How to avoid tax nightmares.
Whether it’s an audit by the Canada Revenue Agency (CRA), a lost T4 slip or that you’ve missed the tax deadline – there are a number of tax situations you may find yourself in that can make the process of filing feel like a nightmare.
The good news is that there’s always a solution. We’ve compiled our top tips for avoiding, or at the very least managing, a variety of scary tax situations so you can be prepared for anything that comes your way.
Tax Nightmare #1: Audits.
Did you know that the CRA audits over two million Canadians each year? The CRA audits taxpayers for a number of different reasons ranging from: random selection, your review history (meaning you’ve been audited before and your return was corrected), new or unusual deductions claimed on your return, or the comparison of your return with that of a third-party source (meaning someone like your employer may have entered different numbers than you did).
So, how can I avoid an audit?
We hate to break it to you, but some audits occur due to random selection, so it’s impossible to prevent an audit entirely.
Ok, so how can I ensure an audit doesn’t get me into trouble?
There are some best practices to follow when filing to ensure you won’t run into any trouble if you’re selected for an audit, including:
- Be honest and accurate with the claims on your return
- Be organized and keep records of all your income, especially if you:
- are self-employed
- work in an industry that’s heavily cash based (hello servers and bartenders)
- have experienced dramatic changes in income from one year to the next
- have assets overseas
- Keep your receipts for up to seven years, as audits can go that far back. This way you’ll be prepared to answer any questions that come your way and have them on hand to share with the CRA as needed.
Tax Nightmare #2: Missing information.
You’re just getting around to filing a return and realized you’ve lost your T4! You swear you put it in a drawer next to your bed, but now it’s nowhere to be found. Don’t worry – there are options.
If you need the 411 on your T4, the tax slip that shows how much you were paid before deductions from your employer(s). You should have a T4 from every employer you’ve had throughout the year, no matter if you were salaried or hourly.
Ok, what are my options to file without my T4?
Good news: there are 4 ways to get a copy of your T4.
Option 1: Contact an H&R Block Office who can download it for you.
Option 2: Access the CRA My Account, where you can get electronic copies of your slips.
Option 3: Request another copy of your T4 directly from your employer.
Option 4: If you know you will not be able to get your T4 in time to file before the deadline, the CRA recommends you attach a note to your return, stating your employer’s name and address, the type of income involved, and what you are doing to get the slip. But be prepared – this could trigger an audit!
Tax Nightmare #3: You missed the tax filing deadline.
You thought you were in the clear after hitting send on this year’s tax return. But now you got a notice from the CRA saying that you owe a late-filing penalty and interest because you missed the filing deadline.
April 30 is the deadline for filing a personal tax return and there are consequences for missing that important date. If you miss the filing deadline and owe taxes, there is a one-time penalty of 5% on what you owe the CRA. In addition to this one time penalty, the CRA will charge you a 1% penalty on the total outstanding balance every month your return is late. So, if you are 12 months late paying your taxes, your total penalties will be 17% on what you originally owed. But that’s not all – don’t forget that in addition to the penalties, there is also interest being charged on your outstanding balance. These rates are posted as they change every three months, and are compounded daily.
How can I avoid tax penalties in the first place?
File before April 30! Why put off filing and prolong the stress that comes with missing the deadline when there’s help at your fingertips.
Overall, if you’re unsure about anything when it comes time to file, know that we’re here to help. If you file with H&R Block online or in an office, you have the option of purchasing Audit Protection or Peace of Mind, which gives you personalized assistance from one of our tax experts for a full year. They’ll be able to explain why you’re being audited, ensure you are prepared with all the documents you’ll need as well as assist you when it comes to communicating with the CRA. H&R Block Tax Experts are available year-round and can answer any questions you may have as well as help you manage any penalties and interest you’re faced with. Find an office near you, or visit www.hrblock.ca.