If you haven’t filed your tax return yet, this Easter weekend might be 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 those who are self-employed, that deadline is June 15.
But before you rush to your tax-filing platform of choice, here are a few answers to questions you may have about filing your tax return this year and how to best prepare for the next one.
When should I file my taxes?
The tax deadline especially matters in the case of Canadians who owe money in taxes because filing late can come with penalties. If you’re expecting a net positive tax return, filing late can delay any money you’re getting back.
Andrew Bauer, an associate professor of accounting at the University of Waterloo, says the financially savvy thing to do is get your tax credit as soon as possible.
“Our refund is an interest-free loan that you gave to the government,” said Bauer. “The longer you wait to get your money back, the more the opportunity cost is being wasted.”
However, filing too early can also have its drawbacks. It can sometimes lead to missed information, such as an income slip or a deductible you can claim, said Bruce Ball, the vice president of taxation at the Chartered Professional Accountants.
“If you realize afterwards there was other income that you didn’t put on your tax return, you should go back and amend your tax return or to report it,” said Ball.
What do I need to know about this tax season?
There aren’t many changes this year to the tax system, said both tax experts. The Canadian Revenue Agency outlines on their website some of the changes to available incentives.
If you received a COVID-related support payment in 2021, you should have received a T4 by now.
Anyone who repaid a COVID benefit is eligible to claim a tax deduction in the same year the repayment was made or in the year the benefit was received.
Canadians continue to be eligible to receive 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 at home for at least 50 per cent of the time over a stretch of four weeks or more.
Residents of Ontario, Manitoba, Saskatchewan and Alberta are eligible this year to receive the climate action incentive payment, a credit meant to help offset the cost of federal pollution pricing. However, the payment will be disbursed in quarterly instalments this year and the amount will depend on the province of residence, marital status and the number of children in the household.
Which saves me more in taxes: a RRSP or TFSA?
Part of maximizing your tax return is figuring out which tax-advantaged savings account is right for you in any given year.
A Registered Retirement Savings Plan (RRSP) allows you to make contributions that are tax-deductible. If you contributed $5,000 to a RRSP in 2021, for example, that amount is deducted from your total taxable income. When you decide to withdraw out of 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 to make when deciding to invest in one account versus the other, including the time horizon for when you expect to need the money. TFSAs allow for your contribution room to be replenished after withdrawing money, whereas that’s not the case with an RRSP.
But an important deciding factor is how much you expect to pay in taxes now compared to the time at which you may withdraw money from the account.
“Generally speaking, RRSPs probably make sense for people that are in higher tax brackets because you’re getting tax deductions upfront when you put the money in,” said Ball.
If you’re saving money for retirement and expect your income to be lower at that time, for example, you’d be saving on taxes by taking the tax deduction this year and paying a lower tax rate at the time of withdrawal.
WATCH | Should you get a TFSA or a RRSP?
Why can’t the government just send me a bill?
Some countries, like the United Kingdon, have return-free filings that avoid the process of having to ensure that you’ve paid your taxes by a certain date.
“I would expect that in the next few years we’ll probably get to that point,” said Bauer, adding that the tax-filing process may become simplified for those whose income and tax deductions are reported on official slips.
While filing taxes has been simplified greatly over the years with the digitization of tax slips, Ball says the challenge with taking it a step further and eliminating the return system is that there are a lot of different tax credits and deductions a filer can claim.
“The credits and deductions, the CRA doesn’t know about them. So it’s hard for them to pre-populate a return,” he said.
How can I plan ahead?
Part of maximizing your tax return comes from planning ahead by keeping records of expenses that may be eligible for a tax deduction or credit.
And if you forget to keep track of those expenses, Ball recommends going back to the place where you made the tax-deductible payment and ask for a new receipt for the expense.
Another way to plan ahead, according to Bauer, is to fill out a TD1 form if you’re planning to make contributions to your RRSP so that your employer can deduct less income tax from your paycheque.
“That’s certainly one place where planning really can make a difference,” said Bauer.
Getting familiar with the available tax credits and deductions is also useful, said Ball, adding that the Canada Revenue Agency makes that information available on its website.
For Canadians whose taxes aren’t complicated to calculate, knowing the tax system allows you to skip on the $100 to $200 you may be paying for an accountant to file your tax return.
“Sorry to my all my accounting friends, but if you have a simple return, with a little bit of time and care, you don’t need anybody else’s help,” said Bauer.