Income taxes 101
How to file in Canada before the May 1, 2023 deadline
Whether you’re long ready to go or haven’t even started collecting your T-slips, taxes are due in Canada on May 1, 2023. (You get a whole extra day because April 30 falls on a Sunday this year). Do you think you know everything already and can brave this task alone? Or are you convinced you know nothing and cowering in fear? Either way, this article is for you.
What is Canada’s 2023 deadline to file income taxes?
For most Canadians, the deadline to file tax returns is May 1, 2023.
Where and when do I even start?
Ideally, not the last week of April in a frantic rush. “The best time to start is as soon as possible,” says Jason Ding, a chartered professional accountant in Vancouver. In Mr. Ding’s experience, about half of people show up in the last few weeks of April – even last year, when the government extended the deadline because of COVID-19. “People still submitted at the last minute,” he says, and just guess how accountants feel about that.
“If you use an accountant like me, know most of us are completely swamped right now,” Mr. Ding says. If and when they kindly send you a reminder e-mail in March, that’s because even if you make the official April 30 tax deadline, they might not if half their clientele press Send in the same few weeks.
But you can’t really start until you have your T-slips collected. If you’ve got a regular job and paycheque, your employer should issue a T4 (a.k.a. Statement of Remuneration Paid) at the end of February. Keep your eye on the mailbox for any others: slips for Old Age Security, Canada Pension Plan, Investment Income, Tuition Enrolment and the Universal Child Care Benefit could and should arrive any time before the end of March.
Carefully file away each slip as it arrives, and if you’re concerned that any are lost or missing, check your online My CRA account (or call the Canada Revenue Agency 1-800 number), as the slips are very likely viewable in your account. Still no luck finding a slip in time? In this case, it’s okay to estimate the income or deductions with a note of the missing slip.
Meanwhile, there are elements of your taxes that don’t need to happen in the same busy spring month. “Anyone who’s self-employed or an independent contractor should be working on this all year so that when it’s time to file, they’re mostly ready,” says Jennifer Walsh, a Calgary bookkeeper.
Ms. Walsh also offers this – easy, obvious and surprisingly often not done – tip to skip unnecessary tax-time drama: “Make sure your personal information, specifically your address, is updated well in advance on your CRA account.” Don’t forget to tweak your status if you got married, separated, divorced or had a baby in the past year – all can and will affect your tax return.
Should I file my own taxes or hire a professional?
This is such a great question that we gave self-filing versus hiring a professional (and the many more options in between) its own separate article. That’s the long answer, but the short answer is, even if professional or technical help could do the job a little better, the one-quarter to one-third of Canadians who file their own taxes every year mostly do just fine.
If your job and money situation are relatively straightforward, if you understand the basics about how income and sales taxes work in Canada and you’re reasonably good at math, the only thing holding you back from filing your own taxes is … you.
“It’s all about your comfort level,” says accountant Teresa Graham, a partner at Ascend Canada. “Just know that there are so many rebates and credits that an average taxpayer just wouldn’t know,” she says. If you understand that and don’t care, file away.
Is investing in tax software worth it?
Anyone seeking a happy medium between a hired accountant and going solo should consider tax software, of which there are many, many ever-evolving options. “Software that you might buy at Staples has come a long way, I’m told,” says Ms. Graham, “and the CRA is always putting out new software to help you.” The CRA keeps a working list of CRA-approved software, where you’ll currently find TaxTron, StudioTax, TurboTax, TaxFreeway, CloudTax Plus and lots more.
Some tax software is entirely free for use, others are pay-what-you-can, some offer a basic return for free but charge for upgrades such as human help or audit insurance. Others charge a fee upward of $100 and beyond.
At that point you could probably afford an accountant instead, which is a very good thing if you plan to write off anything at all related to your specific job situation or industry. “If you’re a mechanic, you can write off some of your tools, and if you’re a massage therapist, you can write off your dues. TurboTax isn’t going to ask you any of this,” says Ms. Walsh.
Is it still okay to file manually?
Of about 31 million returns the CRA received last year, 92 per cent of them arrived electronically – a huge majority, obviously. But you’re not alone if among the almost 2.5 million Canadians who filed via snail mail. The government knows many people aren’t online, or they’re online but not particularly confident while there, so it’s perfectly okay to file manually if that’s how you’ve done it forever and you’ve got no plans to change now.
That said, all accountants in this piece expressed some serious trepidations. “Honestly, taxes are so complex, particularly with all the rebates and credits that are available, that I can’t imagine trying to do it on paper,” says Ms. Graham. That the paper filer is probably not tech-savvy enough to do online research only complicates this situation.
