Filing Canadian tax returns can be confusing enough as it is, never mind how much more confusing things get when you start to hear about possible tax deductions you can make, how many you can make, when you can claim a tax refund, what income is tax free and what’s not, whether or not you have to pay tax on cash gifts – the list is exhaustive. Below, we've debunked the top ten Canadian tax myths , so you know what the deal is once and for all.
1. US investments held in registered Canadian accounts are not subject to withholding taxes
The US does not recognise Canadian tax free savings accounts, so sadly, that means that any dividends paid by US stocks will face a 30% withholding tax.
2. Online tax filing increases your chances of being audited
Don’t worry, not the case. When you file online, the CRA might ask you to send in supporting documents through the mail as it is not always possible to submit such supporting documentation – such as tax slips – online. However, this is very different from an audit in terms of complexity and level of supporting documentation required.
3. Receiving a Notice of Assessment means the CRA fully accepts and agrees with the information you submitted on your return
Unfortunately, this is not always the case. A Notice of Assessment is just that – a quick notice which lets you know that at the very least the CRA has cast a quick eye over your return. However, this doesn’t mean that the CRA fully agrees with everything on your return, nor does it mean you can claim everything you’ve listed on it. The CRA will complete a fuller review of your file soon after this to see if they agree with everything, but generally, they have three years after sending a notice of assessment to review your file.
4. Employment insurance income claimed during maternity leave is tax – free
False – all benefits received for almost any reason are taxable. It’s always worth checking if you’ve paid the required amount of tax on your benefits as often the lowest tax rate is automatically applied to these payments, but you could owe more.
5. Everyone hates doing their taxes
Not necessarily the case. While it may seem like taxes are the bane of everyone’s life, a recent survey undertaken by Reuters, in conjunction with a major tax software provider, concluded that nearly half of the 1,009 people who took part in the poll don’t mind filing their tax return.
6. The CRA doesn’t pay tax evasion whistle blowers
If you know of someone, be it an organisation or an individual, who you suspect is not paying the full amount of tax they owe, you could net yourself between 5 – 15% of the tax that person owes as a reward for informing the CRA about them. The new programme is rewarding people who are able to provide reliable tips about Canadians funneling money offshore, resulting in unpaid tax revenue of $100K or more.
7. The person whose SIN and name is on the tax slip of a joint account must be the one to report the interest on that account
The person who earned the capital in the account as a direct result of their income contribution should be the person who reports the interest. So if your name is on the tax slip, but the above doesn't describe you, it may be up to the other member of your account to report the interest.
8. Employer gifts aren't taxable
This one’s true and false. In the case of non – cash gifts for special occasions amounting to less than $500 a year, then the gift is non taxable. You’re also able to receive a once off gift of more than $500 every five years, tax free. However, if the gifts you’re receiving from your boss fall outside of these criteria, or if you’re receiving cash gifts of any kind, then they are always taxable.
9. You should refuse pay rises to stay in a lower tax bracket
It’s a common and mistaken belief that if you accept a pay rise which bumps you into the next tax bracket, then all of your income is going to be subject to the higher rate of tax. But this is not the case. Only the income amount above the tax threshold of the next bracket is subject to the new tax rate. All of the income you earn below the higher tax bracket remains taxed at the lower rate of tax.
10. I earned less than $10,000 so I don’t have to file a tax return
Technically true – but, filing a tax return even if you earn below the income level required to file one could allow you to claim benefits and exemptions you might otherwise not be aware you’re entitled to. In many instances, people who fall into this bracket are due a tax refund.
If you’re still confused about your Canadian tax obligations and whether or not you can claim a Canadian tax refund, talk to our tax team in live chat now, or email us at Canada@taxback.com.
Find out the Average Canadian Refund for 2008.