It may seem like there’s a long time until you have to file your tax returns, but the sooner you get things done, the better it will be for you. Many Canadians choose to do their tax returns on their own, but it is very easy to make a mistake with them. In the long run, these mistakes can cost you dearly – so, here is what you might want to avoid regarding your taxes.
- Not Paying Taxes on Time
Tax filing has a deadline, depending on your status. If you are filing for individual returns, then the deadline is April 30. On the other hand, if you are self-employed, the technical deadline is June 15.
With that in mind, even if you are self-employed, you still have to file for taxes by April 30. Otherwise, the Canadian Revenue Agency (CRA) may incur a 5% penalty on your balance, along with an additional 1% for each month that you are late.
- Getting Rid of Receipts
With online filing and taxation becoming easily accessible to everyone, many people no longer consider it a necessity to keep their receipts or slips. “I paid them, so they no longer concern me.”
That’s a wrong mindset because the Canadian Revenue Agency often asks for these receipts when opting for tuition expenses, childhood expenses, or other claim expenses. You may want to keep 7 years worth of receipts on you and make sure that it has the payment date. If you can’t provide, then you risk your claims being denied.
- Incorrectly Reporting Your Marital Status
You might not think of your boyfriend or girlfriend as your spouse (at least not yet), but if the two of you have been living together for the past 12 months, have a child together, or reside together, then in the eyes of the CRA, you are in a common-law relationship.
When you are in this kind of relationship, you need to declare it on your tax returns. It’s important that you state your marital status correctly, as you may receive certain benefits as a result. For instance, the Canada Child Benefit depends on the combined income of both spouses /civil partners. On the plus side, filing as a single person may delay your payments. On the other side, you may have to pay back some of the money that you receive.
- Claiming Ineligible Moving Expenses
In the event that you had to move for study or work purposes, you may claim for moving expenses if this new home is closer to the school or workplace by 40 km. With that in mind, not every moving expense is eligible.
According to the Canadian Revenue Agency, you may not make a claim for house hunting, home staging, storage fees, repairs to your old home, and temporary accommodations. Mail-forwarding charges and job hunting are also considered ineligible.
- Incorrectly Claiming Interest on Student Loans
One of the top reasons for paying off a student loan as fast as you can is that the longer it takes to pay it, the more you will have to give back in interest. That being said, according to the CRA, you may claim interest that you have paid on certain student loans.
This interest can only be claimed once, and there are also some limitations that you need to keep in mind. You may not make a claim for foreign student loans, student credit lines, or personal loans – even if those loans were used to pay off your schooling fees.
- Not Reporting All Income
You may think that you are reporting all of your income – but the truth is that you likely aren’t. So, you will need to report the revenue coming from every source you have. Otherwise, the Canadian Revenue Agency may penalize you for failure to report all taxes.
This includes benefits as well. For instance, this year, you will have to declare as “income” any coronavirus benefits that you may have received in 2020. Even benefits that had tax withheld must be declared as well. Many people have trouble with this, as they do not realise Canada Emergency Response Benefits are taxable, so click here to find out more on that matter.
Brief freelancing work will also be declared, even if it is a side hustle. Make sure that you report all your earnings, whether it’s in cash, transferred on your debit card, or any other slip.
- You Ignore Mistakes Made on Previous Returns
Here is one thing about taxes in Canada: the government likely knows exactly how much you owe, as long as it is something you are registered for. However, you are still required to find out how much you owe by yourself, adding some potential income slips that the government may have missed.
This involves quite a bit of calculation, which is why it is quite easy to make a mistake if you are not careful enough. So, failing to address the errors is a great mistake on your part. You may adjust returns going as far as 10 years, so you may want to take advantage of the option.
- Claiming Ineligible Medical Expenses
As it’s the case with every country, Canada is dealing with various health concerns. This is why numerous taxpayers find relief in the fact that there are numerous medical expenses that they can claim for. However, not every medical expense is claimable.
For example, health practitioners that are not recognised by the applicable provincial authority are not included (i.e., alternative health practitioners). Vitamins and supplements also do not make the mix, along with rubbing alcohol, OTC medicine, and bandages.
The Bottom Line
In the end, paying your taxes in Canada can be quite a rollercoaster, particularly when you don’t know exactly what you are doing. This is why you need to start working on them as early as possible, and maybe even have a financial assistant help you, so that you do not miss anything.