Hi, my name in Allan Madan; I’m a chartered accountant and tax expert in the Mississauga, Toronto, and Oakville regions of Ontario, Canada. This article talks about the 5 most common personal tax mistakes to avoid.
Claiming RRSP Contributions at the Wrong Time:
The first most common personal tax mistake to avoid is claiming RRSP contributions in the wrong period. It’s very important that any contributions made in the first 60 days of 2012 be reported on your 2011 tax return. While you may be thinking, “I don’t want to deduct those RRSP contributions made in the first 60 days of 2012 on my 2011 return,” you still have to report it. Also, you have the option to carry forward those deductions if you want, to the subsequent year.
Filing Claims without Receipts:
The second of the most common mistakes made on personal tax returns is claiming deductions and credits on your personal tax returns without official receipts. The CRA can ask for those receipts at any time and if you don’t furnish them they will disallow the deductions and credits, plus charge interest and penalties, in addition to the tax. Also, you’ll be flagged for auditing in future years.
Not Claiming Employment Expense Deduction:
The third of the 5 most common personal tax mistakes to avoid is missing out on employment expense deductions that you are entitled to. By completing form T-2200, called ‘Declaration of Conditions of Employment’, you can deduct employment expenses on your return. The most common employment expenses include:
• Car costs (gas, insurance, repairs & maintenance, 407, parking)
• Home-office expenses (rent, utilities, mortgage interest, property taxes, repairs, home insurance)
• Meals & entertainment
• And expenses incurred for earning commission if you are a sales person.
The Fourth of Five Common Mistakes Made on Personal Tax Return:
The fourth most common mistake to avoid is forgetting to report your income slips on your personal tax return. A lot of times banks, insurance companies, and mutual fund companies don’t issue the T-slips or income slips on time and you may not get it until the end of March or middle of April.
So, it’s really important that you gather all your slips from all your financial institutions and report them on your tax return. If you forget, the onus is on you, and you will be penalised for not including that income.
Improper Reporting of Retirement Allowance:
The fifth most common mistake that you need to avoid is improperly reporting the retirement allowance that you received if you were terminated or if you left your job. This is probably the most mishandled of all items that I have seen. When you are receiving your retiring allowance there are two amounts. One is the eligible portion which can be transferred to your RRSP, completely tax free, without affecting your RRSP limit, and the other is the non-eligible portion.
With the non-eligible part of your retirement allowance you have two options. One, you can take the amount and put it in your bank, wherein tax would be deducted at source. The second option is you can file an election to have it transferred to your RRSP without any tax taken off, to the extent of your RRSP contribution limit.
Because this area is very complex and the dollar amount is very large, it’s important that you consult a chartered accountant.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.