Lorn Kutner, chief taxation officer at Northwood Family Office

WHY YOU NEED TO FILE A TAX RETURN

Many Canadians who expect to get a tax refund or who earn income that’s less than the personal tax credit ask themselves why they should file a return. Here are a few reasons why:

  • Why let the government sit with money that you’re entitled to? They’ve had your money for part of 2019 and for all of 2018. Don’t you think it’s time for them to give it to you? If you’re expecting a refund, you should be filing your tax return as soon as the forms are available. That way, you can get it quicker and make your money work for you rather than having your money working for the government.
  • You received a salary during 2018. Even if no tax will be due and no refund is expected, filing a tax return can generate RRSP contribution room (18 per cent of your salary) in the subsequent year. If you don’t file your return, that RRSP contribution room will be lost forever.
  • If you’re a student and other than earning a small amount during the summer you have no other income, you should still file. Even though you don’t have taxes to pay, a tax return substantiates the tuition tax credits available to you or your relative. A transfer of up to $5,000 (at the federal level) of unused credits can be made to a parent, spouse or grandparent to help reduce their tax burden. The balance can be carried over indefinitely to reduce a student’s taxes in the future

The moral of the story is you never know really what you’re entitled to until you complete your tax return. Don’t procrastinate, file your tax return and see what hidden jewels you might find.

WHAT’S THE LIKELIHOOD OF BEING AUDITED?

There’s a chance that someone with whom you have had a falling out with (a fired employee, a scorned lover, a jealous neighbor) could call the CRA and snitch on you with respects to a business expense that was actually a vacation, an unreported offshore account or even something that’s totally made up. But a more likely reason why the CRA may come knocking at your door is the agency selected you for the review of a specific claim on your tax return. Claims such as:

  • Expenses (especially those related to a car) claimed against commission income.
  • A disproportionate interest expense in relation to the investment income reported.
  • Medical expenses.
  • Childcare claims.

In all the above cases, you’re just providing back-up information: These aren’t audits. My advice is don’t panic, just answer the CRA’s questions as quickly and as succinctly as you can. Treat it as if you were being questioned on a witness stand: Give “yes” and “no” answers whenever possible and don’t elaborate beyond what’s being asked.

2018 TAX CHANGES

For residents of Ontario, Saskatchewan, Manitoba and New Brunswick, the Climate Action Incentive (CAI) tax credit has been introduced. This credit is part of the federal government’s climate change plan and it directs proceeds from the carbon pollution pricing received under the federal system back to the residents of four provinces currently not meeting the Canada-wide carbon reduction standard. Generally, the base credit is:

  • Ontario: $154
  • Saskatchewan: $305
  • Manitoba: $170
  • New Brunswick: $128

If you’re married or living common law, an additional 50 per cent is available for your spouse/partner. Additionally, if you have qualified dependants under18 years of age an additional 25 per cent of the base amount is available.

Other big changes for the 2018 tax year include the extra 25 per cent first-time donor super credit for donations being eliminated and no more Schedule 4 to report investment income and expenses.