Tax expert Stefanie Ricchio found herself facing a new challenge this year: helping her own 16-year-old daughter file her return for the very first time.
The Turbotax spokesperson said she came to the quick realization that there is so much information that regular filers take for granted.
“That in itself was a big learning experience, to sit there with someone who’s never done this before,” Ms. Ricchio said.
“We have to acknowledge that first time filers don’t have any formal education. It’s not something that we’re teaching it schools, which breaks my heart.”
The Canadian tax code is immensely complicated, and there is a mountain of new information that first-time filers have to learn: What are the consequences of filing late? What’s the difference between a deduction and a credit? And do you actually need to consult a professional to do your taxes?
We spoke to Ms. Ricchio, Wealthsimple tax expert Caroline Corbeil and H&R Block tax expert Yannick Lemay to compile some must-have information for people filing their taxes for the first time.
Are you incredibly lazy? These tax filing tips are for you
Besides the legal requirements, it’s often in your interest to file taxes
If you’re anything like me, you may have waited years to file your first tax return because it didn’t seem all that pressing.
But you’re selling yourself short by doing this. For one, young filers generally receive a tax back, rather than having to pay tax, and that money can be useful when you’re starting your adult life. You’ll immediately face a 5-per-cent penalty on a late return on your tax balance, plus a 1-per-cent penalty for each extra month to a maximum of 12 months.
On the other hand, filing taxes makes you eligible for benefits such as the GST/HST credit, which provides quarterly payments to eligible Canadians. If you don’t file your taxes, you could miss out on hundreds of dollars every few months.
Take the time to learn some of the lingo
There is so much jargon in the tax world, and filing a return can be challenging without understanding any of it. Even seasoned tax filers might not know the exact difference between a deduction and a credit (hint: a deduction essentially subtracts your total income, whereas a credit directly reduces the amount of tax you owe).
Then there are options like carry forwards, which allow you to use certain deductions in future years, such as for losses on investments or for tuition credits if you’re a student.
Ms. Ricchio recommends reading up on some of these terms, and this page on Turbotax describes some of the most important terms to know.
How single Canadians can make the most of filing their taxes
Register an account with the Canada Revenue Agency and understand its benefits
If you’re filing with an online provider such as Turbotax or Wealthsimple, chances are you’ll go through the process of creating an online account with the CRA.
However, if you happen to bypass this step, you’re missing out on a streamlined filing process. Your tax slips from your workplace will automatically appear on the account, and the information can be imported directly into your tax filing software.
There’s also all sorts of other information on the site, such as whether you have any uncashed cheques from the CRA to claim. Mr. Lemay points out there are currently millions of dollars in uncashed CRA cheques.
You likely can do your taxes without professional help
Filing taxes is a pretty straightforward process for the majority of Canadians, especially with the help of automated software.
If you’re a young person with a regular job where you pay taxes upfront, filing can be as simple as using software to uploading your personal and income details, and having the system double check that you’re not missing out on any extra credits.
On the other hand, don’t be embarrassed to consult a tax professional
Taxes can induce lots of stress. Tax professionals are used to this, and there’s no need to be embarrassed if you’re consulting a professional and you have zero knowledge.
“Nobody expects you to be a pro,” said Ms. Ricchio, who noted that tax professionals are used to helping with all sorts of specific situations that could affect your taxes.
“These are valuable learning opportunities, and you shouldn’t shy away from it because you’re not capable.”
Help can be fairly cheap, too: Turbotax offers online help on your tax return starting at $40 for basic returns.
Know these key dates, and the consequences of missing them
The tax filing deadline in 2024 is April 30 for most Canadians. For self-employed Canadians, the deadline is June 17.
People who miss this deadline immediately face a 5-per-cent penalty based on their tax owing. If you have tax owing, you’ll also immediately start accruing interest, and the interest rate is currently quite steep at 10 per cent, Ms. Ricchio said. That’s double what the rate has been for much of the past decade.
The sooner you file, the sooner you get money back
You can file your taxes as soon as you have the information you need. For many Canadians, a T4 slip from your employer is all you need. Once you receive and file your taxes, H&R Block says it can take as little as eight business days to receive your refund if you filed online and have direct deposit set up.
Learn the art of bookkeeping – it’s a requirement
All of your T4s are uploaded online these days, so you may wonder if you have to save the physical copies that get mailed to you.
Ms. Ricchio says the answer is yes: Save those paper copies for six years in case your tax filing is audited by the CRA. Even though you have an electronic copy, a paper copy may be important if there are any discrepancies between the CRA’s records and your own.
This bookkeeping requirement also applies to receipts that prove any purchases or expenses that you deducted from your income.
Everyone has their own system when it comes to saving all their papers, but Ms. Ricchio says it’s imperative you figure out a system that works for you. Otherwise, you could owe large sums of tax if you can’t prove your expenses when audited.
Understand some of the basic types of incentives and benefits
The Canadian tax code is patchwork of policies, deductions and credits that aim to assist different portions of the population.
For example, there are tax policies that aim to help students, people with children, first-time homebuyers, low-income individuals and more.
Ms. Ricchio says new filers should try to read up on how the tax code might be trying to help them based on their unique situations so they don’t miss out on the benefits they can take advantage of. If you’re entering a new stage of life, like getting married and having kids, consulting a tax expert could be beneficial to maximize your return.
For other big life changes, such as starting your own business or coming close to retirement, it’s important to understand that tax planning with a professional could save you many thousands of dollars in the long run.
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Salmaan Farooqui