Tax season is perhaps the most dreaded time of year for many Canadians. Doing your taxes can be a massive headache because of how easy it is to make mistakes, but are you also aware of some of the myths that can cause you to stumble on your taxes?
You may be surprised to discover that there are some persisting old wives’ tales in regards to the Canadian tax system. Let’s hope we can put these to rest sooner rather than later.
Employer gifts can’t be taxed
Contrary to some popular belief, cash gifts and gifts of over $500 given by your employer can in fact be taxed. So, that shiny gold watch that cost $1000 your boss gave you for your excellent yearly performance? You most definitely owe tax on it.
Here’s what actually can’t be taxed:
Gifts (not including cash) totalling less than $500 a year for special occasions and/or once every 5 years
Social events totalling $100/employee
You will be taxed a third of your income if you accept that pay raise
There are five federal tax brackets that you can fall into in Canada. But going from one bracket, say 26%, to the next, 29%, does not mean you will be taxed 29% on your entire income.
This simply means that you will be taxed 29% on your excess income in the next bracket. For example, you will only be taxed 29% on the portion higher than $140, 388 when you jump from the 3rd to the 4th tax bracket. Now that you know this, never refuse that pay raise!
Service industry tips don’t count towards income
Those considering a career in bartending should take note: hospitality industry workers that receive tips are in fact required to report them on their tax returns. Unfortunately, many still seem to be under the false impression that gratuities for those in the service industry are exempt.
CRA (Canada Revenue Agency) doesn’t pay for insider info
If you believed that there weren’t any incentives to report tax evasion to the CRA, this may come as a bit of surprise to you. Tipsters that can reliably blow the whistle on tax evasion, either from a business or an individual, can actually be rewarded 5 to 15 percent of the extra tax collected.
For the moment, the CRA’s initiative is designed to pursue Canadians who funnel their money offshore which results in lost tax revenues of $100,000 or higher.
Filing taxes online increases your chances of an audit
The reasoning behind this common myth is that because paper receipts and tax slips can’t be filed online, you will be more likely to face a tax audit. You can rest assured knowing this myth is false.
The CRA will sometimes do a conventional check for documentation but nothing on the level of a full tax audit. CRA tax audits do not depend on the manner in which you filed your taxes, but on more extensive guidelines.
So, don’t worry too much about filing your taxes online. You can feel comforted knowing you can take advantage of the easy accessibility and faster refunds without worrying about an audit looming around the corner.
It is important that we Canadians stay on top of our taxes and educating ourselves on some big tax myths is certainly a step in the right direction. While some myths may appear logical at first glance, often a more in-depth look will show you that you are in fact being hoodwinked.