Tax season in Canada can feel overwhelming, with countless rules and regulations waiting to trip you up. Whether you’re a self-employed contractor or a salaried employee, even small missteps can mean missed refunds or costly penalties. But here’s the good news: filing your taxes doesn’t have to be stressful!
With the right approach and a little preparation, you can tackle tax season like a pro, avoid common pitfalls, and even maximize your savings.
To make things easier, we’ve put together a list of the most common tax mistakes—and how to steer clear of them—so you can file with confidence and stay on the right side of the CRA.
1. Filing with the Wrong Marital Status
Your marital status directly affects your tax return, credits, and benefits like the Canada Child Benefit (CCB). If you got married, entered a common-law relationship, separated, or divorced during the year, you must update your status with the CRA.
Why It Matters: Failing to update your marital status can result in receiving incorrect benefits or overpayments that 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: Missing out on deductions and credits can result in overpaying taxes or losing out on refunds. For example, medical expenses can be claimed if they exceed 3% of your net income or a specific threshold. Taxpayers often overlook eligible medical costs like prescriptions, dental care, therapy, and travel expenses for medical appointments. Additionally, RRSP contributions not only reduce taxable income but can also be carried forward to future years for maximum benefit.
Other commonly missed opportunities include:
- Home Office Expenses: If you work from home, you can deduct a portion of your rent, utilities, and internet.
- Moving Expenses: Relocating for work or school? Expenses such as moving trucks and storage can be claimed.
- Education Credits: Students can claim tuition fees, textbook credits, and interest on student loans.
Pro Tip: Maintain a detailed record of all potential deductions and credits throughout the year. Use expense tracker apps like Zoombooks to organize receipts for childcare, medical, and home office expenses. Consistent tracking ensures you maximize your claimable deductions and credits when tax season arrives. Additionally, consult the CRA’s eligible deductions and credits list or work with a tax professional to identify opportunities specific to your situation.
3. Errors in Data Entry and Calculations
4. Failing to Report All Income
The CRA requires you to report all sources of income, including employment earnings, freelance or gig work, rental income, investment returns, and foreign income. Forgetting or intentionally omitting income can trigger audits, penalties, and fines.
Why It Matters: Missing income on your return, whether accidental or deliberate, can result in heavy fines, interest charges, and an increased likelihood of audits or reassessments in future years.
- Freelance/Gig Work: Income from platforms like Uber, Airbnb, or freelance services must be reported, even if no formal T-slip is issued.
- Rental Properties: Ensure all rental income is declared, including from short-term rentals such as those on Airbnb or Vrbo.
- Foreign Income: Income earned outside of Canada must also be reported, as the CRA requires full disclosure of global earnings.
Pro Tip: Organize and cross-check all T-slips (e.g., T4, T4A, T5) against your various income sources before filing. Maintain accurate records for all freelance, rental, or side gig income, even if no official documentation is provided. CRA-certified tax software or a professional accountant can help ensure nothing is missed.
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: Using a closed account or failing to update your bank after switching institutions can result in returned funds.
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: Must file both federal and provincial tax returns, requiring familiarity with Revenu Québec’s forms and credits.
- Regional Benefits: Credits like the BC Family Benefit or the Yukon Government Carbon Price Rebate are unique to their respective provinces/territories.
Pro Tip: Stay informed about tax credits and deductions available in your province or territory. Consulting a tax professional or using software tailored to Canadian taxes ensures you maximize these regional benefits.
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: Failing to track mileage or any business related expense can result in paying more tax than necessary.
- GST/HST Non-Compliance: Self-employed individuals earning over $30,000 annually must register, collect, and remit GST/HST, and failing to do so may lead to fines.
Pro Tip: Use bookkeeping tools like Zoombooks or QuickBooks to record expenses and track income throughout the year. Additionally, open a separate savings account to set aside a percentage of your income for taxes and GST/HST to avoid last-minute stress when filing.
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, 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.
