Preparing for Tax Season

It’s that time again.  Tax season is right around the corner and the government wants to know how much you made last year.  You should receive most of your tax slips by the end of February.  Some, such as T3’s, don’t actually have to be sent out until the end of March which is annoying to those of us who want to get an early start. 

However, it gives us a chance to get organized and collect all our receipts while we’re waiting.

If you do have all the information you need and you file your return online, Netfile starts accepting electronic returns on February 18.  Take advantage of the “Auto-fill my Return” on CRA My Account.  It imports your T-slips, RRSP amounts and other information directly into your return.

What’s new for the 2018 tax return?

There aren’t many changes this year for individuals. 

If you live in Saskatchewan, Manitoba, Ontario, or New Brunswick you are eligible for the Climate Action Incentive and you will get an extra tax credit this year.  This credit is meant to offset the cost of the carbon tax.  The amount of the credit depends on the size of your family and only one member of the household can claim it.

The benefits of income splitting

Our Canadian tax system has graduated tax brackets that result in people with earnings in higher brackets paying a greater amount of tax.

It is therefore beneficial to shift income to the lower earning spouse when possible and reduce your overall family tax bill.

Here are two income splitting techniques:

  1. Split your CPP benefits.  You must first submit an application to share your CPP pension.  The split is determined by CPP, not the applicant.  In most cases, but not always, it is a 50/50 split.  The portion shared is based on the number of months lived together.  Both spouses must be age 60 or older and drawing benefits (if applicable).
  2. Pension income splitting.  If you receive retirement benefits from a company’s registered pension plan, you can allocate up to half the amount to your spouse regardless of your ages.  If you and your spouse are both 65 or older, RRSP and RRIF withdrawals can also be split up to 50%.

It doesn’t have to be the same amount each year, nor the same percentage.  It will depend on the marginal tax bracket of each spouse, as well as the amount of qualifying income that can be split. You can choose the best solution for your own situation.

Both spouses will be able to claim the pension income credit, too.

Related: Manage the Tax You Pay on Retirement Income

Don’t file late and pay on time!

The late filing penalty is 5% of the 2018 balance owing plus 1% of the balance owing for each full month the return is late.

If you owe money make sure you make your payment by April 30 (for most individuals) to avoid hefty penalties.  The CRA charges interest at 6% that compounds daily.

The CRA has, however, made it easy to make your payment.   Here are some options:

  • Bring your (original) personalized remittance voucher to your financial institution and give the teller your payment.
  • Use your bank’s online bill payment service by adding CRA as a payee.
  • CRA My Payment  service lets you pay with your VISA Debit, Debit MasterCard or Interac.
  • 3rd party service providers like PayPal or a Canada Post outlet will submit your payment for a fee.
  • You can set up pre-authorized debits (on CRA My Account) if you pay tax in installments.

No matter which payment method you use, make sure CRA receives the money by the due date as it may take several days to process.

Do you need to file if you don’t owe?

Yes.  You should file even if you don’t owe any money or get a refund. 

The government uses your tax return to assess whether you qualify for various benefit programs such as the GST/HST tax credit, Guaranteed Income Supplement, and provincial medical plan subsidies.

Final thoughts

Don’t wait until the last minute even if you have to pay.  If you file several weeks ahead of time it gives the CRA time to assess your return before your payment is due.

Early preparation is key to claiming every possible deduction.

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