Filing income tax returns can be a complicated task, hence it’s common for taxpayers to make errors on their returns. These errors might result in overpaying taxes or necessitate returning previously obtained benefits, possibly incurring penalties or additional fees. To help in ensuring accuracy from the outset, we’ve compiled a list of prevalent mistakes made by Canadians when filing their taxes.
Mistakes to avoid when filing your taxes
1. Misreporting your income
One of the most common mistakes is forgetting income reporting. This can include income from various sources such as part-time or freelance work, investment income, or income from rental property. It’s easy to overlook income streams that may not seem obvious at first. Before filing, make note of your investment streams and make sure you have received a statement for each of them. These annual statements should show the total income you earned during the tax year and the total expenses incurred, such as investment adviser fees (which are deductible).
Even if you do not receive a T4 or other tax forms or documents, you’re required to mention all. Failure to misreport your income tax can result in penalties and interest charges from the CRA.
2.Late filing
When it comes to the CRA, it’s best to play by the rules. This includes filing your taxes on time. Filing late is one of the most common mistakes people make during tax season. The final date for filing your income taxes is April 30. If you’re self-employed it’s June 15, but you still need to pay off any taxes that you owe by April 30. The CRA can charge you with late filing penalties until you’ve remedied the situation. The penalty is 5% of your balance and an additional 1% for every month you file past the due date for a maximum of 12 months.
3. Missing Expenses and Deductions
There’s a wide range of deductions and credits you can take advantage of during tax season, saving you hundreds or even thousands of dollars. But if you’re not aware of them, you won’t claim them in the first place. Overlooking or not identifying the correct deductions and credits could lead to more tax bites than tax savings. Claiming ineligible expenses, knowingly or unknowingly, to reduce taxes reduction raises a red flag. It would help to check with the CRA certain expenses that do not qualify as deductions.
4. Outdated Information with CRA
Keep the CRA updated regarding your personal information, including your contact information, marital status, or dependents. If your personal information, like your address, phone number, children in your care, or marital status has changed recently, update it immediately. By doing so, you’ll ensure you rеcеivе thе correct bеnеfits and credits and avoid payment delays. You can do this online through your CRA My Account.
While failing to inform the CRA about your personal details isn’t an alarming mistake, it still has significant implications.
5. Not Keeping Your Supporting Documents
Keeping complete records is essential for any claims and to prepare for any audits. Retain all income slips, receipts, investment booklets, and more, for at least six years. This is the period during which the CRA may request to see your supporting documents.
Create a filing system that allows you to easily retrieve any required document. Use either physical binders or recognized online storage solutions for quick and secure access to your documents.
The bottom line
If you feel as though you may be in a situation where you could benefit from using the Voluntary Disclosure Program, or if you have made tax errors in the past and are not sure what to do, please contact us today. We can help you understand your options and assist you in the process of filing.