Life

Whether you do your taxes on solo or hire an accountant, errors can happen that lead to costly mistakes! Here are some of the biggest ones to avoid:

Photo credit: iStock.com

File On Time

If you owe money it’s important to file by the deadline. The Canada Revenue Agency (CRA) will penalize you for money owed if you file late. If you have balance owing the CRA will charge a compound daily interest rate of five per cent. As well you will face a penalty that equals five per cent of the total amount owing plus one per cent each month overdue and its more if you have filed late and owed money before.

Compare this to the interest banks are charging on loans and you can see the CRA can be a very expensive place to owe money.

Get The Math Right

This year the CRA introduced NETFILE. It’s an electronic tax-filing service that allows you to send your individual income tax and benefit return directly to the CRA using the Internet. It promises a safe and confidential way to streamline the tax-filing process and get your refund. Approximately 85 per cent of Canadian taxpayers are expected to file online this year.

It’s no secret filing your return can be difficult and the calculations can get tricky. To avoid making manual mistakes I highly recommend using a reliable online software lthat will do all the math for you or seeking the help of a tax professional. Getting the math wrong can result in having to pay a penalty — or worse, an audit — if the CRA suspects you’re not being honest. 

• Must-Read: Money Lessons from the Most Frugal Celebs

Keep Your Receipts

Whether you are self-employed of a full time employee it’s important to keep all your important documents and receipts that you are using to file your tax return. The CRA can ask for a reassessment for up to six years. Keep in mind this is six years from when you file not the tax year you file for. They can ask questions about income amounts, credits, deductions and supporting claims. If you don’t have the documentation to prove it you may end up owing the CRA money. Archiving receipts is useful for you, too. If you made a mistake or forget to include information you have 10 years to make a change to your return. 

• Must-Read 5 Ways You Could Ruin Your Retirement

Anticipate Reassessment

Remember the CRA can call on and ask more question about information on your return. An income tax return is a self-assessment and it’s expected the information on the return is honest to best of the filer’s ability. Reasons for a reassessment can include random selection, comparison of information on returns to information received from third-party sources (such as T4 information slips) and types of deductions or credits claimed and an individual's review history.

• Must-Read: The Truth About Women and Money

Be Honest

With so many new tax incentives, it can be tempting to try to take advantage of as many of them as possible. The children’s fitness tax credit, income deduction of childcare costs and deduction of medical expenses, to name a few, can mean a bigger return. Canadians should legitimately try to exhaust any and all tax incentives they qualify for. But don’t stretch the truth to try to get a bigger refund. Misstating your income, not declaring investment interest, reporting losses in your business for many years in a row and suddenly increasing your expenses can all raise red flags (Read: 10 Ways to Attract an Auditor's Attention). If your claims are legitimate, you shouldn’t worry, but be prepared to answer questions. Even when the returns are done online, the screening process is just as rigorous. 

Get A Bigger Refund

There are many new incentives to take advantage of this year, including the children's fitness tax credit that has been doubled to $1,000 per year, the introduction of income splitting called the family tax cut, new tax incentives for search and rescue volunteers and stricter rules for Canadians who own U.S. property. If you’re overwhelmed by the tax return process, it's worth the investment to hire an accountant who can walk you through it. But remember the signature on the return is yours. You alone are accountable for everything in it. All things to consider when filing your returns.