I can claim this, right? The top tax myths busted.
November 30, 2016
Your friends are your go-to for pretty much everything: shopping, eating, whether or not to post that photo…They’ve usually got you covered, but when it comes to taxes, it’s best to get the lowdown from the experts. We’ve heard a lot of tall tales when it comes to filing taxes, so we put together a list of some of the most common tax myths.
Myth: “If I receive a tax refund, my return is approved”
The Facts: It feels like all is said and done when you receive a refund from the Canada Revenue Agency (CRA); but in reality, they actually have 3 years to review your return and request follow up paperwork. If your tax return ends up getting reviewed, that could result in receiving a Notice of Reassessment with a potential balance owing. “But how could this happen?!” you wonder… Let’s say you packed up and moved in with your best friend who lives a few blocks away, and claimed some moving expenses for the truck you rented. Moving expenses can only be claimed if you moved at least 40 KM closer to a new place of work or school, so the CRA would refuse your claim and send you a tax bill for whatever you originally deducted.
Myth: “I earned less than $10,000 so I don’t have to file a tax return”
If you didn’t earn a ton of cash this year, or even if you had no income at all, you may still want to file a return. The good news? You probably don’t owe any money. However, you still need to file a tax return, as you could be entitled to other credits and benefits that get triggered once you do file. For example, once you turn 19, you qualify for the quarterly GST/HST amount! Plus, if you did earn a little income, when you file your tax return you will likely get a refund if your employer withheld any taxes.
Myth: “I work for myself so I can write it off”
Even if you’re the boss of you and are probably working around the clock, not everything you buy can be claimed as a business expense. So what’s allowed? The CRA is okay with reasonable business expenses that you might have incurred to earn your income. Keyword here being reasonable. Let’s say you work from home and have one internet connection. Though you probably use a good chunk of your internet time working, the CRA will expect there to be some personal use as well (hello, Netflix). So, you can’t claim 100 per cent of that expense.
The best way to stay on the right side of what’s allowed is to keep good notes and save your receipts. Driving lots for work and claiming 90 per cent of your auto expenses? The CRA will most likely ask to review your logbook, so keep track of where you’re headed for work and why.
Myth: “Maternity leave income is not taxable”
There’s a little bundle of joy in your life and you’ve taken time off work to do that new job called parenting. Between the hustle and bustle of feeding, changing and caring for the baby, your bank account might be the last thing on your mind, but don’t forget that you need to report any Employment Insurance (EI) benefits as income. In most cases, Service Canada withholds less than your marginal tax rate, so you might owe some tax on this income at the end of the year
Myth: “My pets are considered my dependants so I can claim their pet food”
Unfortunately, the CRA doesn’t usually recognize fur babies as dependants. But there are exceptions! If your pet is working 9 to 5 just like you, you may be able to claim their costs. A farmer was once allowed to claim cat and dog food because they were outdoor pets that were acquired to keep wildlife away from their blueberries. Zeitz v. The Queen  4 C.T.C. 2292
Myth: “Tips are not considered income”
Whether you are serving up spaghetti or styling new dos for your clients, tips are definitely part of your livelihood. For example, we know that for servers, tips can make up as much as 200-400 per cent of their income. So no matter what role you are playing, if you’re working in the hospitality industry, you need to record and report tips on your return.
Myth: “I don’t need to worry about T-slips mailed to me at the wrong address”
Not quite… You’re in charge of your T-slips, no matter where they get sent. When you file your taxes, you’re required to report all sources of your income in the year it was earned. Out of sight, out of mind doesn’t really work here because the CRA receives copies of all the T slips you’ve been issued anyway. If you forget, misplace or even hide a T slip (not recommended by us, unless you are into breaking laws and stuff), it will inevitably turn up by their matching program. When it does, it will result in a reassessment.
The CRA gets that moving cities, jobs or even across the street can make getting a hold of your T-slips difficult, but if you happen to leave one out twice in a four-year period, you will face a stiff penalty. So remember, whether you’ve moved across the world or across the block, it’s your responsibility to find your T-slips. Prefer to go paperless? Use the CRA’s My Account to track down your T-Slips and other docs you might need to file.
Myth: “If I work outside of the country, I don’t need to file a tax return”
Not so fast, globetrotter. If you are working outside of the country but have substantial residential ties to Canada (i.e. you have a spouse or child residing in Canada), you need to file a Canadian tax return. The Canadian tax system is based on residency. If you are emigrating to another country, you should indicate your date of exit on your last tax return.
Myth: “Mortgage interest on my personal residence is a tax deduction”
Only if you’re working from Home-Sweet-Home. Self-employed Canadians who call home “the office” are allowed to claim a percentage of their mortgage interest as a business expense. For the rest of us, the tax benefit of owning a home really comes into play when you sell. Every Canadian receives a capital gains exemption on the sale of their principal residence.