The key to family tax happiness is to file to a family’s best benefit. That means avoiding the Canada Revenue Agency’s tax penalties on failure to report income properly. And those penalties can really add up. Here’s how to make sure you do it right.
Failing to report income can be prohibitively expensive. Failure to report income on the current tax return and in any of the three prior tax returns can result in a penalty of 10% of the missed income to each of the federal and provincial governments. This is in addition to possible penalties on gross negligence (50% of unpaid taxes) and tax evasion (up to 200% of unpaid taxes), plus interest.
What this means is that if you missed claiming a $1,000 income amount in the current year and in any of the three prior years (2011, 2012, 2013), you’ll pay a $200 penalty – that is, 10% of $1,000 to the each of the federal and provincial governments – ouch!
What is “income”?
But just what is the definition of “income” for tax filing purposes? It’s an important question, because the word “income” has a broad meaning in the eyes of the CRA and can even include such things as barter transactions.
In fact, unless specifically exempt, the definition covers most amounts that are received in cash or in kind within the calendar year, that is, January 1 to December 31. Reporting income for certain businesses and investments may be possible under a different fiscal year.
Income received in kind (barter transactions) must be included at fair market value. This can include, at their commercial value, such items as a bushel of grain, a gaggle of geese, gold, shares, or a variety of services. The onus of proof for fair market valuation is on you, the taxpayer. Therefore, all indicators (appraisals, newspaper clippings, etc.) to justify the value put on those items must accompany the tax-filing documentation, just in case CRA asks.
- See more at: http://www.newsoptimist.ca/opinion/columnists/tax-filing-tips-understating-income-can-be-expensive-1.1806767#sthash.tS0hrAsG.dpufThe key to family tax happiness is to file to a family’s best benefit. That means avoiding the Canada Revenue Agency’s tax penalties on failure to report income properly. And those penalties can really add up. Here’s how to make sure you do it right.
Failing to report income can be prohibitively expensive. Failure to report income on the current tax return and in any of the three prior tax returns can result in a penalty of 10% of the missed income to each of the federal and provincial governments. This is in addition to possible penalties on gross negligence (50% of unpaid taxes) and tax evasion (up to 200% of unpaid taxes), plus interest.
What this means is that if you missed claiming a $1,000 income amount in the current year and in any of the three prior years (2011, 2012, 2013), you’ll pay a $200 penalty – that is, 10% of $1,000 to the each of the federal and provincial governments – ouch!
What is “income”?
But just what is the definition of “income” for tax filing purposes? It’s an important question, because the word “income” has a broad meaning in the eyes of the CRA and can even include such things as barter transactions.
In fact, unless specifically exempt, the definition covers most amounts that are received in cash or in kind within the calendar year, that is, January 1 to December 31. Reporting income for certain businesses and investments may be possible under a different fiscal year.
Income received in kind (barter transactions) must be included at fair market value. This can include, at their commercial value, such items as a bushel of grain, a gaggle of geese, gold, shares, or a variety of services. The onus of proof for fair market valuation is on you, the taxpayer. Therefore, all indicators (appraisals, newspaper clippings, etc.) to justify the value put on those items must accompany the tax-filing documentation, just in case CRA asks.
- See more at: http://www.newsoptimist.ca/opinion/columnists/tax-filing-tips-understating-income-can-be-expensive-1.1806767#sthash.tS0hrAsG.dpufCanadians can claim a wide array of medical expenses on their tax returns — from wigs to gluten-free bread to medical marijuana — yet the Medical Expense Tax Credit is among the least used.
While the paperwork may be complicated, the return can be worth it for many people, says John Crawford, a chartered accountant and chief financial officer of Pacific Blue Cross.
Among the more surprising deductible expenses are:
- Travel for medical treatments
- Gluten-free bread
- Medical marijuana
- Wigs
Crawford notes that prescriptions and other documents are required to claim these expenses and prove medical need. For example, medical marijuana expenses can only be claimed by authorized patients who purchase from licensed producers. And wigs can only be claimed as medical expenses by people with particular medical conditions.
“Particularly myself, who is losing hair — I can’t get a wig,” he says.
In the case of gluten-free bread, the deductible amount would be the price difference between gluten-free and versus non-gluten-free bread.
Common expenses that people try to claim, but are not deductible include:
- Fitness club memberships
- Blood pressure monitors
- Cosmetic surgery
Crawford says the Canada Revenue Agency tends to cover expenses relating to treating diseases rather than preventing them. However, he says the list evolves every year as the CRA evaluates new treatments and technologies to add to its list of deductible expenses.
Also tax-deductible are the premiums paid for private insurance, and portions of medical expenses that aren’t paid by insurance companies, according to Crawford. But premiums paid to provincial governmental health plans are not deductible, such as with the plan in British Columbia.
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