By Rick Sidhu CPA, CGA
It’s tax season, again. This means it’s time to make sense of the latest tax changes and make sure you get your papers together to file your taxes on time. It might also be a good idea to make sure that you have a reliable tax accountant at this point as well, as this will make sorting your tax out a lot easier. Here are six things you want to avoid during tax time to avoid any penalties:
- Not doing your taxes
Even if you have not received income for 2016, you should still file your income tax and benefit return. You may be eligible for a refund, credits, and benefits such as the Canada Child Benefit, the federal GST/HST credit, and the BC sales tax credit. To get your benefit and credit payments, you have to file a tax return every year so that the CRA can calculate the amount you should receive.
Note that if you did receive income for 2016, your personal tax rates have changed. As of 2016, the tax rate for those with taxable income between $45,282 and $90,563 decreased from 22% to 20.5%, and a new federal tax rate of 33% has been implemented for individuals with over $200,000 in taxable income.
- Not reporting all your income
Make sure you report all your income. You should have received most of your slips, such as T4 slips, from your employer, payer, or administrator by the end of February. If you have not received, or have lost or misplaced a slip for 2016, ask the issuer of the slip for a copy. If you register with CRA’s “My Account,” you may have access to electronic copies of your slips. If you are still missing information, use any documents you have and enter estimated amounts.
Be sure to include all information, including your capital gains. If you own a qualified small business corporation, you can claim a capital gains exemption. For 2016, the capital gains exemption has risen from $813,600 to $824,177. This exemption will be indexed for inflation in subsequent years. The capital gains exemption for qualified farm or fishing property remains at $1,000,000.
Also, if you’ve sold your principal residence in 2016, you will now have to report the sale on your income tax return to claim the principal residence deduction. The CRA has indicated that basic information relating to the disposition and the property will have to be reported on the return. Make sure you retain the necessary documentation.
If you want to correct earlier mistakes and put your tax affairs in order, you can make a voluntary disclosure through the CRA’s Voluntary Disclosures Program. The program gives taxpayers a second chance to correct their taxes.
- Making a erroneous claim
Various non-deductible amounts, such as funeral expenses, wedding expenses, loans to family members, a loss on the sale of a home designated as a principle residence, and other similar amounts, are sometimes claimed in error.
Also, if the CRA determines that you’ve made a mistake or a claim you are not entitled to, your return will be adjusted. Some of the most common adjustments include tuition, education, and textbook amounts, medical expenses, and public transit amount. So be sure you double check your claims.
- Missing out on tax credits, benefits, and deductions
You don’t want to miss out any opportunities to save some money from your tax return. The Government of Canada has credits, benefits, and deductions that may apply to your tax situation. Here are two credits you should know about for the 2016 tax year:
First-time donor’s super credit: If you are a first-time donor, the federal portion of the tax credit is enhanced by a further 25% for up to the first $1,000 of donations in the year. This “super credit” can only be claimed in respect of one taxation year from 2013 to 2017, and is usually only available in the year you make your first donation unless none of the donation has previously been claimed.
Home accessibility tax credit: Starting 2016, the home accessibility tax credit is available for seniors (age 65 and older) and individuals who qualify for the disability tax credit. This credit allows these individuals to claim a tax credit on up to $10,000 of expenses incurred to perform a “qualifying renovation” on their home. The renovation must allow the individual to gain access to, be mobile within, or reduce the risk of the individual within the home.
- Filing late
Any taxes you owe are due by April 30th, so make sure you file and pay your taxes by then to avoid a late-filing penalty. Since April 30, 2017 is a Sunday, your return will be considered filed on time if CRA receives it on or postmarked to before May 1, 2017.
The penalty is 5% of your balance owing on the due date of your return, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. Even if you cannot pay your balance owing by the filing deadline, you can avoid the late-filing penalty by filing on time.
If you cannot pay the amount you owe by the due date, it is best to contact the CRA before the filing deadline. The CRA will work with you to resolve your tax debt or other government programs debt. You may qualify for a payment arrangement or taxpayer relief.
- Not keeping receipts and records
Keep your receipts and documents for at least six years after you file your return. If the CRA chooses to review your return, you will need to send your receipts to the CRA to support your
Learn more about the changes for the 2016 tax year and other tax tips with CPABC’s Tax Tips. If you have any questions about tax issues be sure to consult with a Chartered Professional Accountant.