With the arrival of Spring, many people start to panic because they know it is tax time. Unless there are any changes soon in the deadlines for filing a return – April 30, 2021, for personal returns and June 15, 2021, if you are self-employed – it is time to start focusing on getting your 2020 tax information together.
Why do people panic at tax time?
Most Canadians pay taxes every year. So why do people panic when tax time comes around?
First, let’s face it, the Canadian income tax system is quite complicated and every year it seems to be more so. This year, for example, the basic exemption has been increased, but not for people who have higher incomes. There are new deductions like the $500 maximum deduction for costs of a digital news subscription.
Second, people’s lives change. They may start a new job or a new business; there may be a new addition to the family; or they may acquire a rental property. The COVID-19 pandemic has certainly changed many life situations. People are working at home or starting ‘side hustles’ to earn a little extra income. So, usually, no two tax years are the same.
Third, the majority of Canadians are honest, upright people, and they don’t want to get into the Canada Revenue Agency’s bad books. They don’t want to make a mistake; they want to retain their supporting information once they submit their return. At the same time, they want to make sure they take advantage of all the deductions to which they are entitled (it’s FOMO-fear of missing out).
Finally, people want to avoid paying any interest, penalties, or fines for missing a deadline or not being able to pay taxes owing.
Three Steps for Reducing Your Stress Level
To get through tax time relatively stress-free, I suggest the following three simple steps:
I will go through each of these steps and provide some examples.
Step One – Be Prepared
You know that you have to file a personal tax return every year, so be prepared from the start of the year. That means keeping all of your receipts and other supporting documents, whether electronically or in a shoebox. Make sure you have all your tax slips from employers, investment dealers, banks, charitable institutions, etc. before filing your return.
If you haven’t received this information after their deadlines, give them a call.
Did you make any major changes in your life in 2020? For example:
If you answered ‘yes’ to any of these questions, make sure that you know the rules and have the back-up information to complete your tax return.
Step Two – Stay Informed
This is a big one. It is your responsibility to stay informed of any changes in Canadian income tax laws or regulations. Not every change will appear in a news story or a social media post. You may have to go to the CRA website or seek outside assistance (Step Three) if your situation is more complex.
I won’t go through every change, but I will highlight a few areas.
New Taxable Government Benefits
Many Canadians received new benefits in 2020 due to the COVID-19 pandemic including:
All of these benefits are considered taxable income. Employers are required to provide additional information on T4 slips to verify that a person was eligible during COVID-19 pay periods.
Many Canadians worked at home this year for the first time because of the pandemic and it is important to know what expenses are allowable.
The CRA has created a flat-rate deduction of up to $400 ($2 a day) - no receipts required - to simplify the process for those working from home due to the COVID-19 Pandemic.
Some taxpayers may have received rental income for the first time. Besides maintenance and operational costs, some other allowable expenses include: interest on money borrowed, not just mortgage interest, as well as interest on any line of credit for the property.
Depreciation on real estate is also permitted under the Income Tax Act. You may wish to seek professional guidance because it may not be in your best interest to take depreciation as there could be further tax consequences when you sell the property. Be careful here. Some online programs automatically take this deduction.
Step Three – Seek Assistance
As you can see, things can get pretty complicated so you may wish to seek assistance. One source of assistance is your CRA My Account where you can view and manage your tax and benefit information. You can also contact a CRA office if you have a problem or question.
If your situation is complex – you started a new business, you are self-employed, you have extensive investment or real estate holdings – you may want to consider using a professional accounting firm. At Elite Accounting, in addition to tax advice, tax planning strategies, and tax return preparation, we also provide additional services such as bookkeeping and payroll. Many accounting fees are allowable deductions on your return.
With complete records and accurate information in one place year-round, you can avoid any stress and panic at tax time.
|Andrew Abraham | Managing Partner & President|
2021 Faces Magazine Entrepreneur of the Year
Life. Beyond Numbers.
Published by Elite Accounting Inc.
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