Written By: Candy M. Davis, CPA, CGA
There are numerous tax software programs out there, and to be honest, they’ve gotten pretty user friendly over the past few years. Canada Revenue Agency is even updating their sites to allow users with a MyAccount to use their Auto-Fill My Return feature to import important data like T-slips and carryover amounts! Doing your taxes at home couldn’t be any easier.
So what’s the problem?
The problem isn’t in claiming your revenue. Most people have no problem inputting data from the T-slips into the software and calculating basic credits. But if you file that automatically prepared return there is a very good chance you’re still overpaying on taxes! Why?
Lost Credits and Deductions
There are a ton of credits and deductions out there that will reduce your overall tax burden. Some of them are even refundable which means they don’t only reduce your tax owing, but they will turn into a refund for you!
The problem is that a lot of people have no idea that these credits and deductions exist. This is due, in part, to the fact that the software programs just can’t know everything about you. They can’t always ask all the right questions and can’t understand your individual situation. So you may be entitled to something which would reduce your taxes owing and you would just never know! It’s not your fault, and it’s not the tax software’s fault… it’s just the way it is. The other reason you probably don’t know about some of the things you’re eligible for is because a lot of things are complex, deeply embedded in the Income Tax Act, and based on several layers of stipulations.
Do you have children? Are you a single parent? Are you in the trades? Are you married or common law? Do you have a disability? Do you have a dependent? Are you a student? Do you have your own business? ARE YOU A PERSON?!
There are so many things you are eligible for, and chances are you’ve only heard of half of it! I want you to have it all!!!
The Elusive RRSP Slip
Throughout my years of tax practice, I’ve noticed one thing again and again! Your investment broker is probably terrible at sending you the RRSP slip for the first two months of the following year. A lot of people don’t even know that they should be getting one!
RRSPs are claimed on your tax return in two parts. The first is from March through December of the applicable tax year. The other is for the first two months of the following year. It’s one of the only parts of your tax return that doesn’t follow proper calendar year rules, and no- you can’t just sneak those contributions into any other tax year’s return.
So, if you’re missing and not filing part of your RRSP contributions in your tax return, you may be missing out on some great RRSP deductions!
Claiming The Wrong Stuff
The other big problem I see actually involves individuals claiming deductions and credits they are not entitled to. This happens for different reasons and most often it’s completely innocent!
Sometimes the software used will suggest certain credits for you in error, because it does not properly understand your individual situation. Often people just include these credits assuming they are entitled simply because they are unaware of the eligibility requirements.
Other times, the wording of certain parts of the income tax forms can be really backwards and confusing. For example, claiming “eligible dependents” doesn’t mean claiming all of your children (who are actually claimed on a different line of the tax return), however it could still mean your child, but only under strict circumstances. It could also not be your child at all. Confused yet?
Other people claim the wrong stuff because they simply aren’t aware of the tax laws set out in the Income Tax Act. A lot of people think certain things should be tax deductible that simply aren’t allowed. Other people confuse deductions that a business could make with ones an individual can make (individuals are much more limited in their deductions than a business is). And finally, there are simply a lot of “myths” out there that people mistakenly accept as fact.
As I mentioned, most often these are honest mistakes. However, these mistakes come at a hefty price once your return is audited by CRA. When deductions and credits are disallowed by CRA, individuals often find themselves owing more taxes and the added interest and penalties that go along with it!
People often say things like, “Well I’ve been claiming it for years and CRA has never said anything” or “Well that’s what my friends do”. That doesn’t mean it’s allowed; it means that the individual’s return has never been audited. Believe me, you don’t want to be that person when they finally get selected for a review of their returns!
You can’t always rely on the generic tax preparation software. These programs cannot account for every individual’s circumstance and there's no way they can tell if you're missing something! And I’m guessing you don’t spend all of your free time studying the Income Tax Act, reviewing the newly released budgets, and pouring over the CRA new releases and folios.
As a Chartered Professional Accountant and a tax preparer, I’m biased. I WANT you to bring your taxes to me. I WANT your business. But I’d be just as happy to know you were seeing another professional accountant for your tax preparation and filing. Why? Because every year I meet more and more clients who have been leaving important parts of their tax returns blank and have paid way too much in taxes. You don’t have to “cheat the system” to pay less tax. You have to know the system. And that is what professional accountants do. They make sure you are claiming the right stuff and getting every credit and deduction you are entitled to! They help save people, like you, money. And who doesn’t want more money in their pocket?