Filing income taxes is a complicated process, so it’s not surprising that taxpayers often get things wrong on their returns. Sometimes, your mistake could have you paying more in taxes than you should. In other situations, you may have to give back the benefits you already received or face penalties or other fees. To help you get your return right the first time, we’ve come up with a list of the most common mistakes Canadians make on their taxes. But, if you already made one of these errors and want to know, “How do I fix a mistake on my tax return?” — don’t worry. We also explain how to correct your tax return after you’ve filed.
Mistake #1: Forgetting Allowable Deductions or Credits
It’s hard to know which income tax deductions and credits you qualify for from year to year, especially since the government continually tinkers with the rules for existing tax breaks, adding new ones and eliminating others. If you don’t claim all the deductions and credits you are entitled to, you’ll pay more taxes than necessary — which you obviously want to avoid.
Some of the more frequently overlooked credits and deductions include:
- A non-refundable tax credit for interest you paid on student loans;
- A tax deduction for union or professional dues;
- The $5,000 non-refundable home buyer’s tax credit, for those who bought a qualifying home in the past year and have not lived in a home they (or their spouse) owned in the past four years;
- A tax deduction for work-related expenses that you paid for out of pocket — even if you are salaried. This year, the CRA has made it even easier to qualify for this deduction if you worked from home during the COVID-19 pandemic.
One of the benefits of using tax software to file your taxes is that the better ones, such as TurboTax, will ask you a series of questions to determine which of the more than 400 deductions and credits you may be eligible for. That means you won’t leave tax savings on the table.
Mistake #2: Claiming Ineligible Expenses
On the flip side of missing tax breaks is claiming deductions or credits that don’t exist. According to the CRA, one of the classic examples here is related to moving expenses.
Taxpayers who move at least 40 km closer to a new place of work or to study full-time at a post-secondary program can deduct a variety of moving costs, including transportation and storage, travel expenses, utility hookups and disconnections, and fees for cancelling a lease. But some taxpayers push the envelope by writing off ineligible expenses such as home staging, household repairs, and the cost of having their mail forwarded to the new address.
Similarly, some students try to claim the student loan tax credit on interest fees they paid on personal loans, student lines of credit, or foreign student loans — even though these forms of borrowing are not eligible for the credit.
Mistake #3: Getting Rid of Slips and Receipts
With the rise of online tax filing, which does not require taxpayers to send in all their slips and receipts along with their returns, some people fail to keep that paperwork handy. This is a problem since the CRA can (and often does) request to see receipts for things like childcare expenses, charitable donations, tuition fees, or any other expense related to a claim you’ve made. (Such requests are separate from an audit, which is much less likely, but could also happen.)
Individuals are required to keep seven years’ worth of records on hand, and the CRA will only accept receipts (not invoices) that include the date of payment. If you cannot provide these documents when asked, your claims will be denied.
Mistake #4: Misreporting Your Marital Status
You may not think of your squeeze as your spouse, but if you have been living together for at least 12 months, or you reside together and share a child (by birth or adoption), the CRA considers you to be in a common-law relationship, which must be declared on your tax return.
It’s important that you correctly indicate your marital status, because some benefits that you may be eligible to receive, such as the GST/HST tax credit or the Canada Child Benefit, are based on spouses’ combined incomes. If you file as single, it could delay your payments, or you may even have to pay back some of the money you receive.
On the plus side, spouses can pool or transfer some of their tax credits, which can lead to greater tax savings. This is another benefit of using tax software, as it will automatically optimize claims for medical expenses, charitable donations, pension splitting, and other credits when spouses prepare their returns at the same time.
Mistake #5: Neglecting to Transfer Unused Tax Credits to Other Family Members
As mentioned above, individuals can transfer some of their tax credits to a spouse if they don’t have enough income or taxes owing to make full use of them. In some cases, such as the $5,000 tuition tax credit, unused amounts can also be transferred to a parent or grandparent.
So, for example, if you are a full-time student at an eligible education institution, you can claim a non-refundable tax credit equal to 15% of the tuition you paid (up to $5,000). Because it is a non-refundable tax credit — which can only reduce the amount of tax you owe, it can’t pay out any extra benefit — you can only use the portion of the credit that reduces your taxes to zero.
At that point, any remaining amount may be transferred to a spouse, parent or grandparent, which can lead to greater tax savings (especially if they are in a higher tax bracket than you are).
Mistake #6: Missing the Tax Deadline
Because of COVID-19, the 2019 tax filing deadline was extended dramatically in 2020. But deadlines returned to normal in 2021, and 2022 appears to be the same. You’ll need to file your 2021 taxes by May 2, 2022, for employed Canadians and by June 15, 2022, if you are self-employed.
- You won’t get your refund on time. If you’re owed a refund, as is the case for more than 60% of tax filers, it will be delayed — and the government won’t pay you any interest even though it kept your money longer than necessary.
- It could delay benefit payments. The government can’t assess your eligibility for payments such as the GST/HST Credit or Canada Child Benefit until you file your tax return.
- You may face interest charges and penalty fees. If you have taxes owing and don’t file by the deadline, the CRA will charge you compound daily interest on your unpaid balance starting the very next day. Furthermore, you will be subject to a 5% late-filing penalty, and an extra 1% for every month after that (up to 12 months).
These fees can really snowball over time, as the penalties rise to 10% (and 2% extra for every month) if you’ve already been late with your taxes in the past three years. Plus, the CRA will even charge you interest on your penalties
Mistake #7: Not Realizing Some Benefits are Taxable
If you received COVID-19 emergency relief from the government (like the Canada Emergency Response Benefit or CERB), that benefit most likely helped keep your finances afloat during some very financially turbulent times. But the money you received under this program and others like it wasn’t without strings attached. You’ll need to declare any benefits you received on your upcoming income tax return.
On top of that, these benefits are taxable, which means they do not have income tax deducted at the source. So if you claimed CERB or other COVID benefits during 2020, you would have to pay a portion of it back at tax time as income tax. It’s smart to do your calculations early using a simple income tax calculator to help you determine how much you might owe, so you aren’t shocked at tax time.
Mistake #8: Ignoring Mistakes You Made on Previous Returns
So, now that you know about the most common mistakes Canadians make on their taxes, you can avoid them when you prepare this year’s return. But what if upon reviewing this list you realize you made some of these mistakes in the past? Or perhaps you found a misplaced T-slip, or it arrived late. Like many Canadians, you may be wondering, “Can I correct my tax return?”
Thankfully, you don’t have to accept that you missed out on tax savings, or sit around in fear that the CRA may come after you for additional payments. Instead, you can (and should) correct your tax return, as we explain below.
FAQ – Tax Filing Mistakes
*This post was sponsored by TurboTax. The views and opinions expressed in this blog, however, are purely my own.