8 rookie mistakes you could be making when it comes to income tax, according to an Ontario expert
Everybody favorite the season is finally here, and, no, we’re not talking about spring — we’re talking about tax season!
Most Canadians here and abroad must file your 2021 tax return by April 30, 2022, and while it can be a stressful time of year, there is still time to recover.
If this is your first time filing your tax return or if you’ve been tracking all your claims and deductions for a few years, there are still mistakes you could be making without even realizing it.
Narcity spoke with Georgia Swan, an Ontario-based TD Wealth Management tax and estate planner, about some rookie mistakes some Ontarians might be making on their tax returns.
Not planning ahead
“My first piece of advice is basically going to be to understand that tax planning has to be done all year round, that when you only think about it in March and April of the following year, it’s almost too late because there’s there’s not a lot of opportunity to really undertake any kind of tax planning,” Swan told Narcity.
So what does this mean exactly?
Good, according to TDtax planning can help you reduce your taxable income and take advantage of certain tax credits and deductions to which you are entitled!
There are plenty of tax credits for Ontarians alone and a few new ones will be introduced for next year, such as the Staycation Tax Credit where you can recoup money just for taking a fun trip around the province.
Many of the mistakes people make on their income taxes all tend to stem from the same problem: not educating yourself.
“The first thing I want to tell people is you have to educate yourself,” Swan said. “You have to start learning a bit about the tax system – how it works.”
For example, Swan has practiced income tax law for 25 years, and the Income Tax Act is a large, ever-changing document that she must constantly follow.
“Every time there’s a federal budget, that document changes. So even as tax professionals, we have to constantly learn new things,” Swan said.
So if this is your first time filing taxes, Swan recommends you start by reading a book to educate yourself on what you do. This is also useful if you connect all of your finances to income tax software, so you can understand how the numbers add up (or don’t).
“If you’re going to try it yourself and you’re going to get a program and you actually watch, whatever you have leads you through the process. Most of these programs, they ask you questions, and based on from the questions you answer, they generate your tax return. Once you get that document, go through it,” Swan said.
Or, of course, you can leave it to the pros and find yourself an accountant who can help you file your taxes.
Swan noted that the The Canada Revenue Agency is also a useful resource who can answer all your questions, news for the 2021 tax year to who must file their tax return and more.
At the provincial level, Ontario Ministry of Finance website details what Ontarians need to know about their tax system.
Not tracking all your documents
It’s up to you to keep track of all your records, from your T-slips to your charitable donations, and if you’re a small business owner, you should also keep track of all your transactions (with receipts).
One of the easiest places to keep track of all your documents, Swan said, would be through the ARC websiteand create your own account.
“They will at least have all the T-slips that were actually issued to you. They will have copies of them because they have to be filed with the CRA at the same time they are sent to you,” Swan noted.
But make sure all your slips are there, as Swan warned that reporting your income correctly is your responsibility.
“If you think something is missing, try to find it […] basically, it is your responsibility to report your income correctly. So you can’t say, ‘Well, I didn’t get the slip, the slip got lost in the mail, or I didn’t know there was a slip for that,’” says Swan.
“That’s not a good enough excuse.”
Do not track your charitable donations
It’s also up to you to make sure you keep track of all your charitable donation receipts.
“A lot of times what I see is people making a charitable donation, for example, and not realizing when they just plug the numbers into the computer that all that charitable donation can’t be used during any given year, so it’s carried over to next year,” Swan said.
So, therefore, people won’t check to see if they have balances from previous tax years and end up leaving those charitable donations “on the table”.
“You can only carry over a charitable donation that’s not used for five years,” Swan said.
Not realizing all your sources of income
“However, the other thing that I think a lot of people often get wrong about is that the Income Tax Act is structured in such a way that there are four main sources of income,” he said. said Swan.
There’s the income you get from your workplace, whether you’re self-employed, whether you own property – from owning property to an NFT you’ve created – and whether you have stocks or investments. , called taxable capital gains or capital losses.
“Within each type of that income, you have the ability to take deductions,” Swan said.
Not realizing what deductions you can make
There are tons of deductions available to Canadiansbut it’s up to you to keep track of which ones you can claim.
“Not realizing the deductions you have available, depending on the different sources of income you receive, can leave thousands of dollars on the table,” Swan said, which she added is one reason. why it is sometimes best to leave your taxes income up to professionals who can help you realize what you need to claim.
For example, in Ontario alone, there are so many Ontario refundable tax credits could benefit from, such as the Ontario Job Tax Credit, Ontario Child Care Tax Credit, Political Contribution Tax Credit, and more.
Do not take into account your income abroad
If you earn income from outside Canada, you always must file it with the federal government in addition to the other country in which you earn money.
“You have to be aware that Canadian taxes are worldwide income. So if you’ve developed some sort of opportunity from another country, you have to report that income and understand that, you know, you may have already been taxed on it in the other country, but Canada has the option to tax as well,” Swan said.
So if you have foreign income, you will need to make sure to file your T1135 (aka the Foreign Income Verification Statement.)
Excess contribution to your RRSP or TFSA
“Some of the easiest mistakes people make early on are over-contributing to your RRSP, which is accidentally putting more money into it than you’re allowed to,” Swan said.
For those of you who don’t know, an RRSP is your registered retirement savings plan, your TFSA is your tax-free savings account, and there’s a limited contribution room taxpayers can deposit into these accounts each year.
“When it comes to TFSAs, be careful not to over-contribute, but also be aware that if you take money out of your TFSA, there are certain rules as to when you can put it back if you’re going to contribute again” , Swan said, and emphasized how important it is to follow all the nuance that comes with this narrative.
While this article breaks down some of the mistakes to watch out for when filing your tax returns, Swan stressed the importance of constantly educating yourself to gain better financial knowledge.
“[..] The Income Tax Act is complicated, it cannot be reduced,” Swan said.
“While all of this puts people on the radar, you then need to get advice that’s right for you that looks at all the facts of your particular situation and looks at all of the circumstances that are on offer to you in the Income Tax Act. . “
After all, with every new change in the federal budget and every new change in the provincial budget, there are also changes to the tax rules.
This interview has been condensed and edited for clarity.