When getting your documents together to file yourself or to have a tax professional file for you, it is important to include all your tax information: your income plus your deductions or credits.
If you miss some information, you could be missing out on some tax savings or worse, it could result in penalties and interest.
Taxable Income
In Canada, you are required to report all world-wide taxable income. Most income is reported on official tax slips: T4 income from employers, T3 and T5s from our savings and investments, T4A from our private or employer pensions, etc.
Each year, CRA performs what is called the T1 Matching Program. They compare all the tax slips issued by various employers and issuers and make sure they have been claimed by the individual whose SIN appears on the slip. If you forgot to include this income, CRA adds the income and sends you a Notice of Reassessment. And you owe CRA more money. Either paying back some of the refund you received earlier, or now you owe more than you had paid. You owe both the taxes on this income and the interest since the filing deadline.
And if this is not the first year you have missed reporting some income, CRA adds penalties.
Repeated Failure to Report Income Penalty
If taxable income from a tax slip is missed and CRA catches later, you will be reassessed and normally owe some taxes plus interest; if is not the first year you forgot to include any income, CRA can assess penalties too.
If you missed reporting income to the CRA for more than one year, you face a “repeated failure to report income” penalty; if you failed to report income for a tax year, and in any of the three preceding years. Penalties include 10% of the unreported income (5% federal + 5% provincial), plus interest, and potential gross negligence penalties.
These penalties are harsh! Note the penalty is NOT based on the taxes you owe, it is based on the unreported INCOME. The normal penalty for missed income is based on the taxes owing. This penalty is much higher!
Often Missed Taxable Income
Some income is not officially reported on tax slips, but that does not mean you do not need to report it. Almost all income you earn needs to be included. Some often missed income includes Tips and Gratuities if you are in the service industry. Or if you are self employed or paid by someone else for services include casual home care, clearing snow, and more. And if you are receiving pension income from another country, you also need to include this income. We often see pension income from Germany or the UK.
More tools are being used by CRA to find out about these sources of income that are often missed, so do not think that CRA will not find out about them. CRA has conducted more audits on the restaurant industry to find unclaimed tips. And CRA receives info from foreign countries about pensions paid to Canadians, they receive income reports from the digital economy such as Uber, Airbnb, Etsy, etc. I think with expanded technology tools, CRA will find out more about any income we receive and check if we are not reporting.
Not Taxable Income
There are only a few sources of income that do not need to be reported. Those providing foster care to children and adults that are paid by the provincial government: this income is not reportable and not taxable.
Other types of income that are also exempt from CRA’s list of income to include are: disability income you receive when you paid 100% of the premiums, including income you receive from MPI if you were in an auto collision. Also, Veterans Affairs pension is not reported and not taxable. But there are very few sources of income that are not taxable.
Deductions And Credits (Often Missed)
CRA relies on you to report your deductions and credits. They will not correct your taxes if you forget to claim them.You could be missing out on valuable tax savings!
This is why I ended up in the tax business over 20 years ago.
I was a financial advisor and when I did a quick review of my clients’ tax returns, I would often see deductions or credits missed. I offered to help them fix their tax returns and file them for the current and future years. That first year I filed 40 tax returns. And it has blossomed into about 3,000 tax returns each year. We have had to cap it at about 3,000. We are at capacity. I do not want to grow it beyond what we can handle and still provide quality tax returns that include all the deductions and credits you can claim and make sure you do not forget any income you normally report. We want all our clients to be CRA compliant and yet pay the least amount of taxes legally possible.
Missed deductions
The most common missed deduction is the RRSP contributions made from Jan 1 to Mar 1 each year (Mar 2 this year). That is because the slip is only issued normally in March. Many people end up filing without it and never adjust the taxes later. CRA does not correct it for you, even though they do have the information.
When we get new clients that contribute to their own or spousal RRSP, after tax season, we will review their past 10 years. And almost all of them have missed some contributions. We found them some refunds!
Most of these deductions are correctly reported by taxpayers: union dues, professional fees, investments fees on regular accounts (not for RRSP, RRIF, TFSA, etc).
If retired clients do their own taxes, they often do not correctly calculate the pension income splitting or miss the pension income amount.
Credits sometimes missed
All credits are voluntary based. CRA will not add them for you. I have even seen some obvious credits missed by the taxpayer, but CRA still does not include them even though CRA has the info on file: disability tax credit, pension income amount, age credit, etc.
And if your child was recently approved for the Disability Tax Credit, the Canada Child Benefit will only be back paid for three years. We have helped many clients go back to the year the DTC was approved for.
If you miss deductions or credits, CRA often does not know and will not advise you. Only your friendly professional tax preparerswill ask you lots of questions!
For our existing clients, we check for missed items by comparing what you gave us this year to previous years. We want to maximize your refund or reduce your amount owing as much as possible.
If you think your taxes are correct and complete “because I always get a refund”, you may be missing out! You just don’t know about it. You don’t know what you don’t know.
Anni Markmann is a Personal Income Tax Professional, living, working, and volunteering in our community. Contact Ste Anne Tax Service at 204.422.6631 or 36 Dawson Road in Ste Anne (near Co-op gas bar) or info@sataxes.ca