Written by Christopher Liew, CFA at The Motley Fool Canada
Canadians find the country’s tax system somewhat complicated and wish the filing of tax returns could be simpler and less cumbersome. The Canada Revenue Agency (CRA) requires strict compliance with the process but will assist every taxpayer in maximizing their tax savings and minimize penalties as much as possible.
Avoid these common mistakes
Many taxpayers commit mistakes when filing their tax returns. Canada’s tax police notes the common mistakes year after year.
Late filing of tax returns or missing the filing deadline is a popular mistake that could be costly. April 30 is the typical deadline set by the CRA every tax season. If the date falls on a Sunday, the postmarked date should be on or before May 1. Self-employed individuals have until June 30 to file their returns.
Not reporting all income
Failing or not reporting all sources of income could prompt the CRA to audit a taxpayer and impose applicable penalties. Income covers employment, self-employment, rental, and investment.
Overlooking allowable deductions and credits
Overlooking or not identifying the correct deductions and credits could lead to more tax bites than tax savings. Claiming ineligible expenses, knowingly or unknowingly, to reduce taxes reduction raises a red flag. It would help to check with the CRA certain expenses that do not qualify as deductions.
Incorrect reporting of marital status
The CRA is strict regarding married couples and conjugal relationships (living together for 12 continuous months). While all Canadian taxpayers file their own tax returns, indicating the correct marital status and providing the spouse’s or common-law partner’s information is necessary.
Misreporting your marital status as single could mean returning benefits or the excess amount received from additional benefits like the Canada Child Benefit (CCB) or GST/HST tax credit.
Trashing receipts and slips too early
If you claimed expenses, such as childcare, medical, tuition, employment, and others, on your income tax returns, don’t immediately trash official receipts and slips. The CRA advises maintaining them for six years if they ask you to produce documentation during a review.
Life-long, tax-free income
Holding income-producing assets like dividend stocks in a Tax-Free Savings Account (TFSA) is one way for Canadians to offset taxes owed to the government. Since all interest, gains, and income inside the investment account are tax exempt, TFSA users can earn tax-free income for life.
Unlike the Registered Retirement Savings Plan (RRSP), the TFSA never expires. You can keep it open and hold a blue-chip stock like BCE (TSX:BCE) as long as you want. Canada’s largest telecom firm is a generous dividend payer. At $54.85 per share, you can partake in the hefty 7.07% dividend.
In the second quarter of 2023, postpaid mobile phone net subscriber activations reached 111,282, the best second-quarter results for BCE in 18 years. The acquisition of IT services and consulting firm FX Innovation positions BCE as a tech services leader.
The $50.15 billion industry leader never missed a quarterly dividend payment for more than 50 years, not to mention the dividend-growth streak of 14 years. Despite the capital-intensive business, BCE generates billions of dollars in revenue annually. There’s zero doubt about the sustainability of dividends for years to come.
The CRA believes the common mistakes Canadians make on their tax returns are avoidable, and a problem-free tax season is possible.
The post CRA Update: Common Mistakes Canadians Make on Tax Returns appeared first on The Motley Fool Canada.
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