Top 6 tips to help you tackle tax season
Tips to help with tax season
Tax season is once again upon us and for a lot of people, 2020 was an extraordinary year. Many Canadians have faced challenges due to the COVID-19 pandemic. As you gear up for this year’s tax season, your tax return filing may look a bit different than usual. You may have questions about tax reporting due to federal COVID-19 support programs and we’re here to help. Here are some great tips and resources on prepping and filing your 2020 taxes.

1. File your taxes early

This year the deadline to file your taxes is April 30, 2021.7 As of right now, there haven’t been any CRA announcements of deadline extensions like there were last year. You can actually file your taxes as soon as late February, and it’s best to do it earlier rather than later. You might be wondering what difference it makes when you file. Well, if you owe taxes, you can plan to pay it in smaller chunks instead of a lump sum. If you leave it really late and miss the deadline, the Canada Revenue Agency (CRA) will start to charge interest plus a late-filing penalty on top of the amount you owe. For both individuals and those that are self-employed, you’ll have until April 30, 2021 this year to pay any balances due from your individual income tax and benefit return for 2020.7

On the other hand, if you’re expecting a refund, filing early means you’ll see it in your bank account sooner, which can only be a good thing.

2. Pay less in taxes when you save your money

If you have extra cash to invest, you’ll want to place it where you’ll pay as little tax as possible (more money for you!). One way you can do this is through a Tax-Free Savings Account (TFSA). Having a TFSA means you pay no tax on your investment, and you can withdraw cash tax free too. Just keep in mind, there is a limit to how much you can put into a TSFA each year, so make sure you keep track of the yearly contribution limits (for 2021, this is $6,000). If you’re not sure how much room you still have to contribute, you can check this out in your CRA My Account

If you’re working and your employer offers a company savings plan, a registered retirement savings plan (RRSP) is worth contributing to. This is because it deducts money directly from your paycheck before it’s taxed. For example, if your salary is $50,000 and you contributed $2,000 to your RRSP over the year, you’re only paying taxes towards $48,000. Your investment remains tax free until you withdraw the money at retirement. Take the time to read up on RRSP to learn how much you can contribute and when you can withdraw it. You have until March 1, 2021 to make contributions to an RRSP (or to make charitable donations) for this upcoming tax return.1

3. Get your forms in order

Your employer is required to provide you with your T4 (which is your Statement of Remuneration Paid) before the end of February. But, this isn’t the only documentation you’ll need to complete your taxes. A few other forms you may need to collect for your taxes could include (among many others):

  • T4A – Statement of Pension, Retirement, Annuity and Other Income
  • T5 – Statement of Investment Income
  • T2202 – Tuition of Enrolment Certificate

    Outside of forms, other documents that you might need to complete your taxes can include:

    • Receipts for charitable donations, medical costs, moving costs and childcare
    • Mortgage and property tax statements

      If you were one of many people affected by the pandemic and needed to use Federal COVID-19 relief measures, here are some of the emergency benefits you’ll need to report on your taxes:

      • Canada Emergency Response Benefit (CERB) with the CRA
      • Canada Emergency Student Benefit (CESB)
      • Canada Recovery Benefit (CRB)
      • Canada Recovery Caregiving Benefit (CRCB)
      • Canada Recovery Sickness Benefit (CRSB)

      You’ll get a T4A slip from the CRA, if you received any of the COVID-19 emergency or recovery benefits from the CRA before December 31, 2020. If you received your CERB payments from Service Canada, this amount will be included with your regular Employment Insurance (EI) benefits on your T4E slip. If you’re a resident of Quebec, you’ll find this info on you RL-1 slip. 8

      Keep all your supporting tax documents together in one place so they are easy to access when it comes time to file (be this physical or electronic – or better yet, both). Also, remember that it’s suggested you keep your tax records and supporting documents for at least 6 years beginning at the end of the tax year the documents belong to.2 The reason for this is in case your return is selected for review by the Canadian Revenue Agency.3

      4. Learn what deductions and tax credits you can claim

      Get to know what costs you can deduct from your taxable income. You might be able to reduce the amount of tax you owe or even get money back! Here are a few examples of what you may be eligible to claim:

