24 Aug Top 5 Personal Tax Mistakes [Video]
1. Filing Claims Without Valid Receipts1:
What’s a valid receipt? A valid receipt demonstrates primary evidence of a transaction. What’s primary evidence? It’s a receipt provided by the vendor with all the details (date, amount, tax, location, vendor) of the transaction noted on it. The CRA can ask for those receipts at any time. If you cannot provide them, the CRA will disallow these deductions, plus charge interest and penalties in addition to the tax. Also, you’ll be flagged for auditing in future years!
2. Not Claiming An Employment Expense Deduction2:
Do you have to pay out of your own pocket for work expenses incurred on the job? If you have Employment Expenses, have your employer complete for T2200 (called a “Declaration of Conditions of Employment”). Once the requirement for you to have expenditures is confirmed by your employer, you can deduct Employment Expenses on your return. The most common employment expenses include:
Automobile expenses (gas, insurance, repairs & maintenance, toll, parking)
Home-office expenses (rent, utilities, mortgage interest, property taxes, repairs, home insurance) if you use the office more than 50% of the time.
Meals & entertainment
Telecommunications (internet, cellphone, etc.)
3. Not Registering A Home-Based Small Business3:
Once again, if you register a home based small business, you can utilize directly related business expenses as a deduction from your taxable income. The most common business expenses are:
All of the expenses noted above ↑ as “Employment Expenses”
Direct employee wage costs
CCA (Depreciation) on equipment like computers
One should understand that it is possible to have both Employment Expenses and Business Expenses. For instance, a person can be employed as both a commissioned salesperson and have a home-based small business; hence legitimately utilizing both sets of deductions.
4. Not Utilizing The Home Buyers Plan4:
The Home Buyers Plan (HBP) is a Canadian federal government program which helps Canadian residents buy a home for the first time. With the Home Buyers Plan you can take up to $25,000 out of your Registered Retirement Savings Plans (RRSPs) without having to pay taxes on the funds if you are buying your first home. If you buy a home with your spouse or another person you could both withdraw $25,000 under the plan. Proper structuring of the HBP allows both a RRSP contribution and obtaining home a downpayment from their RRSP, which turns out to be a huge dual benefit which is rarely used.
5. Not Utilizing The Disability Tax Credit:
Claimed by someone who is markedly disabled on a permanent basis, or their supporting individual. A doctor or other qualified healthcare professional must fill in form T2201, the Disability Tax Credit Certificate. In many cases, the information provided by the healthcare professional may indicate several years of impairment. Previous tax returns can be adjusted for the tax credit for each year that the Disability Tax Credit Certificate has been approved by CRA; with the resultant refund being disbursed as a lump-sum.
6. (Bonus!) Not Utilizing Moving Expenses:
This is one of the most pervasive mistakes in preparing personal taxes. Note that qualifying moving expenses include real estate commissions, which can run into tens of thousands of dollars. Moving Expenses, like any expenses, are subject to audit so keep primary copies of all receipts. To make the claim, you have to move 40 kilometres closer to a new work or business location where active income is earned.
1Canada Revenue Agency, Guide RC4409(E) Rev.11 – “Keeping Records”, p.4.
2Canada Revenue Agency, Guide RC4044(E) Rev.12 – “Employees Earning Commission Income”, p.5.
3Canada Revenue Agency, Guide RC4002(E) Rev.12 – “Expenses”, p.18.
4Canada Revenue Agency, Guide RC4135(E) Rev.12 – “What Is The HBP”, p.5.
5Canada Revenue Agency, Bulletin T1-ME (12) (E) Rev.12 – “Information About Moving Expenses”, p.1-4.
6Canada Revenue Agency, Guide RC4064(E) Rev.12– “What Can You Claim For Yourself”, p.20.