As a taxation professional, it was only a matter of time before I posted a Thursday Thirteen that was taxation related. I have a timely post this week around tax season – Canadian style – however some of it crosses the globe.If you ever want to read more taxation information or read my thoughts on managing, you can do so at www.intaxicating.wordpress.com.
But in the meantime, with tax filing season fast approaching, here are the 13 things you need to know before you file your 2011 tax returns;
13. Contrary to popular belief of those on the left and those silly “Occupy” folks, in Canada (and the US), the top 10% of Canadian earners pay half of all personal income taxes, while the half of earners with the lowest income pay less than a tenth (1/10th) of the total. So those in the driver’s seat, the high and middle-income earners, they DO have some choice as to how much they want to spend and how much they plan to save, so by spending less, they pay less consumption taxes, less property tax, less gasoline tax, and other taxes and user fees – bank fees, late fees. interest on credit cards, etc.,
12. Regardless of where you are and what you do, you really should file a tax return. Canadian reporting is voluntary in certain conditions, but be sure before you pass on filing. The CRA has a great list of when you need to file and why you should file right here; http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/flng-blgtns/menu-eng.html
11. You have the option to defer the paying of taxes, in some cases, when you save for retirement inside a RRSP / IRA or any other form of registered retirement savings plan. In these plans, you defer payment of income taxes until later in life. There are taxes assessed, when you withdraw the money after you have reached a certain age, usually 65-years-old, but those tax rates are probably lower than you would be paying now, if you have above-average income.
If your income is below average, you may be better off to pay taxes now and save in a tax-free savings account (TFSA).
If you save for your family inside a registered education savings plan or a registered disability savings plan, there will be a deferral of taxes on interest earnings, other investment returns and government grants. Then the child or other relative will likely pay little or no taxes on those savings.
10. Before you file make sure you have all your slips. Amending sucks and looking for them last-minute can cause a lot of stress. Trust me on that one.
9. Make sure the government has correct information for you – address, name, direct deposit because you want your refund and if they audit you, they might not be re-assessing you, but rather they may be looking for an additional copy of a receipt they lost in the processing of 20 million tax returns. Get to it and get to it quickly. Do not ignore government mail and not open it. Open it and action it..
8.. File this one electronically – but keep your receipts handy for audit and verification purposes. It’s quick, you may get your money earlier and you’re saving trees, My kids say thank you..
7. If you owe money, do not write a note and attach it to your return, but contact the government and make a payment arrangement and honor it. When your paper return comes into the processing centres, the processors, who are usually temporary hires to help the CRA get through the tax season, rip of cheques and process them right away, then they tear off any unnecessary paperwork and send the returns to a data processing group. So if you include a piece of paper or maybe gold glittery powder, it’s in the classified waste bin right away.,
6. Think before you bitch – A third of all income in Canada is paid in taxes. But before you consider moving out of the country, consider that the Canadian tax burden is less than that of 19 other developed nations. We, as Canadians only pay more taxes than 10 developed nations.
5. Why all the taxes? Where does this tax revenue go? With the tax revenue, 62% of it goes to pay for health care, education and social assistance, including unemployment benefits. The rest, a measley 38% goes for everything else we need, like infrastructure, social programs, etc. Not such a bad deal afterall, eh?
4. Not everything is taxed, here are some examples – There is no tax on a winning Lottery tickets, on scholarships, inheritances, gifts, the Guaranteed Income Supplement (GIS) to the taxable Old Age Security (OAS) pension, Canada Child Tax Benefit cheques or child support payments after a divorce. You pay no tax on at least the first $9,000 of waged earnings or $40,000 of income per year if you receive only eligible corporate dividends and $18,000 if you receive only capital gains.
3. On the flip side, some high-tax items – The income tax rate on income beyond $127,021 a year in 2010 was 46.4%. Taxes on cigarettes in Ontario was 63.5%; alcohol, 52.7%; and regular gasoline, around 36%.
2. The HST effect – The combined 13% federal and Ontario sales tax, the HST (Harmonized Sales Tax) has boosted the incentive to conserve energy, because provincial sales tax did not apply to energy before July 1, 2011 – Thank you Dalton! – So you will save more if you choose a compact, well-insulated home close to your job and buy fuel-efficient vehicles – like my hybrid vehicle – appliances, lighting – get those halogen, CFC-free bulbs, and furnaces.
1. Tax relief opportunities – Numerous tax breaks and benefits aim to encourage you to better yourself or the economy, such as seek higher education, earn high grades, raise children, move closer to a job, belong to a professional group, take public transit, make charitable and political donations, invest in companies, start a small business, and save for retirement. So get cracking.
There are some easy wins here and some clear opportunities to save money and where we are all letting money slip through out fingers.
But whatever you do, get it there on time! No point in paying the government a late filing penalty of $400.00 for your procrastination.
- 2012 income tax season: 11 questions you are afraid to ask (moneyville.ca)
- CRA probing high-flying TFSAs (business.financialpost.com)