This time of year is dreaded by most people - the last-minute searching for that tax slip that was mailed to you a few weeks ago, the constant reminders from your tax preparer to get all your documents together - it can become quite stressful. Here are five things you can do in order to make both your and your tax preparer's life easier.
1) Stay organized.
The Canadian tax system makes individuals responsible for reporting their own income and expenses to the Canada Revenue Agency (CRA). This means it's up to you to make sure you've included everything you're supposed to. This can get tricky at times, especially when you work two jobs, go to school and have a bank account - that's a minimum of 4 different slips to get a hold of.
Start a paper folder for your taxes - make a new one each year. Every time a tax slip comes in the mail, put it in your folder. When you receive a donation receipt, put it in your folder. When the CRA sends you a previous year's notice of assessment (which is a summary of your tax return that was filed - it shows how much tax you owed or were refunded), put it in your folder.
If your tax preparer asks you for a document this year, chances are they're going to ask for it again next year - so make note of it! Have a list in your folder of all items requested by your tax preparer that you didn't initially provide. Some examples of commonly missed items are rent receipts, gain/loss statements for your investment account, and tuition slips. If you've paid instalments towards your taxes during the year, your tax preparer will need to know how much you've already paid to avoid you making a double payment. Having these items ready for your tax preparer will save both of you time and money.
2) Inform your tax preparer of any significant changes in your life.
There are many credits which are only eligible to certain people. Getting married (or living common-law) may make you eligible for certain credits and transfers. Having children will make you eligible for a few tax credits and deductions related to children. If you've suffered from an unfortunate accident/illness, you may be eligible for the disability tax credit.
All of these amounts will be beneficial to you from a tax perspective. Changes in marital status also affect amounts such as the GST/HST credit that is paid to you throughout the year. It is best to inform the CRA as soon as possible if you have changed your marital status by filling and sending in form RC65, available here. If you fail to inform the CRA about your change in marital status, it may result in them paying you too much of a credit and you having to pay them back, with interest!
If you have moved, you also need to inform the CRA as soon as possible. The CRA explains here how to change your address - the simplest way to do so is over the phone, or online through My Account if you have set up online access. If you haven't signed up for My Account, I recommend you do so. You can register online and the CRA will send you an access code in the mail. This is a great service to get fairly up-to-date information regarding items such as the status of your tax return and carryfoward balances (such as RRSP limits, tuition carryforwards, etc.).
Also, make sure you tell your tax preparer about your move - you may be eligible to deduct moving expenses and/or claim a home buyer's credit if you meet certain conditions listed on the CRA's website.
3) Keep up-to-date records.
This tip is directed to those individuals who have a source of income/expense that a slip is not issued for at the end of the year. This includes self-employed individuals, employees claiming employment expenses and owners of rental properties. Everyone will have their own way of tracking things - the important thing is that it's kept up-to-date. I've already released my self-employed tracking template, and am in the process of working on one for employees and rental property owners. These templates will at the very least give you an idea of the information your tax preparer needs to complete your return. Avoid waiting until the last minute to go through a year's worth of receipts - it is quite a tedious process, but if done at intervals throughout the year it makes life a lot easier.
4) When in doubt, ask!
If you've heard about the next 'get rich quick scheme' that's supposed to save you thousands of dollars in taxes - talk to a tax professional before proceeding any further. The last thing you want to happen is to be fined by the CRA for tax fraud. A general rule is: if it seems too good to be true, it probably is. Yes, there are some types of investments that are called 'tax shelters' that can potentially save you tax, but I highly recommend having a tax professional and/or a financial advisor looking over the investment before putting any money in.
Fraudulent activities aside, if you're contemplating a transaction such as the sale of your rental property, it's best to seek advice in order to keep yourself informed. Your tax professional can answer questions such as how much tax you will have to pay on the sale of your rental property come tax time. You wouldn't want to be stuck in April with a huge tax bill you can't afford.
5) Don't wait until the last minute!
At the very latest, you should have all required documents to prepare you taxes by the beginning of April. For most people, you'll have everything you need to be ready by the beginning of March. Handing over your information to your tax preparer early gives them the time to review what you've provided, and request any additional information if necessary. This is important especially if your return is more complicated. If you hand in your tax documents April 29th, unless you're positive you've included everything required, it is unlikely you'll have your taxes filed correctly by April 30th.
