With nothing to do these days except ponder about tax preparation, here’s some fascinating insight into typical items reviewed by Canada Revenue Agency (CRA) and the typical errors associated with them … and a few tips.
Foreign income and foreign tax credit – because governments worldwide are ferreting out tax dollars wherever possible and CRA is no exception so it’s scrutinizing taxpayers earning income abroad and claiming exempt foreign income and a foreign tax credit. Follow the reporting rules, including the use of official CRA currency rates of exchange.
Union dues and association fees – because sometimes these costs are reported on a T4 and also on an official tax receipt from the governing organization. CRA checks for a duplicate claim.
Medical expenses – because this claim can add up to big bucks, especially since it’s grouped as a family and can include dependants outside the home. Slips must identify specifics, and receipts dated and marked paid. If partially paid by a benefits program, the portion you paid must be clear. Travel costs for health care must have proof of referral and visitation.
Moving expenses – because some things that seem logical to deduct like mail forwarding and house hunting trips are not deductible. If you buy a home in the new location, the allowable expenses for that purchase cannot be claimed until the former home is sold, often requiring a T1 adjustment a year later. Also, CRA wants to know if your employer paid for any of the move. Finally, the amount claimed cannot exceed the income earned that year at the new location with the excess carried forward.
Donations – because so many worthy organizations issue slips to donors but not all can be claimed. CRA checks for official tax receipt status, even on the smallest of gift value. Also, the value of event tickets or auction items is not deductible unless there is an excess amount indicated as an actual charitable donation.
Tuition and education – because five years ago CRA became more inclusive as to what qualifies and with this, the need for official tax receipts.
Student loan interest expense – because only Canada Student Loan interest is claimable. Interest paid on a student line of credit from a bank does not qualify.
Various claims for dependants with separated parents because – who, what and how claims can be made are determined by the custody arrangement so CRA asks for legal documents detailing this info.
Because the CRA review program is random, the best defense is to have researched and reported appropriately and accurately during tax preparation. Then if a review arrives, resolve it within the 30 day limit. If it isn’t, CRA will re-assess automatically and to change it back requires a T1 adjustment by the taxpayer.
If you used professional tax preparer, maybe they will handle the review or at least offer you some guidance. Although not all firms do this free of charge.
Ron Clarke has his MBA and is a business owner in oilTrail, providing accounting and tax services. Email him at ron.clarke@JBSbiz. ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.