Common Mistakes People Make With Their Taxes
Filing and paying your taxes is considered a mandatory duty of every working citizen of Canada. However, most taxpayers find that doing their taxes is a complicated process, which often causes them to get it all wrong. When preparing their taxes, they usually commit common errors, including paying more, missing out on deadlines, misreporting, and so on.
At Fort McMurray Tax & Accounting, we understand that mistakes on your taxes are a prolonged pain. In the event of mistakes with your tax preparations, you might end up having to pay more taxes than you expected or have to provide the Canada Revenue Agency (CRA) with more information, paperwork, or receipts. So, to help you avoid costly mistakes on your tax return, we have put together three of the most common mistakes people make on their taxes.
1. Transferring tuition from a child to a parent
When transferring tuition from a child to a parent, it’s common for the parent just to take their child’s T2202 (school-provided tax slip) and include that amount in their own tax return. This mistake is common because it seems like the simplest, most common-sense thing to do. Unfortunately, the CRA doesn’t always deal in the simplest terms. An individual should want to avoid this mistake just like any other personal tax mistake because it could result in interest fees, assessments, or at the absolute worst, audits. Correcting these mistakes will save them headaches later on when dealing with the CRA and could save them from having to pay back part of their return as well as interest fees. To properly transfer tuition from a child to a parent, the child must claim that T2202 on their own taxes and deem the tuition as “Transferrable.” Once that is done, whatever software they are using should tell them exactly how much tuition can actually be transferred to a parent. That amount is what is claimed on the parent’s tax return.
2. Claiming “leisure travel trips”
In Northern prescribed living zones, taxpayers can be eligible to claim up to two leisure or vacation trips a year on their taxes. However, it is up to the taxpayer’s employer to provide that benefit to their employees. That benefit is granted through box 32 on the individual’s T4. If there is no box 32, no trips can be claimed. Many individuals try to claim these trips without actually having box 32 filled out on their T4. These are usually people who have recently moved to a northern zone and are hearing from friends, coworkers, etc., that they are allowed to claim two trips a year. If one is unsure if they are eligible for these two trips, the best thing to do is check the CRA’s website to see if they live in a prescribed northern zone. The second step would be to contact their employer and see if they provide a box 32 on the T4, which will allow the employee to claim those trips.
3. Failing to understand Northern Residents Deduction
This one goes hand-in-hand with the previous mistake involving box 32. The Northern residents deduction is also granted to individuals who are living in a prescribed northern zone. Clients tend to get confused or make mistakes when multiple people want to claim the northern residents deduction who are living in the same house. There are two amounts that can be claimed with the northern residents deduction, the basic residency amount and the additional residency amount. Suppose one individual living in a particular residence claims the basic and the additional amount. In that case, nobody else living in that residence is allowed to claim any portion of the northern residence deduction. But, if everyone living in that residence only claims the basic portion of the northern residence deduction, then many individuals in the house can also claim the basic portion. It doesn’t matter if two people or four people or ten people live in the house. If they can prove they lived there, and everybody agrees to only claim the basic portion on their taxes, then all ten people can claim that basic amount. But as soon as one individual claims basic and additional amounts, everyone else loses the ability to claim the basic amount. The best way to prevent this confusion and make sure one files with the correct northern residence deduction claim is to speak with any individuals in the house who might also be claiming the northern residence deduction and make sure everyone agrees on who will be claiming what.
To avoid committing these and other mistakes on your taxes, reach out to the experts at Fort McMurray Tax & Accounting. We are seasoned financial advisors and bookkeepers in Fort Mcmurray, Alberta, providing bookkeeping and financial service to our community and Alberta for more than fifty years. We offer tax preparation, bookkeeping, business consultation, and payroll services to clients at Fort McMurray and throughout Alberta.