Filing your tax return can be a complex process, and even a small mistake can lead to delays, audits, or missed deductions. Here are some of the most common tax filing mistakes Canadians make, along with tips on how to avoid them.
- Missing the Tax Deadline
Failing to file your tax return by the deadline (usually April 30 and June 15 for self-employed individuals) can result in late-filing penalties and interest on any amount you owe.
- Incorrect or Incomplete Information
Providing incorrect or incomplete information, such as a wrong Social Insurance Number (SIN) or address, can lead to processing delays or missed benefits.
- Forgetting to Report All Income
Failing to report all sources of income, such as part-time jobs, freelance work, or investment income, can lead to penalties and interest.
- Overlooking Deductions and Credits
Missing out on deductions and credits that you’re eligible for can mean paying more taxes than necessary. Familiarize yourself with common deductions and credits, such as RRSP contributions, childcare expenses, and medical expenses.
- Claiming Ineligible Deductions
Claiming deductions or credits that you’re not eligible for can result in reassessments, penalties, and interest charges.
- Failing to Report Foreign Income
Not reporting foreign income can lead to significant penalties. All worldwide income must be reported to the CRA. You can claim the Foreign Tax Credits (FTCs). Ensure that any income earned outside of Canada is included in your return. If you have foreign assets valued over $100,000 CAD, you may also need to file a T1135 form.
- Not Filing a Tax Return at All
Some people mistakenly believe that if they owe no taxes or have a low income, they don’t need to file a return. Always file a tax return, even if you have no income or owe no tax. Filing is necessary to receive certain benefits, such as the GST/HST credit or Canada Child Benefit.
- Overlooking Carryforward Amounts
Forgetting to claim carryforward amounts, such as tuition, RRSP contributions, or capital losses, can result in missed tax savings. Review your Notice of Assessment from the previous year to see if you have any carryforward amounts. Keep track of these in your tax records and ensure you claim them in the current year.
- Ignoring Tax Implications of Life Changes
Major life events like marriage, divorce, the birth of a child, or retirement can affect your tax situation, and failing to adjust your tax return accordingly can lead to errors. Update the CRA on any significant life changes and understand how these events impact your taxes. For example, if you got married, you might be eligible for spousal transfers of credits or income splitting.
- Not Keeping Proper Records
Failing to keep receipts and documentation can cause problems if the CRA asks for proof of your claims. Keep all relevant documents, such as receipts for medical expenses, charitable donations, and business expenses, for at least six years. Organize your records throughout the year to make tax time easier.
It is advisable to Review Your Return Before Filing
How to Avoid: Take the time to thoroughly review your return before filing. Take help from an accountant if you are unsure of anything
Conclusion
Avoiding common tax filing mistakes can save you time, money, and stress. By staying organized, double-checking your information, and being aware of the deductions and credits you’re entitled to, you can file your Canadian tax return with confidence. If in doubt, don’t hesitate to consult a tax professional to ensure your return is accurate and complete.