It’s that time: Tips on filing tax returns

Every year, more and more Canadians are preparing their returns using discount tax software.  It  links cleanly to the Net File process that eliminates having to mail your return to Canada Revenue Agency.     

For many basic returns, where all you have is your T4 and T5 slips, preparing your own return with tax software takes very little time.  The CRA website is a good reference for individuals at home wanting basic information on your tax return. Go to where you can select individuals and families. 

You can sign up for My Account, which allows you to track your refund, view or change your return, review income tax slips, check your benefit and credit payments and check your TFSA  and RRSP limits.  You also have the ability to set up direct deposit, though I don’t encourage it for individuals still working or those who own a business. 

If your situation is not basic, or you’re not sure if you are taking advantage of all tax credits, then you should find a qualified accountant if you don’t already have one.  If you have a business, or are uncertain on how to do your tax return, then you will find the services of a good accountant to be invaluable, especially as they save you the headache of fixing a tax return not initially prepared properly.  Your accountant will also ensure you are minimizing tax and taking full advantage of tax credits.  Fees paid to your accountant for tax advice are generally deductible while the cost for personal income tax software program is not.   

One tax tip could easily result in significant tax savings that would offset the cost of having your tax return professional prepared.  For those individuals using a tax preparer, I recommend you fully complete any questionnaires or checklists that they may have sent to you at the beginning of the year. 

If you are an employee who can deduct some employment expenses, print off a T777 tax form from the CRA website and organize your receipts and expenses accordingly.  Fill in the T777 as a draft version for your accountant to review.  If you have a small unincorporated business, print off the appropriate tax schedule and organize your receipts and expenses according to the same categories.  If you have marketable securities we recommend that you have your advisor prepare a realized gain-loss report to reduce the time your accountant needs to spend on this part of your tax return.  Giving an organized package to your accountant will ensure that the time they spend on your return is utilizing their professional knowledge rather than the administration of organizing receipts. 

In the years when I worked in public practice as a Chartered Accountant, I would have a range of packages dropped off.  Some were dropped off too early and were still missing slips.  Others were dropped off too late and fees and penalties would apply.  In some of the worst cases, I would receive a box full of receipts that had no organization to them.  Information delivered at the right time in an organized manner lowered accounting fees. 

One of the key steps accountants do is a comparative analysis of what you reported last year versus the current year.  As an example, if you had four T5 slips (for reporting dividend and interest income) last year and you only have two this year, your accountant should be asking why.  A big step that can assist your accountant (especially if your accountant is new) is to include your prior year’s tax return with your current year information with an explanation for any differences. 

I recommend you go through your slips from the prior year and compare to the current year.  You should have an explanation for why, such as consolidated investments, retired or sold investments in the prior year. 

If you have changed investment firms during the year, I recommend you take extra caution at this step as you are likely to get twice the slips that you previously had for the year of change.  Talking to your new financial advisor should assist you in obtaining a list of all the slips that you should be expecting.  Some of these slips are sent by the financial firm you are dealing with and others may be sent directly from the company that you invested in.

Whether you use an accountant or prepare your own tax return, it always pays to stay organized.  Set up a file system that either has copies of your current and past returns.  In many cases, files and documents are being converted to electronic form, which should be backed up periodically to prevent loss of data if your hard drive fails or you get a new computer.