CRA’s interest and penalties, which get more and more sobering the longer you fail to file.
You might also miss out on government cash benefits like
- the GST Credit
- Canada Child Benefit
- Canada Workers Benefit
Did you know you can write off the interest you pay on student loans and any investment loans?
For student loans, you need to have an official document from the student loan organization and tell the CRA how much interest you paid (on line 31900).
For investment loans, you need a similar document from the bank or other lender, and you need to declare to the CRA the amount of dividends you’ve earned (on line 12100) and interest you’ve paid (on line 31900).
(This is also a good opportunity to take note of how much interest you’re getting on your investment loans. If the interest you received on your investment loan is less than the interest you are paying to the bank to borrow the money, you are wise to cash it in and cut your losses. So for example, if interest received on your loan is $800 for the year and the interest you paid the bank is $1000, you are losing $200 each year. You want to aim at breaking even at the very least for it to be worth going into debt to try to make money, as you do with investment loans.)
You may already know that students can defer their claim/write offs or designate the transfer of an amount to a spouse, parent, or grandparent.
The process usually goes something like this: The student or family member simply downloads the T2202A Tuition Slip from the university website and sends it off to the CRA.
But did you know that there is a place for the student to sign on the back of the form?
When the student signs the back of the Tuition Slip, it means that the student understands that a maximum of $5000 of their tuition tax credit will be transferred to one of the three relatives mentioned above and will no longer be available for the student to use.
And if the CRA does a random audit, asking you to justify the tuition claim on the family members’ tax return, the claim could be disallowed without this signature.
The reason you need to ensure the receipts are acceptable is that if the CRA decides to do one of their infamous audits and asks you to submit all the receipts you claimed, they will disallow any receipt that does not have all the required fields on it.
Check the CRA website for a checklist detailing what should be included on official receipts for cash and non-cash donations.
Every year, the government adds and subtracts things we can claim on our tax return.
And you can miss tax breaks because of it. Such as the home accessibility tax credit implemented a few years ago.
And if you’re filing your return by hand as opposed to using a program (which we don’t recommend), you’ll need to note which credits and claimable expenses have been eliminated, such as these notable ones from recent years:
- The Children’s Art & Fitness tax credits
- The First Time Donation credit was also phased out after the 2017 tax year
- Public Transit passes
- Federal Education & Textbook tax credit (unused amounts can be carried forward)
- The Alberta Climate Leadership adjustment rebate was eliminated in 2019
If you’re an employee, but you have to use your personal vehicle or any out-of-pocket expenses to carry out your job and your employer is not reimbursing you, you can claim these expenses on your personal tax return.
However, you must get your employer to fill out a T2200 Form.
If you do not have this T-Slip completed, you cannot claim your employment expenses—which means you could miss out on getting as much as a 50% increase to your tax refund.
There’s a whole new world of items to fill out and write off when you are self-employed but not incorporated (i.e. a sole proprietor). That also means a whole new world of potential pitfalls of which to be aware. So, here are a handful; and as Aladdin would say, don’t you dare close your eyes:
- Not filling out the T2125 (Statement of Business or Professional Activities) correctly
- Miscalculating (using a program like Turbotax is a better bet than calculating by hand)
- Missing out on expenses you can claim as a sole proprietor
- Not recording your capital cost allowance on your vehicle (depreciation)
- Putting both professional income and business income on the same T2125
- Claiming 100% of your vehicle expenses.
Note that you should be keeping a mileage log throughout the year, then use the following formula to calculate how much can be claimed as business vehicle expenses for that year:
(total annual business kilometers / total of all annual kilometers driven) × total annual vehicle expenses = annual business vehicle expenses
Let GuYDanS Help
We hope this list of common tax-filing mistakes helps keep you on the straight and narrow, CRA-compliance speaking.
Prefer someone else to worry about these potential mistakes (and others) for you?
In your corner,
The GuYDanS Team