It’s that time of the year again when you have to take out all your financial and tax records and fill out the Tax forms. Do you wish to maximize your tax savings and avoid the most common mistakes that occur while filing income tax returns? Or you have already filed your tax return and just realized an error you made while doing so. Don’t worry ,we have listed down some of the mistakes that you might make while filing your tax return or how to correct one.
Filing tax returns might not be as easy as it seems. It is a complicated procedure and it’s possible to easily make a mistake on your returns. In some instances, your error may result in a bigger tax burden than what you expected or a revocation of your tax benefits. Sometimes a mistake on a tax return can result in a penalty or other fees.
Below is a list of the most common mistakes on tax returns. But if you have already made one of these mistakes, we have also included how you can fix that mistake after you have filed your return.
1. Forgetting Deductions or Credits that are Allowable
It is hard to keep a track of the income tax deductions and credits that you may be eligible for year to year, especially when the government changes tax rules and offers subsidies and reliefs based on the pandemic situation. It is good to look up Toronto accountants and consult one to see the specific deductions and credits that apply to you. Sometimes new deductions and tax credits are added and some are removed. Some of the tax credits and deductions that are often overlooked are:
- i. Non-refundable tax credit for interest paid on student loans
- ii. Tax deduction for union or professional dues
- iii. A $5,000 non-refundable home buyer’s tax credit for people who bought a qualifying home in the past year and have not lived in a home they or their spouse owned in the past four years
- iv. Tax deduction for any work related expenses that you paid personally.
Using a good tax software helps in avoiding this error as it asks you a series of questions to determine if you are eligible for any of the more than 400 deductions and tax credits.
2. Claiming Ineligible Expenses
On the other hand some might make the mistake of claiming deductions or tax credits that do not exist. According to CRA, people often mistakenly claim wrong moving expenses. Taxpayers who move at least 40 km closer to a new place of work or to study full-time at a post secondary program can deduct a variety of moving expenses which includes transportation and storage, travel, utility hookups and disconnections and fees for canceling a lease. But some include ineligible expenses such as repairs, or the cost of mail forwarding as well. Some students claim the student loan tax credit on interest fees paid on personal loans, student credit or foreign student loans, which are also ineligible expenses.
3. Getting Rid of Receipts and Slips
As online tax filing is becoming more popular, taxpayers are not required to send in all the slips and receipts along with the returns, so they fail to keep these safe and handy. This often becomes a problem since CRA often requests to see receipts for certains entries like childcare expenses, donations, tuition fees etc.
Individuals are required to keep seven years’ worth of records and CRA only accepts receipts that include the date of payment. If one fails to provide these documents then the claim is denied.
4. Misreporting Marital Status
If you have been living together for at least 12 months, or you reside together and share a child (by birth or adoption), the CRA considers you to be in a common-law relationship, and must be declared on your tax return.
It is important that you report your marital status correctly to be eligible for certain benefits like the GST/HST tax credit, the Canada Child Benefit, both of which are based on spouses’ combined incomes. If you report as single you might have to pay back some of the money you receive. However spouses can pool or transfer some of their tax credits. It can optimize your claims for medical expenses, charitable donations, pension splitting and other credits when spouses prepare their tax returns at the same time.
5. Neglecting to Transfer Unused Tax Credits to Other Family Members
Tax credits can be transferred to a spouse of an individual who does not have enough income or taxes. For example, $5,000 tuition tax credit unused amounts can be transferred to a parent or grandparent.
6. Missing the Tax Deadline
During the Covid pandemic, the tax filing deadline for 2019 filings was extended but it returned back to normal in 2021 and 2022. For 2021 taxes May 2, 2022 for employed Canadians and June 15, 2022 for self-employed is the deadline. If you fail to file on time:
- You will not get your refund on time
- It could delay benefit payments
- You may face interest or penalty
7. Not Realizing Some Benefits are Taxable
Emergency relief from the government during the pandemic helped a lot of businesses remain afloat during hard times. But any benefits received need to be declared in the income tax return as they are taxable as the income tax was not deducted at the source.
8. Ignoring Mistakes You Made on Previous Returns
If you have already made one or more of these mistakes on your previous returns you can correct it rather than ignoring it.
How to Change a Return
People often make mistakes on their returns and CRA is aware of that. You can request a change to a return for the previous 10 years. You have to wait until you receive your Notice of Assessment for that return and then file an adjustment request. It is a notice issued to all taxpayers by the CRA showing how much tax needs to be paid or refunded. You must include the line numbers and figures for all the adjustments. A separate request must be filed for each year’s return adjustments.
All necessary documents like the receipts and slips must be included. CRA typically responds within two weeks for online adjustments and about eight weeks for mail. If the adjustments are approved you will receive a Notice of Reassessment. In case of rejection you will receive a letter explaining why the changes were not approved. You can object to the CRA’s decision by filing a Notice of Objection. If you plan to do so, the best way would be to let a professional handle it.
Ways to Make Changes to Your Return
If you prepared and filed your tax return with EFile, you can log in to your account and use the tool, “Change my return” on the CRA MyAccount page.
You may fill out a T1-Adjustment Request Form and mail it to your local tax center.
You can also send a signed letter to your tax center with the changes you would like to make. You need to make sure that you include copies of all documents that are related to the change.
Or you authorize your Toronto Accountant and they will do it on your behalf.
Voluntary Disclosure Program
CRA also has a program that lets you make adjustments or changes to your previously filed returns or file a prior year return that was not filed. This program is known as the Voluntary Disclosure Program (VDP). It is open to all Canadians. However to file under this program:
- Your disclosure must be before the CRA contacts you first about your tax situation
- Your disclosure must be complete, so you cannot leave anything out
- The information must be more than a year old
- The program is only for those who are facing penalties or tax charges
How to Avoid Making a Tax Mistake
The simplest answer to that question is having a professional do your taxes.