Tax time can be one of the most nerve-wracking, anxiety inducing periods of the year. From the scramble to find all of your receipts to forgetting your CRA login password to pretending to understand what the accountant you paid $300 for is saying about your RRSP deduction limit, it’s all super overwhelming. This year, I came to the sad realization that it’s my 10-year anniversary of filing my first tax return. Luckily for you, I’ve learned a lot in the last decade of being a (somewhat) productive member of Canada’s labour force and can help demystify income tax filing with five useful tips.
Store your receipts digitally.
Finding receipts at tax time is always a nightmare, especially if you’re relocating frequently or you’re just a chronically disorganized person (no shade). Not only do you need them for filing your current income taxes, it’s also important to keep tax receipts for at least seven years just in case you get audited. These include receipts for charitable donations, tuition fees, RRSP contributions, and any expenses you may have claimed if you’re self-employed. Canada Revenue Agency (CRA) now accepts receipts in readable electronic format, so you don’t have to shove them all in your wallet or store them in an overflowing file cabinet in your parents’ basement. Instead, you can store receipts digitally as you receive them on an encrypted disk or secure cloud storage. If you aren’t able to get an electronic copy of a receipt, use an app like Evernote or Shoeboxed to create and manage electronic receipts.
Use a tax software.
In general, you don’t need a professional to do your personal income taxes. Tax software is an affordable and simple way to file your taxes on your own and most are compatible with CRA’s NETFILE service that will allow you to get your notice of assessment in as little as eight business days. My personal favourite is TurboTax since I can easily login online, all my information from previous years is prefilled, and it walks me through each step from declaring my income to maximizing my tax benefits to downloading my completed tax filing for my records. You can also get a discount through several Canadian banks and some services are available for free depending on the complexity of your income. Another popular tax service is StudioTax, a totally free software offered to Canadians for personal income taxes. If you really love their services, you can give a donation or like them on Facebook to spread the word!
If you’re self-employed, starting a business, earning income from an overseas employer, or have complex investment portfolios, you may want to get some professional advice to make sure you are declaring your income correctly and maximizing your tax return.
Declare your freelance income and expenses.
One of the results of the rising cost of living and high youth unemployment in Canada is that an increasing number millennials have side hustles or precarious self-employment. There are many misconceptions about paying taxes in the gig economy, but the simple truth is no matter how you’re earning an income, you owe taxes on it. Whether you’re earning $100 or $100,000, not declaring income from self-employment is tax evasion. The good news is that you can expense some of your business costs to lower your taxes owed. For example, if you do freelance work from home, business costs can include a portion of your Internet and phone bill. It’s very important that you properly record your business expenses by keeping your receipts and calculating expense amounts based on your actual business use. Check out Freelance Taxes for Canadians and Tax Advice for Freelancers for advice on how to do this as painlessly as possible.
Research tax credits and deductions.
The only fun part about doing your taxes is the possibility of getting a fat cheque two weeks later. As a student or part-time employee, you tend to get a much higher return than when you start to work full-time and enter a higher tax bracket. In either case, you want to maximize your return by making the most of tax credits and deductions. Tax deductions reduce your taxable income, while tax credits can be applied against income tax owed or paid out in an income tax return or regular payment. Common deductions include pensions and retirement savings, disability supports, and Northern residency. You’ll want to do your research because there were several changes to tax credits and deductions last year that will affect your tax filing for 2018. For example, the public transit and first-time donor super credit have been eliminated; whereas, the Climate Action Incentive has been introduced for residents of Saskatchewan, Manitoba, Ontario, and New Brunswick. For a full list of tax deductions, credits, and expenses, visit CRA’s website.
Keep a portion of your return aside in case of a reassessment.
Audits or notices of reassessment can be stressful. Sometimes, all you need to do is provide CRA with supporting documents, but other times you are required to pay for a miscalculation or false statement of income. If you’ve declared diligently, a miscalculation should only require a small repayment. However, if you’ve made an error on your tax filing, you may be required to pay back a significant amount of your tax return. You might also owe money to CRA if you’ve changed your provincial residency and are no longer eligible for certain tax credits. An easy way to avoid the stress of reassessment is to put aside a portion of your tax return in a chequing or savings account in the event that it should happen. CRA does not play when you owe them money and gives a pretty short window for repayment before interest kicks in, so being able to quickly pay the amount owing will not only give you peace of mind, but also keep you out of trouble.
Common situations in which CRA may request more information is for tuition tax receipts or work-space-in-the-home expenses, so make sure that you only declare expense for which you have detailed receipts and calculations for the amount that’s been claimed.