If you haven’t filed your taxes yet, this Easter weekend might be the time to check that off your to-do list.
Canadians have until May 2 to file their taxes, thanks to the traditional deadline of April 30 falling on a Saturday. For the self-employed, this deadline is June 15.
But before you rush to your tax filing platform of choice, here are some answers to questions you might have about filing your taxes this year and how best to prepare for the next one.
When should I file my taxes?
The tax deadline is especially important for Canadians who owe money in taxes, as late filing can result in penalties. If you expect a positive net tax return, late filing may delay any refund.
Andrew Bauer, an associate professor of accounting at the University of Waterloo, says the most financially savvy thing to do is get your tax credit as soon as possible.
“Our repayment is an interest-free loan that you gave to the government,” Bauer said. “The longer you wait to get your money back, the more opportunity cost is wasted.”
However, filing too early can also have its drawbacks. That can sometimes lead to missing information, like an income statement or deductible you can claim, said Bruce Ball, vice president of tax at Chartered Professional Accountants of Canada.
“If you later realize that there was other income that you didn’t report on your tax return, you should go back and amend your tax return or report it,” Ball said. .
What should I know about this tax season?
There are not many changes this year in the tax system, the two tax experts said. The Canada Revenue Agency indicates on its website some of the changes to the incentives available.
If you received COVID-related support in 2021, you should have already received a T4.
Anyone who has repaid a COVID benefit can claim a tax deduction in the year the refund was made or in the year the benefit was received.
Canadians continue to be entitled to a tax credit for home office expenses incurred while working from home. Using the simplified method, you can claim up to $500 this year if you worked from home for at least 50% of the time over a period of four weeks or more.
Residents of Ontario, Manitoba, Saskatchewan and Alberta are eligible for the Climate Action Incentive payment this year, a credit to help offset the cost of federal pollution pricing . However, the payment will be paid in quarterly installments this year and the amount will depend on the province of residence, marital status and the number of children in the household.
What saves me the most taxes: an RRSP or a TFSA?
Part of maximizing your tax return is determining which tax-advantaged savings account is best for you in any given year.
A Registered Retirement Savings Plan (RRSP) allows you to make tax-deductible contributions. If you contributed $5,000 to an RRSP in 2021, for example, that amount is deducted from your total taxable income. When you decide to withdraw from the account, that money is then taxed as income.
Contributions to a Tax-Free Savings Account (TFSA) are not tax deductible. However, money invested in the account can grow tax-free.
Bauer says there are several considerations when deciding whether to invest in one account over the other, including the time horizon for when you expect to need the money. TFSAs allow you to replenish your contribution room after withdrawing money, whereas this is not the case with an RRSP.
But an important deciding factor is how much you expect to pay in taxes now versus when you can withdraw money from the account.
“Generally speaking, RRSPs probably make sense for people in higher tax brackets because you get tax deductions the moment you put money into them,” Ball said.
If you’re saving money for retirement and expect your income to be lower then, for example, you’ll save on taxes by taking the tax deduction this year and paying a tax rate. lower taxation at the time of withdrawal.
WATCH | Should you opt for a TFSA or an RRSP?
Why can’t the government just send me an invoice?
Some countries, such as the UK, have non-returnable declarations which avoid having to ensure that you have paid your taxes by a certain date.
“I expect that in the next few years we will probably reach this point,” Bauer said, adding that the tax filing process could be simplified for those whose income and tax deductions are reported on official slips. .
Although filing taxes has been greatly simplified over the years thanks to the digitization of tax slips, Ball says the challenge of going further and eliminating the return system is that there are many credits different taxes and deductions a filer can claim.
“Credits and deductions, the CRA doesn’t know about them, so it’s hard for them to pre-fill a return,” he said.
How can I plan ahead?
You can get ahead of each tax season by keeping records of expenses that may qualify for a tax deduction or credit.
And if you forget to keep track of those expenses, Ball recommends going back to where you made the tax-deductible payment and asking for a new receipt for the expense.
Another way to plan ahead, according to Bauer, is to fill out a TD1 form if you plan to make contributions to your RRSP so your employer can deduct less tax from your paycheck.
“It’s definitely a place where planning can really make a difference,” Bauer said.
Familiarizing yourself with available tax credits and deductions is also helpful, Ball said, adding that the Canada Revenue Agency makes this information available on its website.
For Canadians whose taxes are not complicated to calculate, knowing the tax system allows you to avoid the $100 to $200 you could pay to have an accountant file your tax return.
“Sorry to all my accounting friends, but if you have a simple return, with a little time and care, you don’t need anyone else’s help,” Bauer said.