Are you one of those many people who fear dealing with the CRA (Canada Revenue Agency)? Do you hide letters from the tax department away in the furthest drawer, hoping they will disappear? Unfortunately if you have rental properties or a small business, you'll likely be receiving a letter soon, but there is nothing to fear, provided you know your tax filings are correct.
The audit department will be contacting you to ask you to review your review their income and expense claims related specifically to rental and/or business activities, and asking you to adjust your returns if you find you wish to change some of your figures. This is a good way for you to avoid penalties in case income was understated or expenses overstated.
Know also that you do have 10 years to recover other errors or omissions that have cost you money. Simply contact the tax department in a letter or by filing a Form T1ADJ, or through My Account, online. Know that 2010 is the last year adjustments can be made to the 2000 tax return, so if you missed filing something in your favor, adjust that return before December 31.
Filing tax returns is important, not only to keep CRA at bay when you owe them money, but also to plan your financial affairs properly. By missing your tax filings, you will also miss building RRSP and TFSA contribution room. Investors will also have missed claiming capital losses during the recent financial crisis.
End the year on a high tax note! It's your legal right to prepare your return to your family's best tax benefit by digging for every tax deduction and credit you are entitled to. So do file your tax returns, even if that's in retrospect, and discuss prior filed returns with your tax advisor, too. Errors or omissions can bring additional tax refunds to your door, and help you avoid penalties and interest if you have been delinquent in the past.
If you are a successful investor, you will likely find yourself paying extra income taxes by making quarterly instalment payments at some point in time. Taxpayers who report income from self employment, or other sums from which tax is not withheld at source may also fall into the instalment profile if income taxes payable at tax filing time exceeds $3000 in the current or either of the two preceding tax years.
When you fall into an instalment payment profile, you will start receiving a regular billing notice from Canada Revenue Agency reminding you to pay on time; that is the 15th of March, June, September and December. Farmers only need to pay once a year, on December 31, and based on two thirds of their net income.
However, if your income has dropped since you last filed a tax return-and that's quite possible given recent financial turmoil--CRA will not know to reduce your payments, and you could in fact be overpaying them.
Good news: reducing--or in some cases eliminating--your quarterly instalments is easy! Simply write a letter to request a revised billing based on your estimated income for the current year. Then enjoy your extra cash flow-to pay off credit cards or stay invested. This is a just one more way to manage your cash flow and take advantage of new income-producing opportunities in the marketplace.
This year, make a financial resolution: take the plunge and learn more about your taxes. It might pay off handsomely-providing you more money for savings, for example--even if you are working as an employee, whose taxes are relatively easy to prepare. Many employees are unaware, however, that they could qualify to claim out-of-pocket expenses to increase their tax refunds.
The catch is this: your employer must certify you were required to fund such out-of-pocket expenses, and that they were not reimbursed. To do so, form T2200 Declaration of Conditions of Employment, must be signed.
Once the paperwork is in place, the tax savings on these deductions can be quite lucrative. Ask your tax advisor if you qualify to claim expenses like the following this year:
Learning more could put more money in your pocket for investment purposes too. So don't be afraid to dig deeper into your tax filing rights, by asking more purposeful questions and hanging on to all your out-of-pocket expenses.
Evelyn is founder and president of Knowledge Bureau, Canada's leading financial publisher and educator in the tax and financial services industry. She is a prolific and best-selling author of 48 personal tax and wealth management books, and a multiple-award-winning entrepreneur.
Read her blog or follow her on Twitter at //twitter.com/evelynjacks.
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