An excellent solution for these people could be in-person service such as H&R Block or Grant Thornton, who will connect you with an in-house “tax expert” – with or without an appointment. “H&R Block and others like it basically offer a walk-in, walkout tax service,” says Ms. Graham. Quick and convenient, yes, but probably not very thorough. “It’s like going into a walk-in clinic rather than seeing your regular doctor,” she says.
Is it okay to estimate or do I need to add up every penny?
This innocent-seeming question posed some difficulties for our experts. Say, for example, you know you pay $69 a month for your cellphone. Is it really so wrong to look up January’s bill and multiply by 12?
“The textbook answer is you should be pinpoint accurate. Technically, you should be pulling your twelve monthly bills and adding them all up,” says Mr. Ding. “But in reality, and the government knows this, many people know what they pay per month and just estimate.”
Probably no one will notice or care, but if you happen to be audited by the CRA (or just “reviewed,” the nicer step before auditing), it will make you dig up the receipts, count them all up and pay any difference. “It’s really just a little slap on the wrist to remind you not to do that again,” says Mr. Ding.
When Jennifer Walsh’s clients try to streamline their tax process by estimating, which they very often do, she talks them out of it with this stern reminder. “If you’re unfortunate enough to get reviewed, the CRA is going to want the receipts you said you had, and if you don’t have them, they’re going to claw that money back and add interest too,” she says.
If the difference works out to just a few dollars, think about if the headache is really worth it. Having your receipts collected, calculated and ready is a much better plan for peace of mind.
But what are the chances I’ll be audited or reviewed?
Take a breath and relax, because your risk is indeed very small – provided you follow the rules. “We use the honour system, and if you do your best to be honest and thorough, you’re very unlikely to be reviewed,” says Ms. Walsh. Remember that the government is after the big corporate fish, which is probably not you, and Ottawa doesn’t expect perfection. “The chances of everything being correct to the dollar is very, very low,” explains Mr. Ding. “It’s the margin of error that matters.”
That said, some things might flag the system. “You’ll could be flagged if there’s a big discrepancy somewhere,” says Ms. Walsh. For example, you spent nada in 2021 but $20,000 in 2022 on advertising – one category the CRA keeps an especially keen eye on. “Know that the CRA is looking very closely at a sole proprietor’s meals and entertainment, travel and advertising expenses,” says Ms. Walsh.
With an increase of home offices – you’re probably entitled to a T2202 slip and a nice rebate – the government is also keeping watch on inflated percentages. “If you claim you use 50 per cent of your home as your office, you’ll probably be flagged,” says Ms. Walsh. “Now maybe you do, but you’re going to have to be able to prove it.”
“Any expenses you want to claim have to be directly related to earning your income,” says Ms. Graham. Once more for the people in the back: directly. related. to. your. income. Granted, she admits, “there’s a lot of flexibility in there, but they have to be directly relatable and supportable and reasonable. It’s very subjective.” Just remember the weirder and more wonderful your claim, the more likely you’ll be flagged for review and asked to prove it exactly why you needed that vacation, hot tub or exotic pet for work.
Other expenses, no matter how much you genuinely do need them, are not claimable. “People try to claim clothing all the time, every single year. You can’t claim clothing at all. Even if you’re a construction worker and you need a warm coat, no,” says Ms. Walsh. By all means ask your accountant, but if they look iffy about it, that’s a very good indication how an auditor might react when they see the same.
What are the biggest mistakes people make on their taxes?
Taxes have a terrible reputation and few people look forward to tax time. While it’s very normal to not like doing or dealing with your annual taxes, you shouldn’t be anxious or fearful – one of the biggest mistakes Ms. Walsh sees in her practice.
“I’ve been in business for over 20 years, and I see people are absolutely terrified of filing their taxes,” she says. Often clients were never taught and just don’t understand taxes. Others haven’t kept perfect records and they worry some small mistake will have a police officer showing up at their door to arrest them.
“People think they’re going to be thrown into jail for little mistakes, but that doesn’t happen here,” says Mr. Ding. “As long as you’re honest, you’re never going to be in that realm.” Ms. Graham concurs: “It takes some serious effort to commit tax evasion and get into real trouble. That’s not your case with the average taxpayer, I promise.”
If you’re concerned at all about your abilities to do taxes right, that’s a very good reason to tuck away some extra dollars to invest in an accountant proper, because filing yourself when you really shouldn’t be is another common mistake. “You wouldn’t be your own doctor or dentist, you’d get a professional. An accountant is no different,” says Ms. Graham.
That said, Ms. Walsh certainly understands why clients procrastinate – sometimes for years or even decades. As you probably guessed, she says, “the worst thing you can do is not file at all.” Her reasoning goes this way: “If you don’t file and they owe you money, you’ve lost out. If you don’t file and you do owe, the CRA is going to find you and charge you that and more. Either way you are out, so it becomes a huge lose-lose situation.”