When we meet with clients who come in looking to file their personal tax returns, the first thing we check with every individual is what items are applicable to their tax situation and that they have the documentation to be able to apply those items on the return. It’s important to realize that tax returns are personalized and depending on your individual circumstances you will be able to claim different things on your tax return. The following are some important items to keep in mind when you go to your accountant to prepare your tax return.
While it’s not required, we generally recommend that our clients bring in a previous years’ tax return to act as a reference. An important part of the process is consistency. We need to match the personal information or notify the CRA if there are any changes from the information provided in previous years. Making sure that your personal tax returns are consistent is an important step to ensure that you don’t raise any red flags for auditors. Large variations in the expenses and revenues from year to year raise suspicions from year to year so it is important that your personal tax preparer or accountant is thorough to capture all of the revenues and expenses possible.
The first thing that any tax preparer will require is your personal information:
- Your legal name
- Date of Birth
- Current address
- Phone number
- Social Insurance Number
These items form the basic information to identify you with the CRA. If you are in a common law relationship or are married to another person the information above will be required for your spouse.
If you process your income tax return separately from your spouse you will need to have the income information for your spouse, as certain taxable benefits and calculations are based on your household income. The items mentioned above also applies to any of your children 18 or under.
Once your accountant or tax preparer has your household’s personal information the next items to take into consideration will be the classic tax forms that you receive from the government or from your employer. The following are some of the forms you might have received:
- T4: Employment Income
- T4 (OAS): Old Age Security
- RC62: Universal Child Care Benefit
- T4RSP: Statement of RRSP Income
Aside from forms mailed to you, there are several expenses for yourself or other members of your family that apply to many individuals we meet with:
- Rent or property tax paid
- Medical expenses (Any amounts unclaimed over the last 2 tax years)
- Public transit expenses
- Donation receipts
- Children fitness or arts costs
- Daycare expenses
- Tuition Amounts
You may have some combination of the expenses listed above for you or your family and these taxable expenses can be applied to either your or your spouse’s personal tax return in order to optimize the overall income tax situation.
You, like many others, may be in the position of owning property either in Canada or abroad. In either case, it is important to track your income and expenses related to rental activities. Revenues will be required to be reported as a form of income and the expenses will help to reduce the personal tax burden of that income.
It is also important that you disclose any foreign properties worth over $100,000 CAD on your tax return. Your foreign property generally will not cause any changes to your income tax situation, however, it is a large item that the CRA keeps an eye out regarding.
For property in Canada there are several items that you will need to keep track of:
- Purchase Information
- Breakdown of the property use during ownership (Rental vs. residence)
- Who occupied the property
- Sale Information
The bad news is that on the sale of your property, you will trigger something called a “capital gain” if you made money off of the sale. The good news is that this gain is taxed at a reduced rate and even better news is that there are many systems in place to allow individuals to be exempt from being taxed on some or all of these capital gains. Depending on the items listed above your accountant will be able to minimize any tax owing from the sale of a property.
Personal tax regarding properties can be a complex topic with many conditions. We generally look to speak with our clients earlier on in the process, so that we can plan out their next steps, depending on how they intend to use or manage their property.
For anyone who has decided to make themselves their own boss and become self-employed in one way or another, I first congratulate you on your courage and conviction. Second, I hope that you are keeping organized records of your revenues and expenses as this will be crucial for reviewing your personal tax situation. Making sure that you claim the maximum amount of expenses in order to reduce your tax owing will depend on the expenses that you have recorded for your business.
There are many expenses can be applied against your self-employment income, but the following are some of the biggest items:
- Supplies and inventories purchased
- Wages paid to other employees
- Automotive expenses and details (kms driven for personal vs business use)
- Home expenses if you use your home even partially for business
- Meals and Entertainment expenses related to business development
As mentioned there are other items that can be deducted against business income, but the above are items that we find can cause issues for the tax return, as they require additional information or records on the part of the self-employed individual. Keeping records of all of your expenses will still be beneficial when it comes time to file your personal taxes.
I hope that this has provided some insight into the documents that might be useful to your personal tax situation and as always it is best that you speak with a tax specialist to determine all the items that apply to your specific case.
This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.
July 29th, 2017