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Wednesday, March 24, 2010

10 myths about taxes and filing

Adapted from CBC News

The facts could save you a lot of money!
Here are 10 tax-filing myths and the facts that could save you a lot of money:
Myth 1: , I don't earn enough money to pay income tax, so I don't need to file a tax return.
Many Canadians  miss out on thousands of dollars in benefits and credits like the
GST/HST credit and the Canada Child Tax Credit , because they don’t file. People need to file a return to be eligible.
Low-income seniors who qualify for the Guaranteed Income Supplement should also file to ensure that they continue to get the supplement.
Low-income earners who got Working Income Tax Benefit payments last year have to file a 2009 return to be eligible to receive them in 2010.
Some provinces provide tax credits like sales tax credits or property tax credits for low income earners.
Teenagers who earned cash doing odd jobs should also file a return because that creates RRSP contribution room (even if they didn't contribute to an RRSP). That unused contribution room can be carried forward indefinitely to use when they will owe tax.
Myth 2: If you don't have the money to pay your tax bill, there's no point in filing before the Apr. 30 deadline.
If you can't come up with the taxes owing by Apr. 30, file on time anyway and pay later. The Canada Revenue Agency imposes a five per cent penalty for late filing, not for paying late. "Interest will accrue on the unpaid balance, but the penalty will not apply," advises KPMG.
Myth 3. It's too late to change your tax return once the Canada Revenue Agency has processed it and sent you your Notice of Assessment.
People often come across new income slips or donation receipts after they file. After you get your Notice of Assessment, file a T1 Adjustment Request form.
Income slip like a T4, T4A, or T5 ? Request an adjustment right away.  Charitable donation slip form five years ago or find something else that would have given you more money back? You can still ask for that adjustment. CRA's policies allow taxpayers to go back up to 10 years to request an adjustment.
Myth 4: I needn't bother to claim any tuition-related tax credits, because I didn't make enough money to owe any tax.
The tuition tax credit, the education amount or the textbook tax credit can be transferred to their spouse, common law partner, or even a parent or grandparent. You can also carry forward any tuition, education or textbook credit not used to any future year when you will have tax to pay.
Myth 5: I can file my tax return through the internet, but it's impossible to pay electronically.
As of the 2009 tax year, taxpayers will also be able to remit amounts owing to the CRA through the department's new My Payment feature .
Myth 6: I can't file my tax return until a missing T-4 slip turns up.
Estimate how much you think you made and attach a note to your return saying you weren't able to get your slip. And provide the name and address of who should have given you that slip. (You can also get the info from CRA)
Myth 7: I never got my tax refund because I moved five years ago and didn't leave a forwarding address. I guess I'm just out of luck.
As of the end of 2007, there were 38,551 undeliverable and unclaimed refund cheques worth $25,372,066 just waiting to be cashed by taxpayers who paid too much tax.Contact your local office of the Canada Revenue Agency for details on how to make a claim.
No interest is paid on unclaimed refunds, but there's no charge for the service, and there's no time limit on making a claim.
And it's not just income tax refund cheques that we're talking about here. The tax department also has unclaimed GST Credit cheques and Canada Child Tax Benefit cheques.
Myth 8: I deliberately didn't declare a lot of income a few years ago, and it's bothering me, but if I come forward now, I'll risk a serious fine or jail time.
The Canada Revenue Agency has a Voluntary Disclosures Program that thousands of people with guilty consciences apply to take advantage of each year. The program allows for "no name" disclosures through an authorized representative.
Myth 9: The tax department doesn't care if personal circumstances make it difficult or impossible to pay my taxes.
Couldn't file on time because of a serious illness or your house caught fire? The CRA is willing to let you file late without imposing penalties. The CRA also says it can forgive interest when taxpayers have lost their job and can't pay what they owe. Read more about the CRA's taxpayer relief provisions here.
Myth 10: You can often make a deal with the CRA to pay less tax than you owe.
While the CRA has a certain amount of leeway to help taxpayers who find themselves in particularly difficult circumstances, Canadian legislation allows for forgiveness of actual tax debts only in very precise and limited situations, and only as specified by law."
So what are those situations? The CRA says they include:
  • Remission under subsection 23(2) of the Financial Administration Act.
  • A proposal made under section 50 or 66.12 of the Bankruptcy and Insolvency Act.
  • A reorganization plan made under sections 4 and 5 of the Companies' Creditors Arrangement Act.
  • A recovery plan made under paragraph 5(1)(a) or (b) of the Farm Debt Mediation Act.
The bottom line is that you won't get a break unless you're facing extreme financial hardship and are on your way to bankruptcy or something close.
If you aren't, the CRA says you'll have to pay every cent of the principal you owe. The agency makes no apology for this. The tax department points out that most Canadians do pay everything they're supposed to.
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