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By Carla Hindman
Tax time always brings a flurry of feelings – confusion (about how to prepare and file your return), annoyance (at having to find and sort all your tax documents), and excitement (at the prospect of a nice return). Last year, there were 28.3 million tax returns filed in Canada – and this year's deadline is coming up. With April 30 right around the corner, there's no time like the present to start getting your paperwork organized.
Here are some general guidelines to help you get started:
Gather your documents. Your first step will be to collect all your tax documents. Depending on your situation, these may include your T4 form from your employer, your RRSP contribution statement(s), documentation from any investments, tax receipts for charitable contributions, transit passes, medical expense receipts, childcare receipts, children's activity receipts, and moving expenses – just to name a few.
Decide how to file. Will you prepare and file your taxes yourself, or engage a professional to do it? If you go it alone, you can choose to use a paper return, otherwise there is software available to help guide you through the preparation and filing of your tax return. The Canada Revenue Agency (CRA) expects that 15 per cent of Canadians will file their returns using paper, down from about 40 per cent only five years ago.
If you choose to hire someone, be sure to choose an established company or an individual with proper credentials and references. You're paying for their expertise and trusting them with your personal information, so you want to be sure that they are reliable, trustworthy and up-to-date on the latest CRA requirements. (Editor's Note: see Okanagan Life's readers' choice for Best Accounting Firm.)
Know your timing. While everyone is expected to file by April 30, it's especially important if you owe taxes. Late filers may be charged a penalty of 5 per cent of the balance owing, with additional penalties tacked on every month. These penalties can increase if you've paid late-filing penalties in the previous three years. Also, if you don't file your return, government disbursements like GST/HST credits, Canada child tax payments, and old age security benefits may be delayed.
Once you've filed your taxes, if you're like 72 per cent of Canadians you will receive a refund. You can opt for direct deposit into your bank account, or perhaps you're one of the 20 per cent of Canadians who would rather have your refund delivered by cheque. Either way, the next decision will be what to do with your refund. While you may be tempted to splurge on something special, many experts suggest a more practical path: paying down debt, contributing to RRSPs or TFSAs, or building an emergency fund. Charitable donations, life insurance, and saving for a child's education also make the list. So make sure to consider all the options before making your decision.
For information about how, when and where to file your 2014 Income Tax, visit the Canada Revenue Agency's website at www.cra-arc.gc.ca.
Carla Hindman directs the Practical Money Skills program for Visa Canada. More budgeting and personal finance tips can be found at www.practicalmoneyskills.ca. As always, consult a financial professional regarding your particular situation.