Every year it arrives like clockwork, yet the end-of-April tax filing deadline still manages to catch some Canadians off guard, sending them scrambling to file at the last minute.
This year, they’ll get a 24-hour reprieve, but many will still miss out on all the deductions and credits to which they are entitled. The reason for the reprieve — April 30 falls, which is a Sunday, so the tax filing deadline is extended to May 1st at midnight. The reality is that even with the extension, it won't matter much to those who plan to ignore the deadline.
First, take the time to figure out which deductions and credits you will be entitled to. No one wants to pay more than they have to. Look for opportunities to split income with family members, including medical expenses and charitable receipts. The three Ds of tax planning can help reduce amounts owing – deduct, defer and divide income every chance you get.
If you have investments, consider the following:
- Your interest on investment loans is tax deductible, if the investment is made with a reasonable expectation of earning a profit. This deduction is not available if the investment is made through an account which is already tax-deferred, such as an RRSP.
- Investors may also be able to deduct certain investment-related fees they pay, such as charges for the management and safekeeping of investments, investment-related accounting fees and fees for investment counselling. Have your receipts handy.
- If you decided to lend money to a family member for the purposes of investing so attribution rules wouldn’t kick in on the income generated, you must have charged them interest on the loan. The good news is that Canada Revenue Agency (CRA) kept that prescribed interest rate at on per cent.
Here's how it works: if you decided to lend a family member say $10,000 to invest in the market, provided they made an interest payment of one per cent on the amount by Jan 30 of this year, any income generated on the money will be taxed in their hands and not yours. Assuming they are in a lower tax bracket, this is a great way to split income with family members. They never actually have to repay the loan and the one per cent remains in effect for as long as the loan is outstanding. Where this falls apart is if there’s no proof of interest payments annually.
If you think you will owe money to CRA, even after all the applicable deductions and credits, experts in the field strongly suggest you file on time – even if you do not have the money you owe. You will still face interest charges on the amount owing, but you will avoid the five per cent late-filing penalty. And if you still think filing on time isn't going to happen, but know that you will have a balance owing, try to make a payment by May 1st, to reduce the late-filing penalties.
No one likes to pay taxes, but we do have to file and there is a deadline. The upside is, if you are getting money back, you get to put it to good use that much sooner.
Have you filed your taxes yet?