      • Interest on qualifying student loans that you’re actively paying off
      • Certain childcare costs that support your employment or study
      • Qualifying charitable donations

        What about your insurance premiums? In some situations, you may be able to deduct your insurance on your tax return. For example, if you’re a landlord, you can deduct the insurance premium paid for your rental property for the current year.5

        As for car insurance, you may be able to claim your auto premium (or a portion of it) too if:6

        • You normally need to work at locations other than your employer’s place of business
        • You’re responsible for covering the costs of your vehicle under your contract of employment (this means your employer doesn’t reimburse you and you haven’t refused a reimbursement or reasonable allowance from your employer)
        • You weren’t provided a non-taxable allowance for motor vehicle expenses
        • Your employer has completed and signed Form T2200 (which is a Declaration of Conditions of Employment)

          The amount of your auto premium that you can deduct is limited to the percentage your car is used for business use (or in other words, is used in relation to making an income).6 It’s also important to remember that not all business use is allowed under a personal auto insurance policy.

          Due to the COVID-19 pandemic, you may have been working from home and using your personal living space as a workspace. If you meet the eligibility criteria, you can use the temporary flat rate method to calculate your deduction for home office expenses for the 2020 tax year only. You’re eligible to claim a deduction if you meet all of the following criteria:9

          • You were able to work from home in 2020 or your employer required you to work from home due to the COVID-19 pandemic
          • Over a period of at least four weeks, you worked more than 50% of the time from home in 2020
          • You have a completed Form T2200S or Form T2200
          • The expenses are used directly in your work during the period

          The maximum you can claim using the new simplified process for the temporary flat rate method is $400 (200 working days) per individual. You also do not have to calculate the size of your workspace, keep supporting documents, or get Form T2200 completed and signed by your employer. For more detailed information and a helpful check list you can reference: home office expenses for employees.

          Want to know the full list of what you could be entitled to claim? Check out all of the deductions and credits available.

          5. File your own taxes

          If your tax return is going to be pretty straightforward, it’s worth doing it yourself if you can. There's an abundance of easy-to-use tax filing software online, available for free or at a small cost. For example, our partners at TurboTax offer different products depending on your needs and comfort level to ensure you file with confidence. They also have an online income tax calculator that can estimate your tax refund for free before even starting your tax return.

          TIP: Sonnet customers can save 20% on TurboTax software. Check out this offer by logging in to your account and clicking on Sonnet Connect.

          Online software often gives tips on how to maximize your refund and won’t allow you to submit if information is missing. If you prefer traditional methods, you can file by mail or phone.

          Did you know? If you happen to find a mistake after filing your taxes, you’re able to make a correction once you’ve received your Notice of Assessment (although there are certain things you can’t request an amendment for).4 In fact, amendments can be made for up to 10 years prior. You can request a correction to your tax return online through your CRA My Account or by mailing in a T1 Adjustment Request (or a signed letter with specific details included).4

          If you're not quite ready to take the reins of your tax return, try practicing online without sending it off. It’s a good way to improve your confidence – and maybe file on your own another year.

          6. Create a CRA My Account

          My Account is a service from the Canada Revenue Agency and it helps to make the tax season that much easier. Creating an account means you have secure online access to view and manage your tax return, and much more:

          • Automatically fill in some of the fields of your tax return
          • Check the up-to-date status of your tax return
          • Set up a direct deposit (so you get your tax refund quicker)

          Your tax return may be a bit more complex this year, but it doesn’t have to intimidate you. With some pre-planning and organization, you can have your taxes filed in time to enjoy all that this season has to offer.

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          Start saving on your insurance. Canadian Tax Filing Deadline Dates AFTER YOU FILE, TIPS & ADVICE, WHAT TO KNOW AFTER YOU FILE Tax Tip: How Long Should I Keep My Income Tax Records? How long should you keep your income tax records? AFTER YOU FILE, WHAT TO KNOW AFTER YOU FILE How Can I Amend My Tax Return? Rental expenses you can deduct Allowable motor vehicle expenses – Salaried employee expenses Changes to taxes and benefits : CRA and COVID-19 T4A: Report COVID-19 amounts Simplifying the process for claiming a deduction for home office expenses for employees working from home due to COVID-19