How to get ahead of tax season stress
Start by comparing returns with last year’s, collecting T3s and official medical receipts
Many Canadians wait until the last minute to file their taxes, frantically sifting through tax receipts and slips, panicking over missing information and generally losing a lot of sleep in the process.
After all, very few people on the planet actually enjoy doing their taxes. “It’s equivalent to getting a root canal,” says personal finance expert Tim Cestnick (and former managing director of advanced wealth planning with Scotia Wealth Management). “No one really wants to do it.”
But prepping for tax time doesn’t just reduce stress levels — it could help maximize a person’s return or, at the very least, avoid costly mistakes.
Where to start? Pull out last year’s tax return, Cestnick recommends. It will serve as a guide to preparing this year’s tax return. When finished, compare the two on a line-by-line basis — that’s the best way to find mistakes, from this year or last.
If you require information to support deductions on your tax returns — say, if you’re claiming mileage — start gathering it now, Cestnick says. (Ideally, though, that’s what you should be doing throughout the year.)
If you’re self-employed but didn’t earn any revenue in 2016, you can still report your expenses, he said. You’ll have a loss for 2016 that can be applied to other sources of income, which will save some tax.
Before the end of February, you can contribute to your RRSPs to claim the tax deduction, Cestnick says. If you’re expecting your income to be higher in 2017 than in 2016, you could save more tax if you claim your RRSPs in 2017 instead — but you still have to report it for 2016 (the CRA needs this information to properly calculate your RRSP limits).
“One of the most common mistakes is not so much arithmetical, but people miss slips and that can actually be very punitive,” Cestnick says. “That can be a really nasty thing to go through.”
There’s a provision in Canadian tax law that allows you to make one mistake: The first time you forget to submit a slip, the government will add it to your tax return for you. If you miss a slip a second time, substantial penalties can be applied based on the amount of income you missed.
That’s why gathering your required information — T3s, T4s and T5s — is critical. And if something is missing, you want to know ahead of time, not the night before your taxes are due.
Sandra Bussey, manager of high net worth planning with TD Wealth, agrees this is becoming more of an issue. And the one that causes the most problems is T3s, since they don’t have to come out until the end of March (you receive one if you’ve invested in a mutual fund, a limited partnership or other forms of investment income).
That’s why it’s important to make a checklist: what should be there from last year, and what’s new this year? Did you have higher medical expenses in 2016? Did you send a child to university, get married or get separated?
The Canadian Revenue Agency’s general income tax guide (available online) is a wealth of information — and is, perhaps surprisingly, fairly easy to understand.
“Take a look at what’s new for (2016) and some of the changes to the universal child care benefit,” Bussey says. Perhaps because of your income level you previously never received the benefit; now, regardless of income level, you’re entitled to it.
If you got married, you now have the ability to make spousal RRSP contributions, and to combine donations and medical expenses. Or, there may be credits you weren’t using that you can transfer over to your spouse.
Acommon mistake, however, is not knowing which expenses qualify as medical expenses; those must be documented with official receipts. If you think you’re missing some medical receipts come tax time, you can always file your return on time, then get the receipts you’re missing and file for an amendment.
Also, decide ahead of time who will prepare your tax return — whether you’re going to attempt it yourself or turn to a professional, Cestnick says. The more complicated your tax return, the more sense it makes to have someone do it for you.
“Tax software is not the same as having an experienced tax preparer do it,” he says. Consider a professional if you’re self-employed or sold a significant asset such as a piece of real estate.
Another common mistake, Cestnick says, is filing your tax return late if you’re getting a refund: “You’re lending money to the government on an interest-free basis.”