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Late tax filing penalties could add up

Midnight tonight (April 30) is the deadline for Canadians to file their 2018 income tax returns. Everyone’s returns should be submitted to the Canada Revenue Agency (CRA) by this date, but it’s primarily anyone who owes money that should be concerned. Starting May 1, Canadians who owe money on their tax return will begin to face late fee penalties. Those who will receive a refund don’t face the same problem. However, if there are any omissions or false statements on your tax return, you could still face a penalty of $100 or 50 percent of the falsified amount. If you find yourself in this situation, you should contact your tax professional for advice as there are programs like the Voluntary Disclosures Program, which may be able to help you.

Key Takeaways:

Canadians who owe the CRA will face penalties starting May 1.
Late penalties on the amount owed start at 5 percent interest compounded daily. For each full month the return is late, one percent is added, up to a maximum of 12 months.
After a year of non-payment, the CRA charges 10 percent interest on the balance owing plus two per cent for each full month, up to 20 months. The rate is subject to change every three months.

“If you owe, the meter begins running May 1.”

Why your neighbour’s kid is getting a better mortgage rate than you

Remortgaging your house can be frustrating, especially when you get a higher rate than a younger, new home buyer who is not as financially well off as you. Banks are willing to work with new home buyers who put little money down because they have their loan guaranteed by the Canadian Mortgage and Housing Corporation (CMHC). These borrowers are considered a lower risk for the lending institution than someone with no insurance or guarantee on the payment of that mortgage. Those who have a higher home value and want to refinance are at the mercy of their lending institution who is not as willing to work with them.

“How did a 27-yeaer-old kid get a 3.39% mortgage while I’m paying an extra 0.45% a year?”

Personal Investor: CRA fails audit of itself

A new report from the Auditor General has found that the CRA has been failing in its duties, often violating the taxpayer’s bill of rights. Inconsistent practices within the organization vary from the length of time for correspondences to payment of penalties being forgiven. The agency is not being subjected to a review but in response to the findings, the CRA itself has promised to look into these inconsistencies ensuring all taxpayers are treated equally in the future.

“The auditor has become the audited. In an interesting turn of events Canada’s auditor general has audited the Canada Revenue Agency and found it’s falling behind.”

The ins and outs of claiming moving expenses on your tax return

Under the Income Tax Act, you can write off moving expenses provided you’re moving for work, to run a business or to be a full-time student. Moving expenses can include ancillary costs like the cost of cancelling the lease for your previous home and utility hook-ups and disconnections. Costs associated with selling your old home, like notary or legal fees are also tax deductible. However, take care of what you claim, because expenses “must pertain directly to a move and cannot be incidental expenses.”

Key Takeaways:

For your moving expenses to qualify, your new home must be at least 40 kilometres closer to your new work or school.
Moving-related meal and vehicle expenses can be deducted in detail or simplified formats.
The costs on your vacant old home, such as mortgage interest, property taxes, home insurance premiums and the cost of heating and utilities, can be deducted up to a maximum of $5,000 – provided you make reasonable efforts to sell it.

“If you moved at some point this year, you may be entitled to a tax break for your moving expenses come tax time. But be careful, because not all expenses associated with your move may be tax deductible.”

Taking this step when filing your taxes can help you avoid a gross negligence penalty from the CRA

When filing your taxes this year, be careful that you have receipts to back up all your deductions. If you don’t, then not only will the claim be denied, but you may face a gross negligence penalty. A Canadian taxpayer in Ontario recently has felt the brunt of CRA tax enforcement when childcare payments, which were supposedly paid to relatives to watch her children, could not be substantiated. Not only did she have to pay the money she claimed as a deduction, but she was hit with a large penalty for filing what a judge deemed as a false tax return.

“Failure to provide proper receipts to the CRA could not only lead to a denied deduction, but could also result in a gross negligence penalty, as a taxpayer recently found out.”

