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[H&R Block Insight - July 2009]
[Implications of Not Filing a Return]

Every year there are thousands of taxpayers who do not file their tax return by April 30. Some miss the deadline by a few days while others are years behind in filing their returns. Some are missing paperwork and a few think they don't have to file because they didn't earn any income.

Filing a tax return every year is important. Our offices have seen cases where the Canada Revenue Agency (CRA) estimates a tax return because the taxpayer fails to file and is then facing a tax bill. Or the CRA may use their compliance department to find you and request your tax return.

Last year, the CRA obtained more than 750,000 individual and corporate returns from people who failed to file. If the CRA does ask you to file your return, it is important to respond and file as quickly as possible.

If you know you have a tax problem, you can ask a professional to help negotiate with the CRA or you can contact the CRA's Voluntary Disclosure Program. If you make full disclosure before the CRA starts to take action against you, you will only have to pay the taxes owing plus interest. If not, you may face penalties and prosecution.

 

[Still Confused About the Home Renovation Tax Credit? You Are Not Alone]

In a recent Angus Reid survey, more than 80 percent of Canadian homeowners admitted they know little to nothing about the new Home Renovation Tax Credit (HRTC). Introduced in the last Federal Budget, the HRTC is meant to help homeowners receive some tax savings for doing minor or major renovations to their home.

The survey showed:

Only 18 per cent of Canadian homeowners understood that condo owners can apply their share of the cost of a renovation of the common areas in their building.
Sixty-two per cent of respondents didn't realize replacing the windows in the family cottage would be eligible.

The HRTC covers a wide range of home renovations. The work must have lasting value to the home. Painting, new flooring, laying sod and replacing doors are all covered. The work can be done yourself or completed by a contractor. You just need to keep your receipts.

Homeowners in different provinces did have varying views on whether or not they were going to take advantage of the HRTC.

Residents of Quebec were the least likely to be planning a renovation (59 per cent) even though residents have the most to gain. They can claim both the Federal HRTC as well as provincial tax credits for renovations.

Manitoba and Saskatchewan homeowners were the most likely to renovate at 61 percent. Ontario homeowners were also more likely to renovate (45 percent).

For Canadian taxpayers, their principal residence is allowed to appreciate in value tax free. So the HRTC can help Canadians increase the value of their homes while providing a tax credit now.

Canadians who do plan to claim the HRTC need to keep all receipts and invoices.

All renovation expenses must be incurred after January 27th 2009 and before February 1, 2010.
You must claim a minimum of $1,000 up to a maximum of $10,000 (results in a maximum credit of $1,350 credit).

 

[Summer Time Means Tax Return Reviews]

During the summer months, Canada Revenue Agency (CRA) begins its random review of tax returns to ensure they were processed properly. This review happens every year and results in thousands of Canadians receiving requests for additional information. Most of the requests ask for receipts to back up particular tax credits or benefits.

The CRA also reviews returns to ensure Canadians are receiving the right level of benefits. In 2007-08, CRA reviewed more than 250,000 benefit amounts and made adjustments. They can also ask taxpayers to provide proof of their claim that could affect their eligibility or amount. Not responding to these requests will mean your benefits could be stopped, interrupted or re-calculated.

If you receive a government benefit, you have to file your tax return every year. And if you have a spouse or common-law partner, they have to file as well - even if they do not earn any income. Make sure you inform the CRA if you move, your marital status changes, residency changes or changes in child care. All these can affect your eligibility for credits and benefits.

For more information on tax benefits, please see hrblock.ca.

 

[Letter to the Editor]

The June issue said, "If you own a condo, you can claim your share of expenses incurred on renovations to common elements and areas." Does this apply to a fence that had to be taken down to replace the posts?

Myrna A.

This is a great question.

When you review the eligibility requirements for the Home Renovation Tax Credit, this does meet the criteria because:

  • This is not an annual maintenance repair.
  • The replacement of posts is of lasting value and integral to the fence.
  • For the condo, the fence is a common element.

But there is one important caveat. The condo board or property management company must issue you a receipt for your portion of the renovation. Without the receipt, you cannot claim the expense.

 

[Positive Tax Experience Stories]

Thank you to all of you who submitted positive tax experience stories. The three winning entries will receive a Visa gift card valued at $100. Presented here are two of the winning entries.

Hello,
I had a tax refund of $1722 this past year. I had completed my return early, so I knew what I had to work with. I immediately opened an RDSP (disability savings) account and deposited $500 into it for my disabled son. This new government aid program means he will receive another $1500 in 3-1 matching grants and also a $1000 bond as his income (ODSP benefits only) is so low. I grew the first $500 into $3000 right away!

I will continue making deposits into his account to help grow him a 'retirement' fund. It is a huge worry off my mind, to know that he'll be provided for when I'm gone.

I then put $600 of my refund into my mortgage as a principal prepayment. My current variable interest rate is only 1.5% (prime - .75%)! But when it renews next year, I don't think I'll be offered such a great deal so I am putting as much into principal prepayments over the next 12 months as I can.

My next step was to use $500 of my refund to buy one or two badly beaten up stocks that I'd been watching. Using a discount brokerage, I bought Petro Canada and the Royal Bank stock. My mini portfolio has gained quite nicely to date and now that I've dipped my toe into investing, I am keeping abreast of new opportunities - I think it's the perfect time to get into the stock market!

And lastly, I used the remaining $122 of my refund to treat my husband and I to a lovely dinner out, because it's not all about the money - you have to live a little in the present too!

Donna L.

 

Hello,
It turns out that the payroll company that my employer uses made a mistake and considered all of our medical insurance as taxable income. In reality, only a small portion was supposed to be a taxable income. I already got my T4 for 2008 before the mistake was discovered. I calculated that my refund would be about $400.

When I received the revised T4, I figured that I might be getting another $200-$300 but to my surprise my refund jumped by $1,200 for the total of $1,600!

It turns out a mistake like that affected other totals on my T4. Since my taxable income was lower, so were my CPP and EI contributions. I was so happy with the extra cash, I decided to buy a new Honda Fit! This car is more fuel efficient and less harmful to the environment than my old car, so $1,600 contributed to future savings in gas and maintenance....what a pleasant "mistake".

Maja P