This post is sponsored by TurboxTax Canada. All views and opinions expressed represent my own.
It’s tax time, and even though some people love doing their taxes (okay fine, just me), for most people tax season is a time full of stress, head-scratching, and endless questions.
Luckily, there is online tax software like TurboTax that not only helps you file your taxes for way less than hiring a tax accountant, but also walks you through the process and educates you at the same time. And if you sign up to TurboTax now, you can save up to 20% off the regular price using my special promo link.
Anywho, since I know this can be a fairly overwhelming time for everyone, I thought I would answer the most common tax questions in Canada and clarify some popular misconceptions so you can be sure to file your taxes easily (and correctly).
Common Tax Questions in Canada
1. When Do I Have to File My Taxes?
Let’s start with a simple answer to a very important question‚ the due date for filing your taxes:
- April 30, 2018 – the deadline for most Canadians
- June 15, 2018 – the deadline if you or your spouse/common-law partner are self-employed (but if you owe money on your taxes, you should file and pay your bill by April 30, or you’ll be charged interest)
2. What Happens If I File My Taxes After the Deadline?
Whenever I think about filing taxes late, or waiting until the very last minute to file, I can’t help but think of this Simpsons episode. Sorry, I digress, I just had to share that. The answer to this question is that if you file your taxes after the deadline, you’ll be charged a penalty of 5% of your 2017 balance owing, then 1% of your balance owing for each full month that your return is late, to a maximum of 12 months.
For more info on penalties, and why you should always file on time, check out this article on interest and penalties on the government’s website.
3. If I File My Taxes and Forgot a Tax Deduction, Credit, or Made a Mistake, Is It Too Late?
Nope! And I’m a prime example of this happening too. Last year I filed my taxes, and not even a week later I realized that I forgot to claim the First Time Homebuyers’ Tax Credit. This was so not like me because I’m usually meticulous when it comes to having everything together for tax time. But, everyone makes mistakes and even the government gets it. That’s what income tax adjustments are for.
For steps on how to do this, check out this great article on how to make an adjustment to your tax return.
4. Do I Have to Pay Taxes on My Cash Gigs & Tips?
You’re probably hoping that the answer to this is no and that you can keep that money all for yourself, am I right? Bad news…you can’t. I don’t know why there’s so much confusion about this, but I’m going to clarify everything right now.
If you earn money, you owe income tax on it. That includes any cash gigs you do and any tips you earn. It’s that simple. And if you’re not claiming that income and paying tax on it, that’s called tax evasion which is illegal. So do the right thing and pay up each tax season, because the CRA will find you and make you pay, even if it’s years down the road.
5. Do I Have to Pay Taxes on My Side Hustle?
Similar to cash gigs and tips, side hustles are no exception. You have to pay income tax on all money your side hustle earns. Even if all the money you earn goes into your PayPal account and you don’t think the CRA will ever find out. They will, they’re smarter than you think, and you’ll be in a really bad situation if they discover you’ve been evading your taxes.
6. Tax Evasion vs. Tax Avoidance: What’s the Difference?
Speaking a bit more on tax evasion, there may be some confusion about what it is and if it’s the same thing as tax avoidance. Nope! They are very different.
Tax evasion, as I mentioned earlier, is illegal. Tax evasion can take a few different forms. It could mean not declaring your true income, claiming tax credits and/or expenses that are not applicable to you, knowingly putting false information on your return, or not filing your tax return at all. If you do this, you better believe there are consequences because it is considered a crime.
What potential consequences do you ask? Well, as noted in this article about tax cheating on the government’s website, you’ll not only be required to “repay the full amount of taxes owing, plus interest and any civil penalties assessed by the CRA… the courts may fine… up to 200% of the taxes evaded and impose a jail term of up to five years.” Yeah, not good, so don’t do it!
Tax avoidance however is legal though generally frowned upon. You see, tax avoidance involves reducing your taxes within the limits of the law, however, it’s considered “inconsistent with the overall spirit of the law.” Once again, the strategies used for tax avoidance are not illegal, but you’re basically riding the line between legal and illegal.
What you want to be doing is tax planning. Tax planning is when you are using legitimate methods to reduce your taxes owed while upholding the spirit of the law. I know no one likes to pay taxes, but at the end of the day, taxes pay for a lot of amazing things in this country (ie. health care). Let’s never lose sight of that.
7. Tax Refund vs. Tax Return: Are They the Same Thing?
Two other terms that are often confused with each other are tax refund and tax return.
Most people use them interchangeably, but they are not the same thing at all. A tax refund is money you get after you file your taxes if you overpaid on your taxes. This is common if you work a salaried job in which income tax is taken off your paycheque automatically by your employer. You see, although your employer takes into account your tax bracket (so they have an idea of what percentage of tax you’ll owe to the government), what they don’t take into account is any other deductions you may have, such as RRSP contributions. Thus, if you have a number of deductions that drop you into a lower tax bracket (lowering the percentage of tax you owe), you get a refund.
A tax return is simply the term used for you to file your taxes, either by going old school and sending in your paper tax return form, or using online tax software like TurboTax.
