Don’t make these mistakes on your tax return
Preparing your tax return can be a daunting task which likely explains why 70% of individuals and businesses engage tax preparers to help them wade through the complexities of filing.
Each year, the Canada Revenue Agency identifies common errors in personal tax returns. In recent years, the CRA disallowed almost one of every five claims that were made for key tax credits and deductions and assessed over $1-billion in additional tax, primarily by comparing information on taxpayer returns to information provided by employers, financial institutions and other sources.
Making an error on your tax return can be costly for you as a taxpayer because if, for example, income is not reported or if deductions are claimed erroneously, the CRA will charge interest on any overdue tax amounts that you may owe. The interest rate charged by the CRA is currently 5% and is not tax deductible. If you fail to file your tax returns on time or under-report your income, you can incur significant penalties as well.
The CRA is taking the problem of tax return errors seriously, as evidenced by the recent proposal calling for the registration of tax preparers, which is intended to identify and address common and recurring errors made by tax preparers before tax returns are filed.
Here are a just a few of the most common adjustments identified by the CRA to be aware of when you file your 2013 return.
Reporting information from tax slips
If you’ve moved recently, be sure that you gave your new mailing address to all financial institutions at which you have financial accounts so they can send you all of your 2013 tax slips. It’s often a good idea to compare the tax slips that you receive for the current year to slips you’ve received in the past, to see if any might be missing. If you haven’t received an expected slip by the end of March, you should contact the issuer to request a duplicate.
On your 2013 tax return, you should report all RRSP contributions made from March 2, 2013 to March 3, 2014, even if you don’t plan to claim them in 2013, perhaps because you expect your marginal tax rate to be significantly higher in a future year. Reporting RRSP contributions correctly allows the CRA to determine which contributions are still available for deduction and to properly calculate your RRSP deduction limit.
If you want to claim a deduction for a contribution that was made prior to the current tax year and the contribution was not reported on a previous tax return, you should file Schedule 7 – RRSP Unused Contributions, Transfers, and HBP or LLP Activities for the appropriate year separately from your current year’s tax return.
Foreign tax credit
If you have investment income from outside Canada, such as dividends on shares of foreign corporations, be sure to use the correct foreign exchange rates when calculating foreign income and any foreign taxes paid. While you can use the average exchange rate for foreign income earned in the year, when calculating the gain or loss on investments sold in 2013, you should use the actual daily exchange rates on the dates of purchase and sale.