If you'd like to share your ideas or tax time horror stories and what you learned from them, leave a comment!
Happy tax season!
Jacob
The Canadian tax system makes individuals responsible for reporting their own income and expenses to the Canada Revenue Agency (CRA). This means it's up to you to make sure you've included everything you're supposed to. This can get tricky at times, especially when you work two jobs, go to school and have a bank account - that's a minimum of 4 different slips to get a hold of.
Start a paper folder for your taxes - make a new one each year. Every time a tax slip comes in the mail, put it in your folder. When you receive a donation receipt, put it in your folder. When the CRA sends you a previous year's notice of assessment (which is a summary of your tax return that was filed - it shows how much tax you owed or were refunded), put it in your folder.
If your tax preparer asks you for a document this year, chances are they're going to ask for it again next year - so make note of it! Have a list in your folder of all items requested by your tax preparer that you didn't initially provide. Some examples of commonly missed items are rent receipts, gain/loss statements for your investment account, and tuition slips. If you've paid instalments towards your taxes during the year, your tax preparer will need to know how much you've already paid to avoid you making a double payment. Having these items ready for your tax preparer will save both of you time and money.
2) Inform your tax preparer of any significant changes in your life.
There are many credits which are only eligible to certain people. Getting married (or living common-law) may make you eligible for certain credits and transfers. Having children will make you eligible for a few tax credits and deductions related to children. If you've suffered from an unfortunate accident/illness, you may be eligible for the disability tax credit.
All of these amounts will be beneficial to you from a tax perspective. Changes in marital status also affect amounts such as the GST/HST credit that is paid to you throughout the year. It is best to inform the CRA as soon as possible if you have changed your marital status by filling and sending in form RC65, available here. If you fail to inform the CRA about your change in marital status, it may result in them paying you too much of a credit and you having to pay them back, with interest!
If you have moved, you also need to inform the CRA as soon as possible. The CRA explains here how to change your address - the simplest way to do so is over the phone, or online through My Account if you have set up online access. If you haven't signed up for My Account, I recommend you do so. You can register online and the CRA will send you an access code in the mail. This is a great service to get fairly up-to-date information regarding items such as the status of your tax return and carryfoward balances (such as RRSP limits, tuition carryforwards, etc.).
Also, make sure you tell your tax preparer about your move - you may be eligible to deduct moving expenses and/or claim a home buyer's credit if you meet certain conditions listed on the CRA's website.
3) Keep up-to-date records.
This tip is directed to those individuals who have a source of income/expense that a slip is not issued for at the end of the year. This includes self-employed individuals, employees claiming employment expenses and owners of rental properties. Everyone will have their own way of tracking things - the important thing is that it's kept up-to-date. I've already released my self-employed tracking template, and am in the process of working on one for employees and rental property owners. These templates will at the very least give you an idea of the information your tax preparer needs to complete your return. Avoid waiting until the last minute to go through a year's worth of receipts - it is quite a tedious process, but if done at intervals throughout the year it makes life a lot easier.
4) When in doubt, ask!
If you've heard about the next 'get rich quick scheme' that's supposed to save you thousands of dollars in taxes - talk to a tax professional before proceeding any further. The last thing you want to happen is to be fined by the CRA for tax fraud. A general rule is: if it seems too good to be true, it probably is. Yes, there are some types of investments that are called 'tax shelters' that can potentially save you tax, but I highly recommend having a tax professional and/or a financial advisor looking over the investment before putting any money in.
Fraudulent activities aside, if you're contemplating a transaction such as the sale of your rental property, it's best to seek advice in order to keep yourself informed. Your tax professional can answer questions such as how much tax you will have to pay on the sale of your rental property come tax time. You wouldn't want to be stuck in April with a huge tax bill you can't afford.
5) Don't wait until the last minute!
At the very latest, you should have all required documents to prepare you taxes by the beginning of April. For most people, you'll have everything you need to be ready by the beginning of March. Handing over your information to your tax preparer early gives them the time to review what you've provided, and request any additional information if necessary. This is important especially if your return is more complicated. If you hand in your tax documents April 29th, unless you're positive you've included everything required, it is unlikely you'll have your taxes filed correctly by April 30th.
If you'd like to share your ideas or tax time horror stories and what you learned from them, leave a comment!
Happy tax season!
Jacob