With tax season approaching, number geeks like me are sharpening our electronic pencils and itching to start number crunching. Sadly my taxes aren’t that complicated, so I have a lot time on my hands to reminisce about tax years of yore.
I’ll review some of my past mistakes and misconceptions, and hopefully aid others new to the tax process.
If you want more serious tax advice*, check out the Canada Revenue Agency’s official website. Apart from scads of articles and forms they have a video series and an online training guide if you want the most official information on tax returns.
- You don’t have to fill in every line. Yes, I’m quite sure I actually did this at least once or twice. In reality Revenue Canada understands that a blank line is equivalent to $0.00. At least they’ve never sent me a letter to the contrary. This was on paper tax returns, but I don’t see why I couldn’t do this on an electronic submission as well. Maybe this year I’ll get retro with the zeroes.
- You don’t have to use every part of the tax package. In fact, for most people it’ll make a lot more sense if you don’t use every form. They put those pages there because some people need them; not because they want you to use them. Let’s go over what parts are more common used:
- T1 General – This is the main tax document. Its use is mandatory.
- Schedule 1 (Federal Tax) – Definitely use this because Canada (aka Federal) wants its money.
- Schedule 4 (Investment Income) – Use this if you have any account that pays you interest, like a savings account or GIC. But not if it’s a TFSA or RSP.
- Schedule 9 (Donations and Gifts) – You donated to a charity didn’t you? If so, you may need this form. If not, can I interest you in making a donation to The People Fund? It’s totally legit, don’t worry.
- Schedule 11 (Tuition) – Are you in some kind of post-secondary course? Then you definitely want this form. Cha-ching – big money available here.
There are some other schedules (aka forms) as well, so go look those up to see if they apply to your situation.
Do you live in a province or territory? I’m going to hazard a guess that you do. The tax structure for each province and territory will vary. But these are the forms that are likely to be used: Provincial/Territorial (PT) tax, PT credits, PT info guide (which explains the forms), and PT tuition form.
General Income Tax and Benefit Guide – This helps you figure out how to fill out the T1 General. There are lots of words, some very useful ones.
- Just in case you’re still considering using paper tax returns, you don’t have to use both sets of forms. I’m embarrassed just thinking about this. Yes, I was one of those fastidious people who actually did a “rough draft”, and then pretty much just copied all the numbers on to the final draft. All that copying was the worst thing about any scholastic writing before computers were ubiquitous and yet I continued to do it with taxes. Eventually I smartened up and just did one copy. If you make a mistake you can neatly cross it off and re-write it. I only planned to do a second draft if I made more than a couple errors, and I don’t think I ever actually had to.
- Do use the forms and the guide. This was more relevant when you had to pick up your tax packages at the post office, but it is very important that you use both the “Forms” and the “Benefits Guide”. Here’s a little glossary to help you remember which is which:
- Forms: these are the tax forms which includes the T1 general and all the Schedules.
- General Income Tax and Benefit Guide: this is the guide to using the forms
I distinctly remember not understanding that I needed two different things and had to go back to the post office to pick up the second package. Luckily the post office was probably in the 7-11 so I could buy candy at the same time.
- You can’t do a tax return without skipping around. This one totally blew my overly-methodical mind. I thought there had to be some way to complete one form fully and then move on to the next. No, there is not. Logical and straightforward is not the way bureaucracy works. You need to enter and calculate some of the information on the T1, then do the federal and provincial forms and eventually end up back on the T1. You should probably look at the non-federal schedules early on though, as you’ll need some of that information near the beginning of the T1. Electronic tax submission makes this part easier.
- You don’t have to claim every bit of money you’ve ever received. No, they won’t come after you for things like gifts from Aunt Irma. Generally gifts, gambling, and lottery winnings are not taxable. Some or all of scholarship money in most situations also isn’t taxable. See here for more post-secondary student related information.
However, any employment income for services and products you provide is taxable, whether you were paid in cash or not, and regardless if your employer provides you with a T4 slip. If you don’t disclose all income, you may receive a strongly worded letter from Canada Revenue stating that you owe more money plus penalties. If you make a significant amount of money in cash, such as tips, I definitely recommend looking into how to properly claim this on your taxes.
But generally below a certain amount of income isn’t taxable because of the standard deductions, so some stuff slides below the government radar. Sorry Canada, I didn’t submit a tax return for the couple hundred bucks I made pet-sitting as a teenager.
Big reminder here: If you don’t file a return, Canada Revenue is happy to not pay you money that is technically owed to you. Even if you do file a return, but miss out on a deduction, they may adjust your refund or amount owing, or they may not. So it’s always in your best interest to fully research your tax situation and make sure you get as much money back as you’re legally entitled to.
Here is the CRA guide to situations where you may want to file a return even though you don’t owe taxes. The ones I take special note of are the GST credit and increasing your future RSP limit.
* Remember to refer to the official tax documents and the Canada Revenue Agency for all specific tax information.
What errors have you made when doing you taxes? What confused you about the process? I’d love to hear your stories.