8. How Long After I File Will I Get My Tax Return?
Not that long actually, especially when you file electronically with CRA NETFILE certified software and before or at the tax deadline. For electronically filed returns, you can expect to get your refund within 2 weeks. If you’re filing a paper return, you’ll be waiting around for at least 8 weeks.
On that note, to make the process seamless by getting your refund deposited right into your chequing account, make sure to link your bank account with your online CRA account.
9. Tax Deductions vs. Tax Credits: What’s the Difference?
These two terms also get used interchangeably, but they serve two very different purposes.
Tax deductions are expenses that can be deducted from your gross income, such as union dues, RRSP contributions, business expenses, child care expenses, etc. Once all of your deductions have been accounted for, you end up with your total net income, which is what you are taxed on. Why deductions are so important is because they are a way to reduce your overall taxes owed by lowering your tax rate. For more info on tax rates, read this tax rate overview.
Tax credits on the other hand are applied to the amount of taxes you owe. Also, there are refundable tax credits and non-refundable tax credits. As you may guess, refundable tax credits can reduce your tax owed below zero, thus making you eligible for a tax refund. Non-refundable tax credits, which are more common, will not reduce your tax owed below zero (so no refund for you!).
10. What Are Some Tax Credits I Should Know?
In order to take advantage of all the tax credits available to you, you need to be aware of them in the first place so you can ensure you save the receipts. A great place to start is by visiting the deductions, credits and expenses section of the government’s website, but here’s a short-list to give you an idea of what is out there:
- Search and rescue volunteers’ amount
- Home buyers’ amount
- Donations and gifts
- Tuition, education, and textbook amounts transferred from a student
- Interest paid on your student loans
- Adoption expenses
11. I Just Got Married, Do I Have to File a Joint Tax Return with My Spouse?
Nope, because you can’t file jointly in Canada. I know, shocking right? When I got married, I thought there was too. But that’s because it’s something you can do in the United States. In Canada, no matter if you’re married or common-law, you file separately to your partner.
That being said, there are some benefits to filing at the same time or using the same tax software like TurboTax, because you can take advantage of some tax credits such as the spousal tax credit, child care expenses, pooling your charitable donations, and pooling medical expenses. For more on this, check out this article about couples and taxes.
12. What Are My Marital Status Options for Tax Purposes?
Not sure what you should mark down as your marital status when doing your taxes? It’s a question you have to answer on your return each year, but it should be noted that the CRA is looking specifically for what your marital status was on Dec. 31, 2017.
- Married: This means you are legally married and your spouse did not die during the tax year
- Living Common-law: You are not legally married, but you have been living with your partner for 12 continuous months.
- Widowed: You were married or living common-law, but your spouse or common-law partner died during the tax year and you did not remarry.
- Divorced: You were married, but your divorce became final before or during the tax year.
- Separated: If you have been living apart from your spouse or common-law partner for more than 90 days and have not reconciled as of Dec. 31 of the tax year due to a marital breakdown. If you have just been living apart, not because of a marital breakdown, then you are still considered married or common-law.
- Single: If you are none of the above.
Remember, if you’ve experienced a change in marital status, it’s your responsibility to update your status to the CRA via your CRA account or by completing the marital status change form.
13. Is There a Higher Chance I’ll Get Audited by the CRA If I File Online?
Absolutely not. This may even sound like a silly question in today’s age because most people file online now, but it’s still a very common question. The answer is a resounding no and it’s a big tax myth. The CRA does not decide to audit individuals based on their filing method.
That being said, you may be more likely to be audited if you’re self-employed, there are big changes compared to your last tax filing, you are participating in tax avoidance, or your numbers just don’t add up or look suspicious. But if you follow the rules, are honest when filing your taxes, and save all of your documents and receipts for 6 years, you should have nothing to worried about if you’re audited by the CRA.
14. Is TurboTax Worth It?
When I was typing in “TurboTax” into Google, this is what one of the keyword suggestions was. Well, the good thing is I don’t have to tell you whether it’s worth it or not because there’s no right or wrong answer. There are a number of other tax software out there, and the great thing is they all allow you to do your taxes with them for free…until you wish to file.
If you want to file your return, that’s when you have to pay a fee for using that software’s services. So really, to answer “Is TurboTax worth it?” I suggest you find out for yourself. Get all of your tax materials, use the software to plug into all of your details, and see if you like it.
On a personal note, yes I have used TurboTax in the past to file my own taxes. I actually used it for a number of years as my go-to tax software. It’s a tax software I’ve used, liked, and frequently recommend to friends and family who are looking for an easy way to get their taxes done. If you do want to check it out for yourself, and you want to make sure you take advantage of their 20% off discount, feel free to use my affiliate link. And let me know what you think in the comments, I’d love to know your experience with it!
15. What If I Need Some Help While Doing My Taxes?
We’ve all been there ‚you’ve just filed your tax return and you’re feeling a bit uneasy after clicking that NETFILE button because you’re not entirely sure you’ve covered everything.
New in TurboTax for the 2017 tax year is Smartlook®, a feature that virtually brings tax and product experts directly to you. Smartlook® is an online, on-demand service connecting tax filers to live, personalized tax advice from qualified tax and product experts, with an average experience of 17 years in preparing tax returns. You get on-screen product support from specialists in real-time, which means that when it comes to your taxes, you are no longer alone.