Tax season can be a stressful and confusing time for many Canadians. Far from a straightforward process, tax returns involve a good deal of knowledge, planning and diligence. Mistakes are relatively common and, if unchecked, can lead to penalties, incorrect refund amounts and even the much-dreaded CRA audit.
In this article, we cover the most common tax return mistakes made by Canadians along with the best ways to avoid them.
Mistake 1 - Inputting Errors
One of the most common mistakes taxpayers make is entering incorrect information on their returns. Simple inputting errors, such as misspelled names, incorrect social insurance numbers or outdated addresses can lead to processing delays and potential issues with credits and refunds. It is also easy to make math errors when filling out forms manually, which can lead to audit-triggering discrepancies.
Solution – Make sure to double-check all personal information and calculations before submitting your tax return. To help reduce the potential for input errors, use the CRA’s Auto-fill my return service to download your tax slips directly into your tax return. Whenever possible, it is also advisable to use a reputable tax preparation software that automates the calculations for you.
Mistake 2 - Misreporting Income
Failing to accurately include all sources of income is another omission made regularly by Canadians on their tax return. It’s essential to report all income received during the tax year, including employment income, self-employment income, rental income, investment income, and any other taxable earnings (including tips, casual work and side gigs).
Solution – Keep accurate records (either manually or using bookkeeping software) of all your income sources throughout the year including wages, interest, dividends, and any other earnings. Gather all necessary tax documents, such as T4 slips, T5 statements, and receipts for self-employment income. Double-check your records against these documents to ensure accuracy.
Mistake 3 - Missing Deductions and Credits
Deductions and credits are powerful tools for reducing your taxable income, yet the majority of Canadians still don’t claim everything they are entitled to. While this won’t lead to penalties or fines, it will likely mean paying more taxes than necessary. Some of the most commonly overlooked deductions and credits include:
- Moving expenses
- Charitable donations
- Childcare expenses
- Disability tax credits
- Medical expenses
- Professional association and union dues
Solution – Familiarize yourself with the CRA’s comprehensive list of deductions and credits you may qualify for. Keep track of all receipts and documents throughout the year that support your claims. Good tax preparation software can also help you identify the deductions and credits that apply to your specific situation based on your answers to simple questions.
Mistake 4 - Claiming Ineligible Expenses
While it is important to claim all the deductions and credits that you are entitled to, it is equally important to avoid claiming ineligible expenses, as this can land you in hot water with the CRA. Some common examples of expenses that taxpayers mistakenly claim include:
- Moving expenses that do not meet the criteria of moving at least 40 km closer to a new place of work or study
- Personal expenses that are not related to earning income, such as clothing, grooming, or entertainment
- Medical expenses that are not supported by receipts or prescriptions, or that are reimbursed by an insurance plan
- Charitable donations that are not made to registered charities or that exceed the limit of 75% of your net income
Solution – To avoid claiming ineligible expenses, you should always check the CRA website for the rules and requirements for each deduction or credit that you claim. You should also keep any receipts and documents that prove your expenses in case you are asked by the CRA to verify them.
Mistake 5 - Not Realizing Some Benefits are Taxable
Many Canadians receive benefits from various sources including employment insurance (EI), Canada Pension Plan (CPP) and Old Age Security (OAS), as well as emergency relief benefits like the Canada Emergency Response Benefit (CERB) that was provided during the pandemic. Be aware that some of these benefits are taxable, meaning if you do not report them correctly, you may end up owing taxes or having to repay some or all of the amount provided.
Solution – Check all your benefit statements and slips carefully and report them on the appropriate lines of your return. You should also verify if any taxes were withheld from these benefits and claim them as credits on your return. Some benefits may also affect your eligibility for other benefits, such as GST/HST credit or Canada Child Benefit (CCB), so you should update your information with the CRA whenever there is a change in your situation.
Mistake 6 - Not Keeping Receipts and Slips
Not all Canadians are aware of the CRA’s requirement that taxpayers must keep their receipts and slips for at least six years after filing their returns. The CRA can ask you to provide supporting documents for any income, deductions, or credits that you report and if you do not have these documents, you may lose your entitlement to tax benefits or face penalties for failing to comply with the CRA’s request.
Solution – Keep all your receipts and slips in a safe place, organized by year and category. As ink has a tendency to fade over time, it is also advisable to scan and store them electronically, ensuring they are readable and accessible. Be aware though, the CRA will only accept receipts that include the date of payment.
Mistake 7 - Misreporting Marital Status
Misreporting your marital status can affect your eligibility for certain benefits, such as the GST/HST tax credit or the Canada Child Benefit. It can also impact your ability to pool or transfer certain tax credits when optimizing claims for medical expenses, charitable donations and pension splitting.
Solution – Familiarize yourself with how the CRA defines different types of relationships and when they require you to report a change in your status. Generally, you are considered common-law partners if you live together in a conjugal relationship for at least 12 consecutive months, or if you have a child together by birth or adoption. Inform the CRA as soon as possible when your marital status changes using one of these methods:
- Online via the “Change my marital status” service in My Account
- Select “Marital status” in the MyBenefits CRA or MyCRA mobile apps
- Call the CRA directly 1-800-387-1193
- Via mail by completing Form RC65 – Marital Status Change
Mistake 8 - Not Transferring Unused Tax Credits to Family Members
Some tax credits are non-refundable, which means they can only reduce your tax payable to zero, but not create a refund. However, if you have unused amounts from certain non-refundable credits, such as tuition fees, disability amount, age amount, pension income amount, or medical expenses, you may be able to transfer them to your spouse or common-law partner. In some cases you can even transfer credits to other eligible family members, for example, unused tuition tax credits can be transferred to a parent or grandparent.
Solution – Consult the CRA’s guidelines on transferring credits and check Schedule 2 of your return to see if you can transfer any unused amounts to another family member who can benefit from them. You should also coordinate with that person to make sure they claim these amounts on their return.
Mistake 9 - Missing the Tax Deadline
One of the most costly mistakes Canadians make on their tax returns is missing the deadline. If you owe taxes and file late, you will face a late-filing penalty of 5% of your balance owing, plus 1% for each full month that your return is late (up to a maximum of 12 months). You will also pay interest on any unpaid taxes.
Solution – Follow NVS on LinkedIn and Facebook to stay on top of all the important tax dates for the year! Mark the tax filing deadline on your calendar and set reminders to ensure you don’t miss it. Start preparing your return as early as possible in case you run into any issues or delays. Filing online through the CRA’s NETFILE service is your fastest option which provides instant confirmation of receival.
Mistake 10 - Not Fixing Mistakes on Previous Returns
In life, it always pays to correct your mistakes and your tax return is no exception! If you find a mistake that you made on a previous tax return, it’s essential to correct it rather than ignore it.
Solution – The CRA allows you to request changes to your tax returns for up to 10 years after filing. Once you have received your notice of assessment you can request an adjustment using one of the following methods:
- Online through My Account using the improved Change my return service
- Online through ReFILE using certified tax software with access to NETFILE
- By mail using Form T1-ADJ, T1 Adjustment Request
The CRA will review your request and send you a notice of reassessment indicating the changes made to your return, or a letter explaining why the CRA did or did not make the changes you requested.
Final Thoughts
Filing your tax return accurately and completely is crucial to avoiding penalties and potential CRA audits, while at the same time maximizing your tax savings. By being aware of common tax return mistakes and taking steps to fix them, you can save time, money, and future headaches. For more tax tips, check out our guide on the 7 Steps to a Stress-Free Tax Season.
This article was written by the NVS Professional Corporation team, your knowledgeable Barrie and Markham accountants.
