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[H&R Block Insight - March 2009]
[Correcting Tax Errors]

Anyone can make a tax mistake - tax payers, employers and even the tax department. For one Georgetown, Ontario resident, Mary Campbell, one mistake turned her return into a tax nightmare.

Campbell was given a retirement package from her employer in 2005. She took some of this money to top up her Registered Retirement Savings Plan (RRSP). When tax season came, she filed her 2005 taxes on her own and waited for her refund cheque. Instead of getting money back thanks to her RRSP contribution, she received a bill for more than $8,700 from the Canada Revenue Agency (CRA). With a limited income, Campbell sought the advice of a tax associate at H&R Block in Georgetown.

At H&R Block, Denise Brooks reviewed her tax return and found that Campbell's employer made a mistake when filling out her T4A form. Her employer didn't record that some of her package payout was eligible for an RRSP contribution. This error meant that Campbell's RRSP contributions exceeded her allowable limit and her tax bill was a result of the over contribution.

It took eight appeals to the CRA to try and correct the mistake. The issue was finally resolved last year and Campbell received a cheque for $9,000 in back taxes with interest.

Tax mistakes can happen to anyone and have a major impact on your tax return. An error on a T4 slip by an employer can cause tax headaches so if possible, check your slip against your last paycheque stub in December. The numbers should match – if they don’t, ask your employer for clarification.

Here are some other common mistakes to watch out for on your tax return:

  • If you are paying healthcare premiums to your employer, the amount deducted from your paycheque is considered a medical expense. The total amount should appear on your T4 slip. If your employee plan only pays a percentage of a health claim, the additional amount paid by you may be included as a medical expense as well.
  • Certain moving expenses are tax deductible – provided you move at least 40 kilometers closer to your new work or school location. However, moving expenses were identified by the CRA as the number one EFILE adjustment so make sure you understand if your move qualifies and what you can deduct.
  • Every Canadian taxpayer who earned any amount of employment income reported on a T4 in 2008, qualifies for the $1,019 Canada Employment Credit. This non-refundable credit is meant to help with the costs of having a job.

 

[What You Need to Know About: The Home Renovation Tax Credit]

In 2008, the Canada Mortgage and Housing Corp expected Canadians to spend more than $51 billion fixing up, adding on or replacing something in or around their house – up nearly 10 percent from 2007.

With the economic condition remaining unstable, many Canadians may be reconsidering their renovation plans in 2009. However, the new Federal Budget announced in January 2009 is giving homeowners a tax credit for fixing up their address.

Here are the answers to common questions about this new tax credit:

How much is the credit worth?

The credit is calculated as 15% of renovations in excess of $1,000. If you spend $6,000 on renovations, you will get a credit of $750 ($5,000 x 15%). The maximum credit is $1,350 on renovations of $10,000 or more.

What kind of renovations qualify?

The renovations must be of an enduring nature and be integral to the dwelling. Examples offered by the government include:

  • Renovating a kitchen or bathroom.
  • New carpet or hardware floors.
  • A new deck or fence.
  • A new furnace or water heater.
  • Painting the interior or exterior of your house.
  • Resurfacing your driveway.

You can claim the cost of building materials, labour, equipment rentals and the cost of getting permits.

What types of expenses do not qualify?

Types of things you cannot claim include:

  • Repairs or maintenance performed on a yearly or more frequent basis (such as furnace or carpet cleaning).
  • Furniture or appliances such as a new stove or fridge.
  • Tools or equipment that will retain a value beyond the renovations.
  • Financing costs.

What types of dwellings qualify?

A residence will generally qualify if it is eligible to be your principal residence or the principal residence of a family member at any time between January 27, 2009 and February 1, 2010. If you own a condominium, you can claim your share of expenses incurred in respect of common areas as well as expenses in respect of your own particular unit.

Is there a deadline for doing my renovations?

You can only claim for work done or supplies purchased before February 1, 2010. You cannot claim for agreements to do work or buy supplies that were entered into before January 28, 2009. The credit must be claimed on your 2009 tax return (even where the work is done in January 2010).