9 Expensive Mistakes Canadians Make When Filing Tax Returns
By Pavel Yuriev
#1 Doing it yourself when it comes to taxes
Income Tax is a Game, and the Rules are complex. There is a lot of money at stake when it comes to tax matters. Therefore it is always a good idea to seek professional tax advice. Remember, your Tax Coach is an asset, not an expense. Saving on professional help in this case simply means stealing money from your business or your family.
#2 If you claim to be self-employed you must be able to prove it
More and more Canadians fall into this trap every year – people who get “gross” cheques from their employers declare themselves self-employed only because the boss tells them that they are. If this is the case with you, contact your Tax Coach immediately to see if you qualify. If you don’t, the consequences could be severe: the CRA will disallow all your “business” expenses, and you will have to pay EI, some extra taxes plus penalties and interest.
#3 Reporting income on Line 104
Be careful when putting any significant amount on Line 104 of your income tax return. In most cases the CRA will send you a letter asking for explanation. It is no secret that many business people try to avoid paying the CPP (and in some cases EI premiums) by entering their income on that line. Ask your accountant or Tax Coach if you can report any amount on Line 104.
#4 Tuition, education and textbook amounts
People often forget about Form T2202 which can be obtained from college/university. You need to attach this form to your paper tax return in order to be able to claim tuition and education credit. This credit is transferrable between spouses. In case of children, if a student cannot use it (his or her income is too low and will not be taxed), the credit can be transferred to a parent or grandparent up to $5,000. In this case the student should sign the reverse side of the Form (sometimes people forget to do that). Schedule 11 should be filed only with the student's income tax return, and not with the return of the individual claiming the transfer.
#5 Childcare expenses
Many new immigrants forget to pay their parents for babysitting their kids. Grandparents who are new to Canada normally have little and no income – and therefore in most cases this money will not be taxed in their hands. Also, don’t forget that child care expenses can include fees paid to or other recreational activity for after-school classes. The primary reason for enrolling the child in the activity should be to allow a parent to perform duties of employment.
#6 Moving expenses
Expenses must be the result of moving at least 40 km closer to the new place of work than your previous home. Amounts are deductible against employment or self-employment income earned at the new location. The expenses should not exceed the taxpayer’s income from business or a job at a new location (you can deduct the unused part of those expenses from employment or self-employment income earned at the new location in the following years). You cannot deduct your moving expenses from any other type of income, such as investment income or Employment Insurance benefits, even if you receive this income at the new location. The following are some examples of costs which are not deductible as moving expenses: expenses for work done to make your old home more saleable, any loss from the sale of your old home, or
Recruiting
<img src="http://brightcove.vo.llnwd.net/d6/unsecured/media/1079018831/1079018831_1733252059_08-15-08---Recruiting-Thumb.jpg?pubId=1079018831"/>The Big Ten football coaches want you! (08/15/08, Big Ten Football)
Hamm Brothers Talk Competition
<img src="http://brightcove.vo.llnwd.net/d6/unsecured/media/1079018831/1079018831_1670012760_07-15-08-Hamms-Oly-Th.jpg?pubId=1079018831"/>Paul and Morgan Hamm talk about their goals of winning a medal at the Beijing Olympics and the memories formed in the competition. (Big Ten Gymnastics, 07/2008)
Big Ten Gymnastics Championships - Men's Individual Results
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1490306747_26ee160814f429a14734ca413f00bc58c111e3f7.jpg?pubId=1079018831"/>The Big Ten crowned it's individual champions in men's gymnastics on Friday night. (Big Ten Gymnastics)
Big Ten Gymanstics Championships - Men's Team Results
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1490148577_286a690e730b40cb4126e700628f04f3b5dddb4f.jpg?pubId=1079018831"/>Penn State takes advantage of the home crowd and walks away with the 2008 Big Ten Men's Gymnastics Championship.