Canada: Proposed Changes To ITC Rules For Holding Corporations

Companies using section 186 of the Excise Tax act to claim Input Tax Credits should be aware of the proposed changes. If enacted, these changes will, then affect their business. Section 186 has often been confusing, with even court disputes unable to interpret some situations when it should be applied. The new proposal will lay down a specific set of circumstances in which the tax credits involved can be used. Companies will need to be aware of these specifics if these proposed changes occur, especially if they have been receiving these credits in the past.

“If the proposed legislation is enacted in its current form, ITC eligibility will no longer turn on whether the inputs “can reasonably be regarded” as being in relation to the shares or debt of a related corporation, but on whether the detailed and specific requirements of paragraph 186(1)(a), 186(1)(b) and 186(1)(c) are met.”

Canadians love their tax refunds, but it’s blinding them to better tax plan

Most Canadians who receive a tax refund treat it like winning the lottery. However, financial planners point out that you actually overpaid during the year, and your money could have been better utilized instead of simply being returned at tax time. Canadians who file a T1213 form can keep more of their money throughout the year, and can then put it to use in investment accounts such as an RRSP. Canadians need to think differently about taxes, and especially tax refunds, because if done correctly, they can keep even more of their money.

Key Takeaways:

In the CIBC study, 63 percent of the 1,516 randomly selected Canadians didn’t know their tax refund was their own money, and instead believed that their tax refund was a “windfall of unexpected money.”
Filling out a T1213 “Request to Reduce Tax Deductions at Source” can reduce how much tax is withheld from each paycheque, which allows individuals to allocate it to RRSPs or childcare when they are paid, instead of waiting for a refund.
Instead of putting those funds into an everyday savings account, which taxes the interest income earned, choose investments with capital gains and dividends, which will be taxed less.

“The short-term euphoria of getting a tax refund that fades when you realize you’re getting your own money back,” Golombeck said in a release accompanying the poll. “A better plan is to ensure your portfolio operates as tax-efficiently as possible to keep more of your money throughout the year.”

How not to claim employment expenses on your tax return

A recent tax case shows the right away and wrong way to claim work-related expenses that your employer doesn’t cover. These expenses can include: accounting, legal, advertising and promotion fees, allowable motor vehicle expenses, certain food, beverage, and entertainment expenses, out-of-town lodging expenses, parking, postage, stationery and other office supplies. One important part of claiming these employment expenses is to get your employer to complete and sign a Form T2200 (Declaration of Conditions of Employment), because without it, your deduction can be denied by CRA if audited.

“If you’re an employee who pays for various work-related expenses that your boss doesn’t cover, you may be able to get some tax relief when you file your 2018 tax return by claiming a deduction for valid employment expenses.”

IRS won’t penalize confused taxpayers following changes to code

The Treasury Department announced that it is providing relief this year for those individuals who under reported the tax that they owed the United States government. This relief is due to the 2017 tax overhaul changes, but the relief is limited. If the filer paid at least 85 percent of what they owed, then there will not be a penalty. If it was less, then a penalty will be in effect.

“Taxpayers who miscalculated how much they’ll owe the Internal Revenue Service this year won’t get hit with penalties — up to a certain point.”

Your cheatin’ heart: why do taxpayers lie?

Overstating deductions, and understating incomes are common ways people cheat on their taxes to the tune of $15 billion a year in Canada. People usually have their own personal reasons for cheating including feeling they owe too much or in anger against the Canada Revenue Agency. The CRA uses a number of ways to correct information such as through whistle blowers, encouraging honest reporting or offering voluntary disclosures. Of those who voluntarily disclose, two-thirds are motivated by external factors such as avoiding a penalty, and one-third did so because of a personal sense of ethics.

Key Takeaways:

Cheating occurs when a taxpayer deliberately overstates a deduction (such as a business expense) or understates income (such as cash tips).
The CRA combats incorrect information on tax returns through: 1) encouraging honest reporting on tax returns; 2) whistleblowers; and 3) voluntary disclosures.
If a taxpayer has cheated in the past, a voluntary disclosure allows them to report the correct amount without fear of penalty or even jail time.

“It’s probably no surprise to you that people cheat and lie on their taxes. And they do this to the tune of $15 billion dollars per year.”