Most of us go the whole year without planning for tax season. But filing taxes can involve a lot of paperwork and information that you might have forgotten if you don’t plan ahead. And a lack of preparation can lead to mistakes.
Below, Canada Revenue Agency spokesperson Charles Drouin and other experts talk about some of the most common errors that people make on their tax returns.
Not filing at all or missing the deadline
Unfortunately, the deadline does matter. Mr. Drouin says many Canadians don’t realize there’s a 5 per cent penalty for filing late, plus a 1 per cent penalty for each month late. If you owe money, you’ll end up paying more interest, and a late filing can hinder your ability to prepare an effective repayment plan.
Not reporting all sources of income
Whether it’s deliberate or not, Mr. Drouin says the rise of the digital economy has led to an increase in failures to report income. He reminds Canadians that any source of income, whether you’re a social media influencer, OnlyFans performer or Uber driver needs to be reported, even if it’s a side hustle.
Not claiming the benefits you’re entitled to
Taxes are subject to a dizzying array of deductions and credits. This could be a good reason to use the services of a tax specialist. After all, who else would know there’s a specific deduction for buying better air filtration for your home office?
Claiming benefits you’re not entitled to
Claiming a deduction isn’t always black and white. If you work from home, you can deduct internet bills, but only a portion of them. If you purchase a large item such as a car, you can expense depreciation on that item, but not the entire cost in one year. Mr. Drouin says people with numerous deductions should make sure they understand how they’re calculated.
Losing track of receipts
Mr. Drouin says it happens all the time: People fail to keep receipts that prove they’re eligible for deductions they claimed. The CRA can come back to audit a tax return for up to seven years. He urges people to keep track of their receipts for that long to ensure they don’t retroactively owe money for deductions they can’t prove.
Misrepresenting your family status
Some people seem to think it’s beneficial to say you’re single, even when you’re not. Mr. Drouin says in rare cases this can lead to getting more money back on your return, but most of the time it’s in your best interest to report if you have a partner. That includes common-law partnerships in which you have lived with your partner for more than 12 months.
Claiming interest as an expense on ineligible loans
Christine Van Cauwenberghe, head of financial planning at IG Wealth Management, said one common mistake involves ineligible student loans. For example, if you took out a personal line of credit to pay for school, it may not qualify as an eligible student loan and you therefore can’t expense the interest costs.
Not fixing previous mistakes
Perhaps you’re reading this list and you realize there are a truckload of deductions you could have claimed last year. The good news is that you can change previous tax returns by yourself or with a tax preparer and recoup that lost money.
Neglecting to create a My Service Canada Account
Only one in two Canadians have an account with Service Canada’s online portal, according to the CRA. Even if you file your taxes with a tax preparer, Mr. Drouin says the account is extremely useful. You can use it to view and change previous tax returns, access important documents and apply for services such as Employment Insurance. He recommends that anyone who doesn’t already have an account set one up.
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