It is that time of year when we all have to do the dreaded tax reporting to Canada Revenue. It is painful for most of us to gather the receipts, fetch the ones missing, enter everything in the tax software, wonder if you got it right and freek out if you owe money. A refund is for all the ultimate goal. We do over 400 returns a year at You First and for each one of them, we sharpen our pencil, scratch our head and consult the big tax book to try to get the best refund for all.
- Not entering all T-slips: It is your responsibility to report all of your income. If you miss a T4 for employment or an investments T3 or T5, CRA will sooner or later pick on it. The new penalties are harsh. Each year the CRA checks the T-slip information in its database against Canadian taxpayer’s income tax returns to ensure the T-slip income reported matches. Where the income filed by a taxpayer does not match the CRA’s database records, an income tax reassessment is mailed to the taxpayer asking for the income tax due. If the taxpayer is a first time offender, they are just assessed the actual income tax owing and possibly some interest. If this is the second occurrence in the last four years, a 20% penalty of the unreported income is assessed. Fetch ALL of your tax slips. You can’t afford to miss one!
- Ignoring a CRA request for additional information: CRA routinely asks to see your moving expenses, medical expenses and other deductions. Don’t be alarmed. Since most returns are now EFile, they just ramdomly want to check your legit expenses. But if you ignore the request, if a big no no. Do not leave any CRA letter unopened. Take the time to write a cover letter and attaching your justification receipts. If we did you tax return for that year, just contact us and we will respond to CRA for you for free!
- Reporting a loss for too many years on your business income or rental income. To be entitled to deduct or write off self-employment expenses or rental expenses, you have to have a reasonable expectation for profit. If you run a loss for too many years, the red flag will go on. Only deduct what you are truly entitled and tone down expenses to show a profit if you must.
- Showing little net income from your self-employment, yet posting lots of pictures on facebook of your new SUV, laving vacations and fine dinning meals? Yes Big Brother CRA is looking at you! If your net income does not match your lifestyle, be prepared to justify.
- Reporting items for which you received a reimbursement. If your employer paid for your moving expenses, you can only claim what you did not get reimbursement for. The same goes for medical expenses reimbursed through your medical plan.
- High business percentage of automobile or home office expenses. Yes we know you work in your living room sometimes or the kitchen but no, you can not claim your whole house for home office expenses. Also, even if you say you work all the time, if you only own one car, claiming 100% of car expense just does not make sense and will be sure to attract attention.