Georgia at Michigan - Gymnastics Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1450935258_0455c7634cdeec110807ce9d159ab2ae9d3b3aa5.jpg?pubId=1079018831"/>No. 4 Michigan knocked off the three-time defending national champion and current No. 1 Georgia on Friday with a season-high 197.600-196.950 victory in front of the seventh-biggest crowd at Crisler Arena. (Michigan Gymnastics)
Minnesota at Michigan - Women's Gymnastics Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1423475404_cf60abc851f9fabe9f4d9c73e990230366eda6eb.jpg?pubId=1079018831"/>The No. 5 Michigan women's gymnastics team put up a season-best score of 196.875 to knock off Minnesota (192.675) at the Coaches Care Challenge Pink Meet. (Michigan Gymnastics, Minnesota Gymnastics)
Michigan State at Illinois - Women's Gymnastics Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1423475422_f2d78fe488a904d4a26378193582d8eb45867d83.jpg?pubId=1079018831"/>The Fighting Illini women's gymnastics team fell to No. 22 Michigan State by a score of 194.750-194.425 Saturday night in front of 1,059 fans at Huff Hall. (Illinois Gymnastics, Michigan State Gymnastics)
Ohio State at Iowa - Women's Gymnastics Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1414306130_416f64071d0198536e84bddac86208428b7e6e61.jpg?pubId=1079018831"/>Ann Kreiter of the Big Ten Women's Show brings you highlights of the gymnastics action between Ohio State and Iowa. (Ohio State Gymnastics, Iowa Gymnastics)
Illinois at Iowa - Women's Gymnastics Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1395221459_0fdf1d897826f0127f6bac8c8c251df4b05d2090.jpg?pubId=1079018831"/>The No. 22 Fighting Illini Women's Gymnastics team defeated No. 25 Iowa on the road Friday night by a score of 193.650-192.975. (Illinois Gymnastics, Iowa Gymnastics)
Michigan State at Michigan - Women's Gymnastics Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1395221457_576abfca0c03d38ad69bf0870cf4ad26af930437.jpg?pubId=1079018831"/>The sixth-ranked Wolverines put up their highest score since last season against the Spartans in a 196.750-194.550 victory over No. 24 Michigan State. (Michigan State Gymnastics, Michigan Gymnastics)
Michigan at Penn State - Women's Gymnastics Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1386385995_db12c4742c6a204b1e9dec0344f0bc827be1525a.jpg?pubId=1079018831"/>Big Ten competition got underway with a battle between Michigan and Penn State. No. 6 Michigan held on for a 195.275-195.100 victory over No. 14 Penn State. (Michigan Gymnastics, Penn State Gymnastics)
Windy City Invitational Highlights
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1377954615_75c6dd0e66d8f329921c6c668718c5dce8d12f24.jpg?pubId=1079018831"/>Highlights from the Windy City Invitational, where Illinois took second.
Coach Golder talks Windy City Invitational
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1377954504_f5db2f9dcb0b78293db1171b3b610f6408b67612.jpg?pubId=1079018831"/>Michigan gymnastics coach Kurt Golder talks abotu Michigan's season so far and their performance at the Windy City Invitational.
Coach Hayasaki on Windy City Invitational
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1377937249_ab732c872671ed352b7571e0f965aa897b4e5272.jpg?pubId=1079018831"/>Illinois coach Yoshi Hayasaki talks about his team's performance at the Windy City Invitational and looks ahead to conference action.
Lindsey Bruck on Michigan Gymnastics
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1377922815_663fb6a5cc36642d0cadbb3ea302d985c9e4076c.jpg?pubId=1079018831"/>Lindsey Bruck talks Wolverine gymnastics with Ann Kreiter.
Caray Fagan Talks OSU Gymnastics
<img src="http://brightcove.vo.llnwd.net/d5/unsecured/media/1079018831/1079018831_1377922812_242c44f22a898681de70c4b135f27f5da4a422c0.jpg?pubId=1079018831"/>Ohio State's women's gymnastics coach Caray Fagan talks with the Big Ten Women's Show about her team's season so far, including a big win over Maryland.
expenses for house-hunting or job-hunting trips before you move.
#7 Business expenses – rounding up the numbers and putting big amounts into one category
These mistakes are pretty common among small business owners. Unless you want to invite a CRA auditor into your office never ever round up your expenses. It just shows everybody that you are a lousy bookkeeper, and have no clue how to keep your records properly. It is always a good idea to break your expenses down into multiple categories to avoid showing big numbers on any particular line. As long as your business expenses are legitimate and 100% deductible, it doesn’t matter where you claim them. For example, business cards could be claimed as promotional expense or office expense: CRA would allow the claim in both cases - as long as you have printed a “reasonable” amount of those cards.
#8 Charitable donations
Giving money to charities is a good and noble thing to do. But beware of the so called “tax shelters”: these are deals set up by savvy tax planners and lawyers who spot a loophole in the tax system. They can offer a big tax break, but are always challenged by the taxman. One current popular example is what is known as gifted trust arrangements that swell the value of your donation to charity through a complicated series of maneuvers. Anyone who puts their money into one of these charitable donation schemes is just asking CRA to put a red flag on their return. If your tax shelter is successfully challenged by the Canada Revenue Agency (which is the case for an absolute majority of those shelters), you can lose your deduction for that year. You will also almost sure face a penalty plus interest, and that's not to mention the stress.
#9 Caregiver amount
Taxpayers (especially new immigrants) often miss this credit. Here are the rules:
If at any time in 2007 you maintained a dwelling where you and one or more of your dependants lived, you may be able to claim a maximum amount of $4,019 for each dependant. Most relatives who are 18 or over at the time they lived with you fall into this category if they were dependent on you due to mental or physical impairment. In case of parents the latter condition does not apply – but they should be at least 65 years old in the year you make a claim. With the exception of dependent children and/or grandchildren, eligible dependants must be a resident of Canada at any time in the year. Also, the dependant's entire net income should not exceed $17,745 for 2007.
Pavel is a Tax Coach, founder of 777 Taxes Inc. The company helps Canadian small business owners to legally minimize their taxes. Pavel can be reached at pavel@777taxes.com. Go to www.777taxes.com for more information.
