Unsurprisingly, tax season in Canada is a rather daunting time of the year, as there are so many rules and regulations that one can easily get lost. Whether you work as a contractor, are self-employed, or even an employee, one wrong step can lead to losing a refund or incurring penalties. But here’s the good news: it doesn’t have to be stressful!
Nobody likes to do their taxes, but with a solid plan and some time investment, you can master the process, steer clear of the most typical pitfalls, and perhaps even increase your returns.
In this guide, we have listed the most frequent mistakes Canadians make during tax filing and, even more importantly, how to avoid them. Whether you are doing it on your own or with the help of an accountant, these tips will assist you in completing the process effectively and without having to worry about the CRA coming after you.
1. Filing with the Wrong Marital Status
Your marital status affects your tax return, credits, and benefits, such as the Canada Child Benefit (CCB). You must update your status with the CRA if you are married, entered a common-law relationship, separated, or divorced during the year.
Why It Matters: Failing to update your marital status can result in receiving incorrect benefits or overpayments you may need to repay later. It also impacts your eligibility for credits like GST/HST rebates, the Canada Workers Benefit (CWB), and various provincial programs.
- Married/Common-Law: Combining household income may change your tax bracket and eligibility for income-based benefits.
- Separated/Divorced: Your family income will now be assessed differently, and you may become eligible for additional credits if you have dependents.
Pro Tip: Update your marital status promptly through your CRA My Account to avoid delays, overpayments, or penalties. Keep accurate records, such as marriage certificates, separation agreements, or divorce dates, as proof of status changes.
2. Missing Eligible Deductions and Credits
Every year, many Canadians miss out on valuable deductions and tax credits that could significantly reduce their tax bills. Commonly overlooked deductions include Registered Retirement Savings Plan (RRSP) contributions, childcare expenses, home office costs, and moving expenses. Similarly, credits like the Canada Carbon Rebate, Medical Expense Credit, Tuition Tax Credit, and Disability Tax Credit (DTC) are often forgotten or under-claimed.
Why It Matters: Failing to take advantage of deductions and credits could mean paying more in taxes or missing out on refunds. For example, you can claim expenses if they exceed 3% of your income or a certain threshold. Many taxpayers overlook expenses like medication, dental treatments, therapy sessions, and travel costs for medical visits. Additionally, contributions to RRSPs are not taxed as income but can be carried forward to future years to maximize benefits.
Other commonly missed opportunities include:
- Home Office Expenses: You can write off some of your rent, utilities, and internet costs if you work from home.
- Moving Costs: Are you moving for education or work? It is possible to claim expenses like storage and moving trucks.
- Education Credits: Tuition, textbook credits, and student loan interest are all available to students.
Pro Tip: Throughout the year, keep a thorough log of all possible credits and deductions. To keep track of receipts for home office, medical, and daycare costs, use expenditure tracking apps such as Zoombooks. You can optimize your claimable credits and deductions come tax season by maintaining regular tracking. Additionally, to find opportunities unique to your circumstances, review the CRA’s list of eligible deductions and credits or visit a tax expert.
3. Errors in Data Entry and Calculations
Entering data accurately is essential when submitting your tax return. Errors in manual calculations, misreported income, or typos in your Social Insurance Number (SIN) may result in reassessments, improper refunds, or delays in CRA processing.
4. Failing to Report All Income
All sources of income, including employment income, freelance or gig work, rental income, investment returns, and overseas income, must be reported to the CRA. Income that is purposefully overlooked or forgotten may be subject to audits, fines, and penalties.
Why It Matters: If you intentionally or unintentionally fail to report income on your tax return, you may face steep penalties, interest charges, and a higher chance of audits or reassessments.
- Freelance/Gig Work: Even if no official T-slip is provided, income from platforms such as Uber, Airbnb, or freelance services needs to be recorded.
- Rental Properties: Make sure that all rental revenue, including that from short-term rentals like those listed on VRBO or Airbnb, is reported.
- Foreign Income: Since the CRA mandates complete disclosure of worldwide earnings, any income generated outside Canada must also be disclosed.
Pro Tip: Before filing, arrange and compare all of your T-slips (such as T4, T4A, and T5) with your different sources of income. Even without formal paperwork, keep thorough records of all earnings from side gigs, rentals, and freelancing. A qualified accountant or CRA-certified tax software can ensure nothing is overlooked.
5. Providing Incorrect Banking Information
If you’re expecting a refund, double-check your banking details to avoid delays or misdirected funds. Even a small error can cause significant setbacks in receiving your money back from the CRA.
Why It Matters: Direct deposit is faster and more secure than receiving a cheque by mail. However, incorrect banking information can cause significant processing delays, taking weeks to resolve.
- Incorrect Account Number: Even a single digit off can lead to a rejected or misdirected deposit to someone else’s account.
- Outdated Banking Details: Funds may be returned if you use a closed account or if you don’t update your bank after changing institutions.
