Personal tax season is approaching quickly! We wanted to provide a general guide on how to get ready for submitting your income taxes.
Collecting your information
Missing information is the most common place to make a mistake when filing your tax returns. There are a lot of tax forms and other paperwork to consider when preparing your return; or collecting your paperwork for your accountant.
Here are some common tax slips and other important documents to consider:
· T4 – Employment income – this will come from your employer and summarizes wages for the year
· T3, T5 – Investment income – these slips will show dividends, interest, and trust income that you receive from non-registered investments.
· T4AP, T4OAS – These show income from your CPP Pension and Old Age Security, if you are experienced enough to receive these amounts!
· T4RSP, T4RIF – These slips show income drawn from your RRSP, or from your RRIF, if your RRSP has been converted at age 71.
· T4E – this shows any income you have from Service Canada for Employment Insurance – most commonly for unemployment or paternity benefits.
· RRSP Contributions – if you’re contributing to an RRSP, either on your own or through your employer, you should receive a contribution receipt for March – December 2021, as well as one for January/February of 2022.
· Charitable Donation Receipts – any registered charity that you have donated to during 2021 should issue you a receipt listing the eligible donation amount, as well as their registered charity number.
· Medical expenses – if you have significant medical expenses (there is a threshold you must exceed to get credit), the cost of out-of-pocket expenses is a tax credit.
· Temporary Flat Rate Method for Home Office Expenses – this deduction introduced in 2020 has been extended to 2021 and 2022. If you worked from home at least 50% of the time for at least four weeks, you are eligible to claim a $2/day deduction without any supporting documentation required for every day you worked at home. This is for working days – so don’t include any weekends, statutory holidays, or vacation days you didn’t work from home.
A full general tax preparation checklist can be found here on the RLB website – alternatively contact your accountant for a checklist personalized to your situation.
If you are self-employed, you’ll need to summarize your income and expenses – you can find a template here to help put things in the right category to report. Keep in mind if you have taxable sales over $30,000 per year you are required to register for HST.
Similarly, if you have a rental property, you’ll need to summarize your rent collected and your expenses against that rent.
For both self-employment and rental income, anything you pay out of pocket to earn income is an expense against income. Make sure you consider vehicle expenses, home office expenses, and parking.
Preparing to file
Once you have all your information and documentation, you can get ready to file! Using a tax professional is a great option if you aren’t comfortable with the process of filing tax returns, or if you have complex tax issues such as capital gains or investment properties. Providing complete information to your tax preparer is important to help ensure nothing gets missed. Consider including a copy of your 2020 tax return as well as your Notice of Assessment with the information you give to your tax preparer.
You can also file your return on your own. CRA provides a number of free electronic filing options on its website here. It is recommended to review your 2020 tax return before completing 2021 to make sure there isn’t a tax slip that hasn’t arrived in the mail yet, and that everything makes sense when you compare year to year. It is very important to make sure you report all income as there are severe penalties for unreported income.
Other questions to consider
Did you move? Make sure that you report your current address on your tax return so that CRA can contact you with any issues or requests. If you sold your principal residence, you must report the sale, even if it is tax free under the principal residence deduction.
Did you have a change in marital status? Make sure you tell CRA, as changing your status can have significant effects on some credits like the GST/HST credit, Canada Child Benefit, and more. You can update your status on your tax return, or during the year by following steps on the CRA website.
Do you own foreign property? If you own income producing assets outside of Canada, you may have special reporting requirements to consider. Contact your accountant as there are significant penalties for missing required disclosure to Canada Revenue Agency.
If you have tax questions, or a situation not included in this general guide, reach out to a tax professional today! They can help simplify the process and make sure that you’re reporting everything you’re required to as well as keeping as much money in your pocket as possible.
Mike McGinnis, Manager, RLB LLP