Tax season can be the best of times (if you’re getting a refund), or the worst of times (if you procrastinate filing or know you owe money). Like it or not, tax time is here!
Vice-President at Sands & Associates and Vancouver Licensed Insolvency Trustee Blair Mantin visited Breakfast Television Vancouver to share four key tips to help you keep your tax time as stress-free as possible.
Watch the clip here, and read more below:
Tips to Have a Stress-Free Tax Time
Know the Rules
Every year Canada Revenue Agency (CRA) makes changes to tax brackets and tax credits. Before you get filing, spend a few minutes finding out what’s changed – knowing the ins and outs could get you some extra money!
- This is especially worthwhile if you’ve had a financial change (like a new job where you need to supply your own tools, or if you’ve had a change in dependents).
- Don’t try to “outsmart” the system by making claims that are wishy-washy, or that you don’t have proof of. Audits can and do happen!
- Avoid falling for tax scams! Every year Canadians get caught up in “too good to be true” deduction scams and don’t realize what’s happened until it’s too late.
If you don’t have an accountant doing your tax return, you can brush up on changes by visiting the CRA website. Some notable changes for 2018 tax returns:
- A medical expense tax credit for service animals: In some circumstances, the cost of caring for a service animal can now be claimed as a medical expense.
- Accelerated Investment Incentive: This temporary new measure impacts self-employed individuals and their capital cost allowances rates.
Get It Filed
CRA doesn’t take kindly to Canadians who don’t file their tax returns. It’s actually worse in CRA’s eyes to not file a return than to owe them money! CRA has been known to issue ‘arbitrary’ assessments with big balances owing to prompt ‘non-filers’ into getting their tax returns done.
This is still true even if you’re already carrying an old CRA balance. Not filing your tax return isn’t a good strategy to avoid adding to your bill – you’ll likely just aggravate your stress-levels!
- For most Canadians the deadline to file your 2018 tax return is April 30th.
- If you owe money, you’ll also need to pay your balance by this time.
- If you’re self-employed, the date you need to file your return by is June 15th – but you still need to pay by April 30th.
If you owe money for 2018 income taxes and your return is filed late, CRA charges a late-filing penalty of 5% of the balance owing, plus 1% of your balance owing for each full month the return is late (to a maximum of 12 months).
If you habitually file late, the penalties can increase. If you were charged a late-filing penalty on your 2015, 2016 or 2017 returns then your 2018 late-filing penalty may be 10% of your 2018 balance owing, plus 2% of your 2018 balance owing for each full month the return is late (to a maximum of 20 months).
Even if you’re unable to pay the balance you owe by April 30th, you can avoid these penalties by filing your tax return on time.
Be Balance Smart (If You’re Getting a Refund)
Plan to use your tax refund well if you’re getting money back. Remember, it’s not really free money – it means the government was “holding” money from your income that you overpaid to them throughout the year.
- Consider how the refund could benefit you the most:
- An extra payment towards your debts;
- Savings or RRSP contributions;
- If you’re going to splurge with the cash be sure you only do it once!
Pay What You Owe (and Plan Ahead)
When you owe money for taxes make sure you pay your balance owing in full ON TIME. Interest for tax debt compounds daily, so even a “reasonable” amount can snowball very quickly.
Tax Balance Interest
If you owe money for your 2018 income taxes, CRA will charge compound daily interest starting May 1st on unpaid amounts. Compound daily interest will also continue to be charged on outstanding amounts owing from prior tax years. CRA will additionally charge interest on late-filing penalties, starting the day after your return should have been filed.
The interest rate charged by CRA can change every 3 months, the rate in effect from January 1 to March 31 (2019) for overdue taxes, CPP contributions and EI premiums is 6%.
To avoid owing next tax time, understand what caused the balance; some common causes may include:
- Working more than one job
- Your combined income may require more tax to be paid. Consider asking one employer to withhold extra tax going forward.
- Receiving EI benefits in the same year as receiving employment income
- EI benefits frequently don’t have sufficient tax withheld. Try to stay ahead by asking an employer to take a bit more tax off your paycheques or making an instalment payment to CRA during the year.
- Self-employment income
- Being your own boss can have a few drawbacks, one of which is that you need to pay your own CPP and tax! Get into the habit of making regular instalments throughout the year to avoid a big tax bill hitting all at once. You can use free online calculators to estimate how much you should be putting aside.
- If what you owe is beyond your ability to pay, or your balance has accumulated to an unmanageable amount, speak with a Licensed Insolvency Trustee.
Get a financial fresh start today – book your free debt consultation to meet confidentially with a local Sands & Associates debt expert. We’re here to help you understand your options and choose your best debt solution.