My wife and I were watching a comedian on television the other night who was doing a bit on people who are always late. He commented on how they like to rebrand themselves as “fashionably late,” and almost always look better than everyone else. While being late may elicit little more than an offhand remark from your friends and family, the Canada Revenue Agency (CRA) can be a bit less forgiving.
The CRA doesn’t actually mind dealing with “late people” – if you owe them money from your personal tax return. The penalty charges for late payment are 5% daily plus compound interest of 1% per month on the balance owing. Canadian income tax and benefit returns are due on April 30 every year; however, this date falls on a Sunday in 2017. The CRA will therefore consider your return filed and payment made on time if received by midnight on May 1, 2017, or if postmarked May 1, 2017. The filing deadline for self-employed individuals is June 15, but the tax payable is still due on April 30.
Of all the do’s and don’ts in filing your personal tax return, the biggest “do” is to file on time. Here are some other tips to get you through the tax season.
1. Double check your work
Take the time to double check your inputs and make sure they are correct. Transposing numbers incorrectly is a common mistake that could lead to paying more tax than you should. Also, double check the cost basis for investments sold throughout the year instead of guessing. You don’t want to be under, or over, reporting your capital gains.
2. Charitable contributions
Another common mistake is missing out on donations made throughout the year. Many taxpayers go over their credit card statements to calculate their donation amount for the year, but forget to include the cash donations they have made. This might include amounts deducted from their pay automatically (this amount appears on your T4). Another “do,” if you have the ability, is donating shares instead of cash. Not only will you get the charitable donation deduction, but by donating the shares you’re not subject to paying any capital gains tax on them.
3. Don’t ignore tax instalments
Tax instalments are essentially a way for the CRA to collect personal income tax throughout the year instead of waiting until April. Typically, this happens throughout the year as you get paid; your employer withholds part of your pay and sends it to the CRA each time you receive a pay cheque. If you end up owing $3,000 or more on your Federal tax return, then the CRA will start asking you to pay instalments on a regular basis.
Some taxpayers always owe the CRA money in April. This may happen because they have investment income or are not having enough tax withheld at source on certain types of income such as RRIF payments or pension payments. So if the CRA is asking you to pay instalments, you probably have a track record of owing them money each year. Ignoring the instalment requests by the CRA will result in interest owed and may include a penalty charge as well. There are situations where the instalment request or amount indicated by the CRA is unreasonable. Before you decide to refuse paying this amount, it’s best to get a second opinion from your accountant or financial planner.
4. Get your children involved
If you’re like me (somewhat controlling), you just collect the family’s tax documents and do all of their tax returns for them. In addition to that, this year I am also going to make each of them spend some time appreciating what’s involved. The CRA has a free introductory course on its website called, Learning about Taxes. The lesson takes around 90 minutes to complete and covers the basics of the tax system and how to file a simple tax return. Time to start instilling the old proverb: Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.
The average Canadian will spend 15 hours over the next six weeks sorting through their T4’s, T4A’s, T3’s, T5’s, RRSP contribution receipts, donation receipts etc., and inputting this information on their T1 returns. These tips can help ensure you don’t spend even more time sorting out issues that could arise from a late or inaccurate filing. Don’t worry, tax time will be over soon enough and before you know it, you’ll be eating watermelon, the grass will be green again, and there will be even more road construction on the streets.
Terry Willis has almost 20 years’ experience in financial services, with particular expertise in working with professional athletes. He understands that the earnings potential of most athletes is often short-lived, and helps young athletes put financial plans in place from their earliest money-earning playing days. Terry provides these players with ongoing financial counsel right through their sports careers and into post-retirement careers.