Avoid CRA penalties and maximize your refund by avoiding these common mistakes

Lets face it we have all made mistakes on our income tax return one time or another. Some of your mistakes (intentional or not) may have been caught by the CRA and you were reassessed because of it. Or you may have been lucky and CRA did not catch your mistake!We just need to make sure that these mistakes are not intentional. In this blog, we would like to discuss 7 common mistakes made by Canadians on their income tax returns.

Mistake #1: Missing the filing deadline

This is probably the most popular mistake made by many taxpayers each year. You are able to file your 2022 income tax return starting February 20, 2023. The deadline for filing is April 30, 2023. Since April 30th. is a Sunday, the CRA will accept all returns postmarked on or before May 1, 2023. If you are self-employed, you have until June 30, 2023, to file your return. However, if you owe any taxes the deadline for payment is April 30, 2023.

Mistake #2: Under-reporting Your Income

We either forget or give-in to the temptation. Regardless it is crucial to report all of our earnings in a given tax year. If the mistake has not yet been caught by the CRA and you have not yet been audited, the error may be corrected by submitting a T1-Adj or Refile through your TaxTron™ software. If you have been reassessed, the CRA will add the undeclared amounts to your income and on top of the refund amounts which you may have to pay back, the CRA may also impose penalty and interest on amounts due. Unfortunately many still underestimate the reach and capabilities of the CRA and choose not to report certain income they believe to be under CRA radar. One such income is cash tips earned by restaurant waiters. CRA can catch such delinquencies by cross-referencing a restaurant's gross income versus employee earnings through their filed income tax returns.

Mistake #3: Claiming Ineligible Expenses

Claiming ineligible expenses which will reduce your taxable income and potentially increase your refund can also land you on the hot seat with the CRA. Example of such expenses are employment and moving expenses. Most errors in the category of employment expenses occur when the individual claims expenses which are not included in their Form T2200 – Declaration of the Conditions of Employment signed by the employer. For example if the individual's T2200 allows only for fuel and insurance, the individual can not claim their mobile phone charges as a business expense on their income tax return.

Allowable moving expenses are transportation and moving costs, travel expenses, temporary living expenses, cost of cancelling the lease, incidental moving expenses, cost of selling old home, and cost to maintain old home when vacant. Unfortunately every tax year certain taxpayers, knowingly or unknowingly, claim certain expenses which do not qualify as a deduction. The following expenses can not be claimed (source: canada.ca):

expenses for work done to make your old home more saleable

any loss from the sale of your home

travel expenses for house-hunting trips before you move

travel expenses for job hunting in another city

the value of items movers refused to take, such as plants, frozen food, ammunition, paint, and cleaning products

expenses to replace personal-use items such as tool sheds, firewood, drapes, and carpets

mail-forwarding costs (such as with Canada Post)

costs of transformers or adaptors for household appliances

costs incurred in the sale of your old home if you delayed selling for investment purposes or until the real estate market improved

mortgage default insurance

Mistake #4: Not claiming credits or deductions

This mistake is more common with individuals who are paper-filing and have little or no experience in filing taxes. Tax software such as TaxTron™ are designed to guide the preparer through the maze of various deductions and credits therefore there is little or no chance of missing such credits and deductions. Overlooking such credits and deductions will increase the taxable income resulting in higher taxes due.

Most common overlooked credits and deductions are:

childcare expenses

medical expenses

charitable donations

Canadian political contributions

moving expenses

professional dues

investment carrying charges

interest on amounts borrowed for investment

student loan interest

Home Buyer's Amount

Mistake #5: Not transferring unused credits to family members

This mistake usually occurs when an individual such as a spouse or a child fails to transfer their unused tuition tax credit amounts to the other spouse or parent. Since tuition tax credit is a non-refundable credit, if the transferring spouse or child has little or no income the tuition credit will be of no use to them. In such cases the entire tax credit equal to 15% of the total tuition paid during the tax year up to a maximum of $5,000, or any unused amounts may be transferred to a spouse or a parent. TaxTron™ software's user-friendly interface is designed to guide the transferring individual through the tax credit transfer process.

Mistake #6: Filing as single yet you are married or in a common-law relationship

If you are married or in a common-law relationship (living in a conjugal relationship for 12 continuous months), you must correctly report your marital status on your income tax return. If you misreport your marital status as single and receive additional benefit amounts you are not entitled to such as Canada Child Benefit (CCB), GST/HST tax credit, or the Climate Action Incentive, the CRA may require you to repay the excess amounts.

Mistake #7: Losing your receipts and slips

The CRA requires individuals to maintain slips, receipts for income and expenses claimed on their income tax returns for a period of six years in the event the CRA requests a review.

Individuals are required to maintain official receipts and slips for childcare expenses, medical expenses, charitable and political party donations, tuition expenses, employment expenses, or any other expense you may have claimed. CRA may disallow the claims if the individual fails to produce proper documentation.

If you may have any questions, please do not hesitate to contact Softron Support at +1(877)-SOFTRON or by email at softron@softrontax.com