It’s February, and for many it’s the start of tax season here in Canada, as they get ready to file their 2015 Personal Income Tax Return – I’ve already had one client send me their tax information. But not many are that well prepared – one reason being that certain tax slips are not due to be issued until the end of March. So, how can you better prepare yourself for this coming tax season?
- First, be aware of the changes in tax law that may affect you. In Canada, the changes that were made in the last year relating to the 2015 personal tax year include:
– the elimination of the $50,000 income split allocation for families with children (pension income splitting remains in effect);
– changes in tax brackets and tax rates – the highest federal income tax bracket is now $200,000, with a top federal tax rate of 33%, and a top marginal tax rate in Ontario of 53.53% on regular income/salaries; the federal rate for the middle tax bracket ($44,700 – $89,400) is reduced from 22% to 20.5%;
– the Tax Free Savings Account (TFSA) contribution limit for 2016 is $5,500 (down from $10,000). TFSA room is cumulative. So, if you are 25 or older in 2015, and have never contributed to your TFSA, you can contribute $46,500 before the end of 2016;
– 2015 is the last year of the Universal Child Care Benefit (UCCB) – it is being replaced by the Canada Child Benefit (CCB) starting in July 2016.
- If it’s optimal for you, take advantage of making RRSP / RDSP contributions – the deadline to make your 2015 RRSP/RDSP contribution is February 29th this year.
- Open your mail as it comes in and keep separate file folders if you have a lot of different types of slips. Every year I get clients who bring in their tax slips in unopened envelopes. First, I wonder why they wouldn’t open their mail (What if the information on the slip is incorrect, or if it’s the wrong slip altogether? Or what if it’s a request that needs a response by a certain date?) Keep like slips together. I recommend keeping separate file folders for different types of slips/receipts (such as charitable donation receipts, T4 slips, T3 slips, T5 slips, RRSP slips, medical receipts)
- Have all your tax documents and support in order. If you self-employed (i.e., you run your business as a sole proprietor), or have interest in a partnership or rental property, gather, organize and summarize all your transactions into categories and put them in a spreadsheet (or on a piece of paper, or in a bookkeeping program such as QuickBooks or Freshbooks). Accountants and tax preparers really do not enjoy getting a shoe box or grocery bag full of disorganized slips…and it can add a significant amount to your accounting bill since it does take a lot of time to go through them and verify with you the business purpose and category of expenditure they relate to. The same goes for your revenue invoices and receipts. The more you can organize and summarize yourself, the more efficient the process of getting your tax return completed and filed.
- Keep your business transactions and documentations separate from your personal documents. If you make business purchases by credit card, I recommend keeping a separate card just for business purchases and don’t use it for personal items. It’s easy to get things mixed up, but the mistake of claiming personal expenses as business expenses can be a costly one when faced with a tax adjustment or audit.
- If you use your vehicle for business or work, keep a log of your business and total km’s travelled. If you don’t already keep a log, you’ll need some way of documenting and supporting your business usage claimed in your tax return.
- If you’ve been on top of your finances and track your transactions regularly, you should be able to estimate (or have your tax accountant estimate for you) your income and deductions/credits fairly quickly and early in the season. This will help you estimate your tax liability/expected refund and help you decide whether and how much RRSP contribution to make by February 29th. It will also help you determine what tax receipts/slips to expect and if you are missing any. T-slips are reported to CRA and can be verified if you think you are missing slips.
- Get your taxes done early. The deadline to file and pay your Canadian personal tax return is April 30th, without incurring penalties and interest on any amounts due. If you are self-employed, the deadline for filing is extended to June 15th but the tax payment due date remains April 30th.
The information reported in your tax return is ultimately your responsibility, not your accountant’s. Therefore you should at least be aware of the rules that apply to you, so that you are comfortable signing off on your return before it’s filed. Here are some helpful links to find further information:
For Individuals – http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/menu-eng.html
For Small Business Owners And Self-Employed Individuals – http://www.cra-arc.gc.ca/tx/bsnss/sm/menu-eng.html
If you have a specific tax or business question you want answered, or would like assistance with your return, feel free to send me a direct email.
Next month I will be sharing the “Top 10 Tax Risk Areas For Entrepreneurs”
Disclaimer: The information provided in this article has been written in general terms and is provided as broad guidance only. It is neither a definitive analysis of the law nor intended to replace or serve as a substitute for any accounting, advisory, tax or other professional advice, consultation or service . The application of laws and regulations may vary depending on specific facts or circumstances. Readers should discuss their specific situations with their professional advisors. Linda Spencer, CPA/CA does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.