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Anxiety over filing income tax returns may come down to not understanding basic tax concepts and terms. A recent TurboTax Canada survey of more than 1,500 Canadian adults found that just 14 per cent feel very confident about their tax comprehension. And new tax terms cropping up, such as bare trusts, can exacerbate the issue.

Globe Advisor spoke recently with Stefanie Ricchio, chartered professional accountant and tax expert at TurboTax Canada, about tax comprehension and misunderstandings.

What surprised you the most about the survey findings?

I was shocked that 27 per cent said they had never heard the term Netfile. The only way you wouldn’t know that term is if you’re still filing paper returns or not filing at all. If you’re getting your taxes filed by an expert, you’re going to ask when you’re getting your refund and notice of assessment (NOA). The expert would then explain how they are filing and I would think that would be part of the explanation.

Some young people may not rush to file because they are expecting a refund.

But if they do have a balance, they immediately subject themselves to the late-filing penalty and, of course, interest on top of the balance owing. While I find many newly self-employed individuals understand they have until June 15 to file, they often don’t realize that any taxes they may owe are actually due on April 30. So, to figure out the amount they may owe, that means doing your taxes by the end of April.

How do you help your clients learn about tax terminology?

It’s not just about getting the tax slips from the client. The client needs to be able to vet the information that’s within the return. I always encourage clients to go through the T1 income tax return section by section. When doing so, there’s an inherent learning that’s going to come between understanding total income versus net income versus taxable income.

What’s the takeaway for advisors from your tax terminology survey?

We know the Canadian tax code is complex. Our job as advisors is to educate our younger clients and empower them through the delivery of our services. Some young people have side hustles that didn’t make money and they think it means they don’t have to file taxes. We know that isn’t true and not filing is a blocker to receiving benefits, credits and the NOA.

– Deanne Gage, Globe Advisor reporter

This interview has been edited and condensed.

Must-reads from Globe Advisor this week

Advisors rush to revamp tax strategies after Ottawa’s surprise change to the capital gains inclusion rate

Advisors have less than 10 weeks to help thousands of Canadians navigate major financial decisions triggered by a pending hike in the capital gains inclusion rate announced in this week’s federal budget. The surprise changes, dropped at the height of the tax-filing season, are forcing advisors to manage a new onslaught of client queries as they, too, try to sort through the complexities behind the new rules. “It’s going to be a hard decision for a lot of people as to whether to pay taxes this year that they weren’t planning to versus paying a higher amount of taxes at some point later on,” says Brian Ernewein, senior advisor at KPMG in Canada’s national tax centre. Brenda Bouw reports.

Where the CRA is focusing audit activity this year

Some areas are more likely than others to be on the Canada Revenue Agency’s (CRA) radar for audits this tax season. Tax experts say they have seen audit activity trending around aggressive tax planning in the high-net-worth population, real estate transactions, business expenses, and cross-border assets and income. “The one common audit request we get on a regular basis is when a business takes a deduction for professional fees paid,” says Armando Minicucci, a partner in Grant Thornton LLP’s tax practice. Helen Burnett-Nichols reports on how advisors can ensure clients remain compliant.

Title protection in Ontario is a failure – and it’s time we admitted it

The Financial Professionals Title Protection Rule took effect in 2022 to regulate the use of the “financial advisor” and “financial planner” titles in Ontario. Jason Pereira, senior partner and financial planner at Woodgate Financial Inc., says the regulatory framework has fallen short of its purpose. The rule was toothless from the beginning, Mr. Pereira writes, and the implementation made it worse: “The situation around the use of the financial planner title has also proven to be an enormous step backward in both the professionalization of the industry and consumer protection.” Here’s what he thinks needs to happen now.

Here’s how tax planning changes once you retire

For many working Canadians, filing taxes is relatively straightforward: You get a T4 slip from your employer, maybe make a deduction for contributing to your RRSP, and perhaps claim the odd credit, depending on the current tax rules. However, your tax picture can get more complex in retirement, given the new and varied income sources. “The more buckets you have, the more flexible you are in controlling your income levels. … The key is figuring out which buckets to take money from and when,” says Brianne Gardner, financial advisor and co-founder of Velocity Investment Partners at Raymond James Ltd. The decumulation stage requires more strategy to minimize taxes. Brenda Bouw reports.

Why this money manager is buying Estée Lauder and trimming her energy position

Money manager Jennifer Tozser doesn’t narrow her investments into value, growth or dividend stocks. Instead, the senior wealth advisor at National Bank Financial Wealth Management in Calgary prefers to invest in long-term trends that may have one or all of these attributes. “I also believe in diversification,” she says. Brenda Bouw asks what Ms. Tozser’s been buying and selling.

Also see:
What you and your clients need to know

Seven ways the 2024 federal budget affects your finances, from selling your cottage to RESPs

The Trudeau government had already announced a slew of affordability initiatives ahead of the release of its 2024 federal budget, but there were also several pocketbook measures in the spending plan that Ottawa had mostly kept mum about. Arguably, the biggest surprise was a proposed increase in the capital gains inclusion rate, a change the government says will boost revenue by raising taxes on the wealthy but experts warn could also hit some middle-class taxpayers. Ottawa also provided a target start date for the much-anticipated Canada Disability Benefit for low-income, working-age Canadians. Erica Alini reports.

Investors should expect ‘new normal’ once interest rates drop, BMO head says

Bank of Montreal chief executive officer Darryl White says that even when interest rates begin to cool, banks and consumers will face a suite of new challenges in a rapidly changing market. At the lender’s annual shareholder meeting on Tuesday, Mr. White pointed to shifting dynamics from the climate and energy transition and from evolving technology demands. “While inflation fell from four-decade highs across North America, it remains sticky, keeping borrowing costs high and global demand low – risking a higher-for-longer rate environment,” Mr. White told shareholders. “And even when rates do start to ease – and they should in time – we will find ourselves in a new normal, an environment with fundamentally different characteristics than that of the past two decades.” Stefanie Marotta reports.

Change to capital gains taxes will catch many average Canadians

The inclusion rate on capital gains was 75 per cent for almost an entire decade in the 1990s before being reduced to 50 per cent in 2000. “So, when the pandemic hit in 2020 and government debt levels soared, it was felt by many tax specialists that the inclusion rate could increase,” writes Tim Cestnick. “Well, the 2024 federal budget did just that. But as with most tax changes introduced by this government, it’s far more complex than it should be. Mr. Cestnick explains that complexity in his latest column.

Taxpayers’ ombudsperson office reviewing CRA conduct over bare-trust rules

The Office of the Taxpayers’ Ombudsperson is reviewing whether the CRA violated certain rights of taxpayers in its handling of new tax rules for trusts, which saw the agency scrap onerous reporting obligations for bare trusts just days before the filing deadline. In a letter responding to Conservative MP Adam Chambers, Taxpayers’ Ombudsperson François Boileau said his office is “carrying out preliminary research” after receiving many expressions of concern from taxpayers and their representatives since the CRA announced the last-minute about-face on March 28. Erica Alini reports.

– Globe Advisor Staff