If you don't file your taxes on time, you'll have to pay penalties. That alone is a good reason to file your taxes on time. Plus, getting it done now
If you don’t file your taxes on time, you’ll have to pay penalties. That alone is a good reason to file your taxes on time. Plus, getting it done now will save you a headache later. So here are three tax filing tips – straight from the Canada Revenue Agency website.
Tip 1: File your taxes electronically
Generally, it’s better to file your taxes electronically than to mail them in. The reason is that filing electronically speeds up the process. It can take up to a week for a letter to be mailed domestically. With electronic filing, it’s instantaneous. This plays a role in how long it takes for your taxes to be assessed. This, in turn, determines how long it takes to receive your refund. So, if possible, file your tax return electronically. That way, you’ll get your refund back faster!
Tip #2: Claim deductions and credits.
Most likely, you plan to claim some deductions and credits on your tax return – perhaps some RRSP contributions and charitable donations. That’s all well and good. But you may be able to claim more. There are countless tax deductions: Home office, tuition, student loan interest, and the list goes on. The more you claim, the less you pay. When in doubt, talk to a tax advisor, as they will help you figure out which deductions and credits you are really entitled to.
Tip #3: Don’t forget your investments!
Last but not least, don’t forget to report your investment income to the Canada Revenue Agency when you file your taxes. Banks and brokers usually send this information to the CRA themselves, but it’s still up to you to report it on your tax return. If you don’t report it, you could face penalties or fines.
You can save a lot of money on investment taxes if you file them carefully. There are a variety of credits available for stocks that can save you a lot of money. If you file your taxes correctly, you can get all of these credits.
Let’s imagine that you hold $100,000 worth of iShares S&P/TSX 60 Index Fund (TSX:XIU). That’s a large-cap TSX fund with a dividend yield of 2.5%. With that yield, you’re getting $2,500 in annual dividends on a $100,000 position. That’s a decent amount of income. You might think you’ll have to pay a lot of taxes on that. But think again. A generous tax credit is applied to dividends. The amount of dividends is grossed up by 38%, which gives you $3,450. Then a 15% tax credit is applied to the grossed-up amount. The result? A tax credit of $517! And you get that in a regular brokerage account – no need for an RRSP or TFSA!
Arguably, the tax treatment of capital gains is even more generous. If you made a 10% ($10,000) gain on your XIU shares, you would only have to pay tax on half of that. That’s a tax rate cut in half compared to earned income. That’s a lot of tax savings you can get here, but only if you file your taxes on time. If you don’t, the savings will be eaten up by penalties.