Common mistakes during tax return filing
(Disclaimer: Following article is only for information purposes and does not constitute any kind of tax advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.)
Tax season is once again around the corner. We at Canada Tax Savers usually spot many mistakes in past returns of taxpayers, which frankly is not unreasonable considering how complicated the tax filing process can be. To help ensure that many such mistakes are avoided, we have compiled a list of common mistakes below and how they can be avoided.
Not safekeeping receipts: One of the most common mistakes, especially for small business clients, is to lose receipts/invoices of expenses they incur during the course of business. CRA requires all taxpayers to keep receipts of their expenses for 6 years from the end of the year when they were incurred. It is equally important for both individual and business taxpayers to safeguard their receipts.
Missing deductions/credits: This mistake is most common when returns are filed close to the due date in a rush. There may be deductions available that can be used to reduce tax bills but missed due to rush, oversight, ignorance or any other reason. We at Canada Tax Savers normally use the checklist to ensure no deductions available to a taxpayer are missed.
Missing filing deadlines: Adhering to tax filing deadlines is important, as non-compliance with the same leads to hefty and ongoing penalties. It is observed that some taxpayers delay filings because they are short on cash to pay bills. However, even by filing a tax return without paying tax in full or part, a large part of penalties can be avoided. Deferred or instalment payment arrangements can also be reached with CRA in case the taxpayer is having any liquidity issues. However, in all cases, filing tax returns on time saves most of the penalties.
Not optimizing tax within a family: There are a lot of deductions & credits, like basic personal, tuition fee credits etc., which can be transferred within family members to reduce the overall tax bill of the household. A large number of people are unaware of such mechanisms and end up higher taxes than they could.
Ignorance of RRSP deadline: Most of the calculations for personal taxes are based on the calendar year running from January 1 to December 31. However, there are some exceptions to this, one of which is RRSP contributions. One can contribute to RRSP till March 1/2 of next year and get the same amount as deductions on the previous year’s income to reduce the tax liability. The contribution deadline for the 2021 tax year is March 1, 2022.
Leaving too late to plan: We usually have clients coming to us in March/April asking for strategies to save taxes. While we do try our best to help them in that objective, some strategies need to be implemented before the end of the tax year, like ‘salary vs dividend’ for owners of corporations etc. Hence, it is important to start planning early in the tax year so that the maximum possible saving on taxes can be made.
These are just some of the common mistakes which can be easily avoided, ultimately helping you save the money and time, that matters.