Pro Tip: Set up or update your direct deposit information through your CRA My Account. Make it a habit to verify and refresh your banking details annually to ensure your refund is processed quickly and securely.
6. Missing the Filing Deadline
The CRA has strict deadlines for filing your taxes: most taxpayers must file by April 30, while self-employed individuals have until June 15. However, any taxes owed must still be paid by April 30. Missing these deadlines triggers penalties and interest charges.
Why It Matters: Failing to file on time can result in:
- Late Filing Penalties: A 5% penalty on any balance owing, plus an additional 1% for each month the return is late (up to 12 months).
- Delayed Refunds and Benefits: Missing the deadline slows down your access to refunds or benefits like the Canada Child Benefit (CCB) or GST/HST credits.
Pro Tip: File your return on time, even if you can’t pay the full amount owed, to avoid late penalties. The CRA offers flexible payment arrangements for taxpayers facing financial difficulties, helping you stay on track.
7. Overlooking Provincial and Territorial Tax Rules
Each province and territory in Canada has its own tax regulations and unique credits. For example, Quebec residents must file a separate tax return with Revenu Québec, while provinces like Alberta and Ontario offer specific benefits, such as the Alberta Child and Family Benefit (ACFB) and the Ontario Trillium Benefit (OTB).
Why It Matters:
Ignoring provincial-specific tax rules and credits can result in missed opportunities for savings and benefits you’re entitled to receive.
- Quebec Residents: Need to be familiar with Revenu Québec’s forms and credits in order to complete both federal and provincial tax returns.
- Regional Benefits: Credits like the BC Family Benefit or the Yukon Government Carbon Price Rebate are unique to the provinces or territories in which they are offered.
Pro Tip: Keep up with the tax credits and deductions that are offered in your province or territory. You may make the most of these regional benefits by speaking with a tax expert or by using software designed specifically for Canadian taxes.
8. Ignoring Self-Employment Obligations
Being self-employed comes with unique tax responsibilities, including tracking expenses like vehicle mileage, home office costs, and equipment purchases. Many self-employed individuals also forget about GST/HST returns, leading to missed deductions, overpaid taxes, or penalties for late or incomplete filings.
Why It Matters: Properly documenting expenses and meeting GST/HST remittance deadlines can significantly reduce your taxable income and ensure compliance with the CRA.
- Missed Deductions: You may pay more tax than you need to if you don’t keep track of your mileage or any other business-related expenses.
- GST/HST Non-Compliance: Self-employed people who make more than $30,000 a year are required to register, collect, and submit GST/HST; noncompliance can result in fines.
Pro Tip: To track income and record spending over the course of the year, use bookkeeping software such as Zoombooks or QuickBooks. To prevent last-minute stress while filing, you should also open a separate savings account and set away a portion of your salary for taxes and GST/HST.
9. Misreporting Capital Gains or Losses
If you sold investments, real estate, or other assets during the year, accurately reporting capital gains and losses is essential. Failing to claim capital losses or miscalculating gains can result in overpaid taxes.
Why It Matters: Capital losses can offset gains in the current year, reducing your taxable income. Additionally, unused losses can be carried forward indefinitely to offset future gains, offering long-term tax savings.
- Investment Sales: Miscalculating the adjusted cost base (ACB) can lead to an incorrect reporting of gains or losses.
- Real Estate: Neglecting to account for expenses like legal fees or capital improvements can inflate reported gains.
- Unused Losses: Failing to apply prior-year capital losses may result in higher tax bills.
Pro Tip: Keep detailed records of all investment transactions, including purchase prices, sale proceeds, and associated expenses. Regularly review your CRA My Account to track unused capital losses and ensure they are correctly applied when filing your return.
10. Forgetting to Review Past Returns
Overlooking errors or missed deductions from previous tax years—such as unclaimed Tuition Tax Credits or forgotten medical expenses—can affect your current and future tax situation. Reviewing past returns allows you to claim missed deductions or credits and potentially reduce your tax liability.
Why It Matters: Mistakes from past reporting can result in overpaid taxes and could trigger CRA reassessments.
- Recover Missed Deductions: Unclaimed credits or deductions from prior years could mean you’re owed a refund.
- Reduce Current Taxes: Past errors, such as unreported carryforward amounts, can lead to paying more taxes than necessary.
- Improve Filing Accuracy: Reviewing past returns helps identify patterns or recurring mistakes to avoid in future filings.
Pro Tip: Use your CRA My Account to review Notices of Assessment and past returns for errors or omissions. If you identify an issue, file an adjustment request online. Correcting these issues could lead to unexpected refunds and set you up for better filing practices moving forward.
How to Stay Ahead This Tax Season
Tax season doesn’t have to be stressful. By avoiding these common mistakes in 2025, you can save money, prevent penalties, and keep the CRA happy. Whether you’re self-employed, a contractor, or managing multiple income streams, staying organized and proactive is key.
Need expert help? Instaccountant is here to guide you through the process, ensuring your taxes are filed accurately and on time. We’ll handle the complexities so you can focus on what matters most—your success.
