How to determine what you’re getting back or what you’re paying.
Let’s face it, tax season means different things to different people but the question on most taxpayers’ minds is how much money am I getting back—or how much will I owe?
While tax calculations may seem complicated, there are simple things you can do to maximize what you get or minimize what you pay.
How does the government decide whether it owes me money—or the other way around?
When it comes to the money you owe, or are owed, the government doesn’t decide at first – you do! Our tax system is based on self-assessment of your tax return, which means that you produce your own return and determine how much, and to whom, money is owed. This makes sense since certain eligible expenses, such as donations and medical expenses, are often not known to the government unless you put them down on your return. Until you file with your CRA tax return software, you’re the only one who will know certain information about your spending and earnings this year.
If I owe the government money, what are the penalties for being late?
If you owe money to the government, and you don’t file by mail or electronically with CRA approved software by the deadline of April 30th, the government will impose penalties on the amount you owe. Missing the deadline means that you’ll be immediately charged 5% of the amount owing, plus 1% for every additional month that you are late.
It’s important to remember that the amount owing is also due by the filing deadline. If the deadline passes and you still owe money, you’ll have to pay interest not only on the amount owing, but also on any penalties you incur. For those taxpayers who owe money, it’s important to pay on time, every time. The moment you go past the deadline, you’re dinged!
If I don’t owe the government any money, what’s the big rush to file?
If you don’t owe the government, this usually means that the government owes you. Therefore, if you don’t file on time, you are giving an interest-free loan to the government. When was the last time that the government – or anyone else, for that matter – gave you that kind of break when you owed them money? Getting your return filed on time with your CRA tax return software means receiving your refund earlier, and taking advantage of the opportunity to put that money to better use. For example, if you get your refund right away and put it in your RRSP, it’ll grow, and start working for you that much sooner.
What common mistakes prevent people from claiming back all they are owed?
1. Not keeping receipts
Many people miss out on claimable expenses by not being organized with their tax documents and receipts. These can include receipts for charitable donations, for medical expenses, or for other such expenses that are collected throughout the year. Keeping a proper archive of receipts means that you won’t miss out on expenses you could have used for credits. This applies especially to self-employed individuals. If you’re self-employed and you don’t file your business expense receipts properly, you risk missing out on valuable expenses you may be able to claim on your return. Hanging on to paper receipts and organizing them as they come in may feel like a headache, but come tax time, you’ll be happy you did.
2. Not tracking carry-forward amounts
Have you “banked” any carry-forward amounts on your previous tax return? Carry-forward amounts include unused capital/business losses from prior years and unused tuition or donation amounts. Any of these unused amounts can be applied in future years against your taxes. Unfortunately, most taxpayers are not aware that they have these amounts hanging around, just waiting to be used. To find out if you have any of these carry-forward amounts, check your notice of assessment or sign up for the My Account portal of the CRA’s website.
3. Not tracking changes at the CRA
Tax rules change every year. Credits are added and eliminated, and if you don’t pay close attention, you could be missing some. For example, with the upcoming elimination of the fitness and arts tax credits in 2017, taxpayers had the months following the budget announcement in March 2016 to sign their children up for programs still eligible for these credits. It’s likely that many taxpayers didn’t notice this announcement, and missed out on a great opportunity.