As you can tell by the balmy weather, spring is almost here. (Yeah, right).
Nevertheless, the time to prepare your tax return is upon us. Most Canadians use professional tax preparers for their returns, and this is a very good idea, especially if you have any complicated filing issues. However, I strongly encourage you to personally become more knowledgeable about your return, and how each line or filing decision (if you have any) affects your bottom line
As you know, the deadline for filing is midnight on April 30. If you have self-employment income, you can delay filing until June 15, but you still have to pay any taxes owing by April 30. Interest on unpaid balances is compounded daily at the prescribed rate.
There are also penalties for filing late, if you owe money on your return. The penalty for late filing is 5% of your 2013 balance owing, plus 1% of your balance for each full month that your return is late, to a maximum of 12 months or 12%.
If you are a repeat offender (meaning CRA charged you a late filing penalty in any of the previous three years), the penalties double.
Don’t miss slips!
CRA frowns on missed reporting T-slips. Remember that all slips and trading summaries are copied to CRA. They know all, and will eventually match them up. The first omission costs you interest, subsequent misses cost you penalties of 10%, as well. It can get expensive.
T5 slips are issued by financial institutions and investment dealers to summarize the taxable amounts for a particular account, but usually only if over $50 of income has been earned on that account. You must still calculate and report smaller amounts. (RRSPs, RRIFs, and other registered accounts do not issue income slips, but DO issue slips for withdrawals.) T5s have to be mailed to you by end of February.
To report your capital gains in an investment account, the institution is required to issue a Trading Summary, reporting all dispositions and redemptions. This information is entered on Schedule 3. Don't miss it.
T3s (reporting investment income from trusts) can be mailed as late as March 31, and they are often mailed at the deadline by mutual funds which hold income trusts, which drives tax preparers nuts.
So, once you have claimed all income, let's make sure you also have claimed all credits and deductions that you have coming. Here is a partial list of the more common credits and deductions available.
Everyone who is employed is entitled to the Canada Employment Credit, which basically cancels the federal tax on the first $1,117 of employment income. If you own a corporation, consider paying yourself and eligible family members at least $1,117 of salary each.
Deduct costs for investment expenses, like portfolio management fees on non-registered investments, interest on investment loans, accounting fees which apply to investment income, and safety deposit box fees, if needed to hold investment certificates.
If you have made RRSP contributions in 2013 or the first 60 days of 2014, or if you have undeducted contributions carried forward, you will almost certainly want to deduct those. The exception would be if you expect your income to be significantly higher in 2014. In that case, carrying the deduction forward and using it in 2014 may be worthwhile.
The Family Caregiver Tax Credit is a 15% federal credit (with corresponding provincial credit) on up to $2,040 of income, for people who provide care to eligible dependent relatives.
Taxpayers with children have a number of credits available, such as the Children's Fitness Tax Credit and the Children's Art Tax Credit, which apply on the first $500 per child spent on eligible programs.
Students can claim a tuition credit, education and textbook amounts. The student must claim these amounts until the student's tax is reduced to zero, then they can transfer unused amounts to a supporting parent, grandparent, spouse or common law partner.
Less commonly used are things like the Home Buyers’ amount, which helps cover the legal and related costs of a “first time” home purchase.
Make sure your tax preparer is aware of all aspects your situation and any of these creditable amounts you have paid.
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIMis a financial planner and advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.