Talking Tax for Friday, March 9, 2018
Lorn Kutner, chief taxation officer at Northwood Family Office
WHY TO FILE A TAX RETURN
Many Canadians who expect to be in a refund or who earn income that’s less than the personal tax credit ask themselves ”why do I need to file a tax return?” Well, here are a few reasons why:
- If you expect to be in a refund, then why let the government sit with money that you’re entitled to? They’ve had your money for part of 2018 and for all of 2017. Don’t you think it’s time for them to give it to you? If you’re expecting a refund, you should be filing your tax return as soon as the forms are available. That way, you can get your refund quicker and make your money work for you, rather than having your money working for the government.
- You received a salary during 2017 and, even if no tax will be due and no refund is expected, filing a tax return can generate RRSP contribution room (18 per cent of your salary) in the subsequent year. If you don’t file your return, that RRSP contribution room will be lost forever.
- You’re a student and, other than earning a small amount during the summer, you have no other income. Even though a student would not have taxes to pay, they need to file a tax return in order to substantiate the tuition tax credits available to them or their relative. A transfer of up to $5,000 (federal) of unused credits can be made to a parent, spouse or grandparent to help reduce their tax burden. The balance can be carried over indefinitely to be used to reduce the student’s taxes in the future.
So the moral of the story is you never know really what you’re entitled to until you complete your tax return. Don’t procrastinate: file your tax return and see what hidden jewels you might find.
WHAT'S MY LIKELIHOOD OF BEING AUDITED?
There’s a chance that someone with whom you have had a falling out with (a fired employee, a scorned lover, a jealous neighbour) could call the CRA and snitch on you in respect of a business expense that was actually a vacation, an unreported offshore account or even something that’s totally made up. This may be enough for the CRA to come knocking. However, it’s more likely that the CRA will select you for a review of a specific claim on your tax return, like:
- Expenses (especially those related to a car) claimed against commission income.
- A disproportionate interest expense in relation to the investment income reported.
- Medical expenses.
- Childcare claims.
In all the above cases, you’re just providing back-up information. These are not audits.
My advice: Don't panic. Answer the CRA’s questions as quickly and succinctly as you can. Treat it as if you were being questioned on a witness stand. Yes and no answers where possible and don’t elaborate beyond what’s asked.
2017 TAX CHANGES
- Canada caregiver credit (CCC): This is a new non-refundable tax credit that replaces the family caregiver credit — the credit for infirm dependants age 18 or older — and the caregiver credit. The new CCC amount is $6,883 or $2,150 depending on your family situation.
- Disability tax credit: As of March 22, 2017 nurse practitioners have been added to the list of medical practitioners who can certify the DTC.
- Tuition tax credit: Federal education and textbook credit eliminated.
- Children fitness and arts tax credits eliminated.
- Public transit tax credit eliminated effective July 1, 2017.