For the more than 1.5 million Canadians who found themselves out of work this year, filing taxes may seem particularly daunting.
Cleo Hamel, a senior tax analyst with H&R Block Canada, says most unemployed people either turn to self-employment or go on employment insurance, both of which present new challenges when going through the tax-filing process. "Someone who is self-employed is now playing a whole new ball game. They are no longer copying numbers on slips onto tax forms."
In addition to running their own business, the self-employed are now responsible for tracking things like how far they have driven, how much they have spent on their home office and most importantly, how much they have earned over the course of the year, all of which will determine how much they owe the taxman.
Keeping detailed records such as gas receipts is important, Ms. Hamel said, since the Canada Revenue Agency often reviews business home office and automobile expenses to ensure people are writing off only the part that applies to their business and not their personal life.
Meanwhile, Canadians who collect employment insurance are often surprised to find out that they need to claim that income on their tax return.
If people owe taxes but can't pay up, the worst thing they can do is to not file their taxes on time. Instead, Ms. Hamel's advice is to contact the CRA and talk to them. "They will work with you and have been known to waive the interest rate penalties," she said.
Ms. Hamel has these tax tips for the recently unemployed:
1 You can collect EI and start your own business. You need to be able to prove that you are operating a business if the CRA asks, even if you claim losses in the first year. There needs to be a reasonable expectation that you will earn revenue in future years. You cannot claim business losses indefinitely.
2 You will receive a T4E slip for receiving Employment Insurance. Use that slip to claim income on your tax return. This income is taxable and needs to be included in your calculations.
3 Job-hunting expenses are not tax deductible in Canada. You may have heard about it but this is a credit in the United States. There is no equivalent deduction in Canada.
4 Keep track of moving expenses. If you have to relocate to find new employment, and if you move more than 40 kilometres and have employment income in your new location, you can deduct some of your moving expenses.
5 You can borrow from your RRSP to fund school costs. If you decide to re-train for another career, you could borrow money from your RRSP under the Lifelong Learning Plan to pay for the cost of going to school. You can withdraw up to $20,000 over four years. Once you complete your program, the money must be repaid within 10 years.
6 Don't forget student credits. If your re-training involves government-assistance tuition, the tuition amount is considered a taxable benefit, but you are able to claim the student credits to help offset the income amount. This would include the tuition, education amount and Textbook Tax Credit.