It’s no secret that filing taxes can be daunting. After all, organizing your essential receipts, tax slips and financial documents is time-consuming, and filling out your return is complicated. Taxes require careful calculations and thorough research about income brackets, benefits and deductions. In this article we review the common mistakes people make on tax returns in Canada.
Every year, Canadians feel the pressure to file their taxes properly because they know that a mistake on their tax return can cost them. At best, a mistake could land you with a smaller refund or a larger payment. At worst, your tax return will raise red flags at the Canada Revenue Agency and encourage them to conduct a tax audit on you.
If you’re worried about filing your taxes this year, consider what common mistakes you should avoid and how to avoid them.
Not Considering All Streams of Income
You need to report all of your streams of income on your tax return — not just the earnings that you get from your full-time job. Side-hustles like driving an Uber, selling crafts on Etsy, or freelancing as a tutor should also be included as self-employed income.
Another type of income that you need to consider now is COVID-19 financial aid. If you received CERB, CRB, EI or any other emergency aid to help you recover from income loss during the pandemic, you will need to include the payments to your annual income. Check out our article “What You Need to Know about CERB for Tax Season” for more details.
Forgetting Your Paperwork
One of the reasons why you shouldn’t rush your tax filing or start too close to the deadline is that it can take a while to collect and sort through all of your paperwork. You will need to get your income slips, tuition slips, proof of tips/gratuities, personal receipts and more.
With the pandemic still in effect, the CRA is encouraging Canadians to do their filing online, which means that you should have digital copies of your essential paperwork. You should be able to get digital copies of documents like T-slips and tuition slips. As for your personal receipts, you can use a scanner to make digital copies.
Don’t delete those copies after you’re done filing. Save them and move them into a clearly labelled desktop folder. It’s always good practice to keep this information on-hand in case the CRA decides to audit you.
Skipping Your Research
Before you file, you should do some research. Otherwise, you could miss out on important benefits and larger returns.
So, look up what potential deductions, credits and expenses you can claim. For instance, you might be one of the countless Canadians that had to suddenly start working from home in 2020. If that’s so, you can make deductions based on your at-home work-related expenses.
Not Asking for Help
If you’re not sure how to file your taxes and you’re worried about making mistakes that will send the CRA after you, don’t panic. You’re not obligated to complete this process all on your own and can ask for help.
If you’re willing to spend some money, you can look for a certified public accountant (CPA) or tax preparer to help you file. If your budget is tight, you can go to a free tax clinic. To guarantee the public’s health and safety during the pandemic, these tax clinics are all virtual. Many online software packages, such as TurboTax offer live online assistance and searchable FAQs to assist in getting all the information entered both from an income and expense/benefit standpoint.
Getting some professional guidance will help you avoid any major mistakes when it comes to income calculation, benefit claims and more. It will also remove some of the stress of filing off your shoulders.
If you know that you will have tax owing after filing your return, then you need to budget for tax season. Otherwise, you might find yourself scrambling to come up with payments that you can’t afford to make. You will miss payment deadlines, accumulate interest and give yourself even more debt to catch up with.
This is especially important for self-employed individuals. You may have to make much larger payments to the CRA than someone whose workplace deducted income tax from all of their paycheques.
For extra guidance, you should read our blog on how to properly budget for taxes and manage your CRA payments.
One tax return mistake that can result in penalties is missing the filing deadline. The CRA can charge you with late filing penalties until you’ve remedied the situation. The penalty is 5% of the balance that you owe for 2020. After that, they add 1% of the balance for every month that you miss. They can do this for a maximum of 12 months. You can learn more about the late filing penalty, along with other tax return mistakes that have penalties, on the CRA website.
If you can’t pay the CRA what you owe, you should still file before the deadline. If you miss it, file as soon as you can. This will stop you from accumulating penalties, and it will help you access benefits that you’re eligible for.Don’t sabotage your finances.
The filing deadline for your 2020 taxes is April 30th, 2021. The deadline for self-employed individuals is June 15th, 2021. It does not appear that there will be a filing extension because of COVID-19 this year.
Not Fixing Your Mistakes
That’s right. One of the biggest mistakes that you can make is not going back and correcting mistakes that you made before.
If you notice that you’ve made an error that could affect your return, don’t panic. Wait until you get your notice of assessment because, after receiving it, you can make a request to adjust your T1 return through your online account or by mail. The CRA will process your request and then respond to let you know whether they’ve accepted or rejected the change.
If you have neglected previous filings and CRA payments, you also have the power to remedy this problem. You have a maximum of ten years to file a return and receive a tax refund from the CRA so, if you didn’t file for your taxes 9 years ago, you still have a chance to do so.
It’s better to deal with your back taxes than to ignore them. Otherwise, the CRA could take action against you. They could enact strategies like wage garnishment, account freezing and the right of offset in an effort to collect what you owe them.
Giving Up When You Can’t Pay
Not being able to afford to pay what you owe to the CRA in a reasonable time or manner isn’t an ideal situation to be in, but you will make it worse for yourself by ignoring the problem and letting your debts collect penalties and interest. Eventually, this neglect could incite the CRA to begin collection activities.
Consider some of your options if you can’t pay what you owe:
Make a Savings Plan:
If you received emergency financial aid for COVID-19 in 2020, you qualify for interest relief. You will not have to pay interest on any amount that you owe from your 2020 taxes until April 2022. This will give you more time to save up money and pay the CRA. If you’re in this position, consider our tips for paying your taxes while living on a tight budget.
Contact the CRA:
If you didn’t receive any emergency aid and you’re still unable to pay what you owe, you should contact the CRA and plead financial hardship. They may cancel/waive penalties or interest for you to make your repayments easier to handle.
Consider a Consumer Proposal:
Finally, you can consider a consumer proposal. A consumer proposal is a legally binding agreement made between you and your unsecured creditors (including the CRA), allowing you to repay a smaller portion of your debts in five years or less. It’s an effective solution for Canadians grappling with debt problems because it lowers your debt total, pauses interest and stops collection actions. These features will make repayment much more manageable, especially when you owe a significant sum to the CRA.
If you’re struggling with lots of debt — including the debt that you owe to the CRA — you should look into our consumer proposal services in Toronto. Start by booking a free consultation with one of our seasoned debt experts so that they can assess your financial situation. They will determine whether you meet the qualifications of a consumer proposal and whether it’s your best option for achieving debt relief. If the answers to both questions are “yes,” they can get you started on the process!
Does a Consumer Proposal Affect Your Tax Returns?
A proposal can take a maximum of five years to complete, so you may need to file your taxes five times while the proposal is in effect. You will get to keep any refunds that you get from your returns at this time. You will also be responsible for any payments that are due. Consider how taxes work in a consumer proposal and how this is different from the personal bankruptcy process.
David Sklar & Associates Can Help
The licensed insolvency trustees at David Sklar & Associates are always ready to answer your questions and concerns about financial problems and guide you toward a practical solution. Call us at 1-844-962-9200 or email us at [email protected].
Tax season is stressful enough without having to worry about making one of these mistakes. Take these tips to heart and make the tax filing and payment process a lot easier to handle this year.