Tax season can be a difficult and stressful time of year for many Canadians. Tax returns need a great lot of expertise, preparation, and devotion; they are by no means a simple procedure. Errors are very frequent and, if left unchecked, may result in fines, inaccurate return amounts, and possibly the dreaded CRA audit. It may be difficult to navigate the Canadian tax system, and errors can be expensive. To make sure you fulfill your tax duties and stay out of needless trouble, you must be aware of the typical mistakes and dangers. We’ll talk about seven common tax problems to avoid in Canada in this blog.
Mistake 1 – Inputting Errors
Inaccurate data entry on tax forms is among the most frequent errors made by taxpayers. Processing delays and possible problems with credits and reimbursements might result from simple entering mistakes such as misspelled names, wrong social insurance numbers, or out-of-date addresses. Additionally, while completing forms by hand, it is simple to make mathematical mistakes that might result in differences that prompt an audit.
Solution: Before filing your tax return, be careful to verify all computations and personal information. Download your tax slips straight into your tax return using the CRA’s Auto-fill My Return feature to help lower the possibility of entry mistakes. Using trustworthy tax preparation software that does the computations for you is also advised whenever feasible.
Mistake 2 – Misreporting Income
Another common mistake by Canadians on their tax returns is not fully listing all of their sources of income. All income earned during the tax year must be reported, including income from investments, employment, self-employment, rentals, and other taxable earnings (such as gratuities, side jobs, and casual labor).
Solution: Throughout the year, maintain thorough records of all of your revenue sources, including wages, interest, dividends, and any other earnings, either by hand or with the use of accounting software. Collect all required tax records, including self-employment income receipts, T4 slips, and T5 statements. Verify the correctness of your records by comparing them to these papers twice.
Mistake 3 – Missing Deductions and Credits
Although credits and deductions are effective ways to lower your taxable income, most Canadians still do not make use of all of their rights. This will probably result in paying more taxes than required, but there won’t be any penalties or fines. Among the most often disregarded credits and deductions are:
- Moving costs
- Charitable contributions.
- Medical costs
- Disability tax credits
- Professional association and union dues
- Child care costs
Solution: Get acquainted with the extensive array of credits and deductions that you can be eligible for from the CRA. Throughout the year, keep a record of all the receipts and supporting documentation for your claims. Based on your responses to basic inquiries, good tax preparation software may also assist you in determining whether credits and deductions apply to your particular circumstances.
Mistake 4 – Claiming Ineligible Expenses
Claiming all of your allowed credits and deductions is crucial, but it’s just as crucial to refrain from claiming costs that aren’t qualified because doing so might get you in trouble with the CRA. Typical instances of costs that taxpayers incorrectly report include:
- Personal expenses unrelated to producing revenue, such as clothes, grooming, or entertainment
- Moving costs that do not fit the requirements of moving at least 40 kilometers closer to a new location of employment or study
- Medical costs that are covered by insurance or that are not substantiated by prescriptions or receipts
- Charitable contributions that surpass 75% of your net income or are not provided to a recognized charity
Solution: You should carefully review the guidelines and conditions for any deduction or credit you claim on the CRA website to prevent claiming costs that aren’t qualified. If the CRA requests that you provide proof of your spending, you should also save any receipts and supporting documentation.
Mistake 5 – Not Realizing Some Benefits are Taxable
In addition to emergency relief advantages like the Canada Emergency Response Benefit (CERB), which was given during the epidemic, many Canadians get benefits from a variety of sources, such as employment insurance (EI), the Canada Pension Plan (CPP), and Old Age Security (OAS). Some of these advantages are taxable, so if you don’t record them accurately, you can have to pay taxes or reimburse part or all of the money you received.
Solution: Carefully review all of your benefit statements and slips, then record them on the relevant lines of your return. To claim these advantages as credits on your return, you should additionally confirm if any taxes were deducted from them. You should update your information with the CRA if your circumstances change since some benefits may also impact your eligibility for other benefits, such as the GST/HST credit or the Canada Child Benefit (CCB).
Mistake 6 – Not Keeping Receipts and Slips
The mandate by the CRA that taxpayers retain their receipts and slips for a minimum of six years following the filing of their returns is not well known. Should the CRA seek supporting documentation for any income, credits, or deductions you report, you risk losing your eligibility for tax advantages or incurring fines for not complying with the CRA’s request.
Solution: Sort all of your slips and receipts by year and category and save them in a secure location. To keep them readable and accessible, it is also a good idea to scan and archive them electronically because ink tends to fade with time. However, be advised that only receipts that mention the date of payment will be accepted by the CRA.
Mistake 7 – Misreporting Marital Status
Your eligibility for several benefits, such as the Canada Child Benefit or the GST/HST tax credit, may be impacted if you falsely state your marital status. When maximizing claims for medical costs, charity contributions, and pension splits, it may also affect your capacity to pool or transfer certain tax credits.
Solution: Learn about the various relationship categories defined by the CRA and when you must disclose a change in your status. If you have a child together via birth or adoption, or if you have lived together in a marital partnership for at least 12 months in a row, you are generally regarded as common-law partners. When your marital status changes, use one of the following options to notify the CRA as soon as possible:
- Using My Account’s “Change my marital status” feature online
- Choosing “Marital status” on the MyBenefits CRA or MyCRA mobile apps
- Giving the CRA a call at 1-800-387-1193
- By mail by filling out the Marital Status Change Form RC65
ClearWealth Accounting Advisory: Professionals At Your Service
To maximize your tax savings and prevent penalties and any CRAaudits, you must file your tax return entirely and precisely. You may avoid future difficulties, save time, and save money by being aware of frequent tax return errors and taking action to correct them.
Don’t let these tax blunders cost you! ClearWealth, as a financial services company, focuses on providing Canadians with guidance on how to deal with tax season. Our experienced financial consultants can assess your tax position, help you claim all the allowable expenses, and guide you on what to avoid.
You can reach out to us today for consultation and let us help you Call us at Phone (437) 290-5117 or email us at info@clearwealth.tax.
