Tax season – a period that puts some in a frantic scramble for documents while others dance to the sound of bank alerts from the Canada Revenue Agency (CRA). The difference between the scramblers and the dancers is knowledgeable preparation.
If you’re an immigrant, especially if you’re new to tax filing, it might be challenging to know exactly where to begin gathering the knowledge to prepare for tax filing. This guide gives you the knowledge for the year-long preparation that tax filing requires.
At the beginning of each year:
- Get an envelope or folder from a dollar store for less than $5 and tag it Tax Receipts (Current Year). Each time you get a tax-deductible receipt, throw it into the envelope or folder. Eligible tax-deductible expenses may vary depending on your employment status, family structure, disability, and province where you live. Visit canada.ca to see the eligible deductibles that apply to you.
- Create a new folder in your email and call it Tax Receipts (Current Year). Move all tax-deductible receipts you get by email to this folder.
Note: At the end of the year, when you get all other tax documents, put them in the envelope or folder for the year and archive them. You must keep all your tax receipts and records for six years. CRA can decide to audit you to ensure that you have receipts to back all your tax deductions. Failure to provide the correct receipts upon request could lead to CRA asking you to pay some money back.
If you’re a business owner or self-employed, whether your business is registered or not, you need to create separate physical and email folders for your business expenses and income. A business owner in this context includes a delivery driver, rental property owner, car-sharing driver, and other types of side hustle that you may think the government cannot track. It is in your best interest to maintain proper business bookkeeping.
If your business requires the use of your car:
- Keep a note in your car to record your car mileage. Record the starting mileage on your vehicle at the beginning of each year or the beginning of your business. Each time you use the car for business, record the date, business trip details, and mileage used.
- Keep a small bag or box in your car and throw in all car expenses receipts. This includes gas purchase, car wash, servicing, and repair. You’ll need these to maximize your tax return when you file your taxes.
You cut your work in half during tax season if you have done all the preliminary preparations and have all the documents you need. There are some tax filing options available. From doing it yourself to using software or the services of an accountant, the suitable option is dependent on the complexity of your situation and your knowledge.
If your situation is simple, like having one source of income and few deductibles, you may be better off doing it yourself or using a tax clinic in your community. Tax clinics are usually free for low-income earners with simple tax situations. Use the tax clinic finder on Canada.ca to find a tax clinic near you or ask any immigrant settlement agency in your community to refer you to a tax clinic.
Other tax filing options include using third-party software to file your taxes. There are a few free and paid options available. Many immigrants who have tried both the free and paid options believe that paid options offer them better tax returns. The paid software costs between $19 to $50 depending on whether you’re filing as a single person or a couple. The software option might be better if you have many deductions and would like to itemize them to maximize your tax returns.
However, if you have multiple streams of income or side hustles, you might be better served using a tax professional. Although their services cost anywhere from $80 to $200, they’ll help you optimize your taxes to ensure that you get the maximum tax return without being penny wise and pound foolish if CRA decides to audit your account.
Whether you choose to do it yourself, use software or a tax professional, you want to make sure to report all your income, avoid claiming deductibles incorrectly, and keep your information up to date. And it is never too early or too late to create your tax folder for the year.