Help Your Clients Avoid Mistakes This Tax Season
Tax season can be a stressful time for many Canadians as filings can be overwhelming and complicated, especially for those facing a large tax bill.
This is where you come in as a trusted professional.
There has been a noticeable shift in the employment landscape, with many employees and retirees migrating from a conventional 9 to 5 job with an employer to a work-from-home and small business endeavour. Self-employment is booming, and so are the tax consequences.
Canadians over the age of 55 could find themselves in a challenging position if they owe money to the Canadian Revenue Agency (CRA) and haven’t been living, spending, and thinking in pre-tax dollars.
According to a recent report by H&R Block Canada, 85% of those surveyed feel their income is not keeping pace with the cost of living. As a result, 28% have taken on a side gig to boost their income in the past year. What’s even more alarming, however, is that 44% said they are willing to run the risk of not declaring all of their income on their annual tax return.
Failure to report all income is considered tax evasion and is illegal.
In this blog, I’ll review options, common filing mistakes and best practices you can share with your clients to ensure the CRA doesn’t come calling.
Mistake one: Failing to report all income.
Whether it is the sale of an asset, money from a side hustle, freelance work or investments, all income needs to be reported. Failure to do so can result in penalties, interest charges or worse. Be sure that your clients keep track of all sources of income throughout the year, including all T4 or T5 slips received.
Mistake two: Forgetting to claim all eligible credits and deductions, such as medical expenses and charitable donations. Keep records of all payments.
Mistake three: Claiming ineligible expenses can result in an audit and potential penalties. The CRA will be looking for unreasonable amounts expensed or reimbursements made by a previous employer. Don’t stretch the rules. Reasonableness rules the day and, as an expert, you can guide your clients to ensure the right claims are made.
Mistake four: Filing late or not at all is never a good idea. The CRA may impose significant penalties and charge interest. Additionally, there may be missed opportunities for eligible refunds and credits. The tax filing deadline is April 30th, 2023.
Mistake five: Not keeping current and accurate records. Sloppy accounting or a lack of understanding is not an excuse to not pay taxes. Encourage your clients to keep organized records or to speak with a tax professional to minimize the risk of missed deductions and credits and prevent any potential audits.
As H&R Block reminds us, if there is no T4, the onus is on the taxpayer to keep accurate records and maintain receipts for at least six years, as a request for an audit can happen anytime during that period.
If money is owed to CRA, here are a few options to explore:
- Consider drawing down on cash accounts.
- Consider liquidating a portion of the investment portfolio to free up some cash.
- Consider taking some of the value out of a home by way of a reverse mortgage, if over the age of 55.
- Using a line of credit on a short-term basis.
- Consider filing an extension request with CRA.
In conclusion, having a large tax bill can be overwhelming, but avoiding common mistakes will not only give your clients peace of mind but potentially save them money in the long run.
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~ Pattie Lovett-Reid
Chief Financial Commentator
- Posted by ajoshi
- On April 11, 2023
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