How To Get The Most Out Of Your Tax Return This Year

Filing your taxes falls under the same will-do-anything-to-avoid adult chores as cleaning up the gunk from the kitchen sick, booking your annual physical, and updating your licence-plate sticker.

Which is why it’s no surprise that, despite the government of Canada extending the tax deadline because of COVID-19, so many of us have yet to file our 2019 tax returns. I know, I know, we were all hoping we’d get a pass on this this year, but filing and paying taxes is a critical part of keeping our economy going.

And, there are a lot of benefits to tackling those 2019 taxes ASAP. Like, potentially getting some extra money as a tax refund, crossing a giant item off your to-do list (oh, the satisfaction!). And, not as fun, but still good, is actually knowing what you have to pay so you don’t have to live in the scary dark anymore. Thankfully, for those of us who will have to remit, or pay taxes, this year, we also get an extension — until September 30.

While we’re handling our 2019 taxes, why not get a jump start on 2020? Whether you were laid off due to COVID-19 and applied and received the Canada Emergency Response Benefit (CERB), were self-employed and saw a reduced income, or had to take time off to care for a sick loved one, here are some key things to keep in mind as you file and pay your 2019 taxes. And, what to prepare for and think ahead about for your 2020 filing.

The June 1 extension to file your taxes applies to everyone regardless of whether they’re eligible for a refund, or if they’d have to pay additional taxes by September 30. Normally, payments have to be made on April 30, so getting a five-month extension is a nice bonus for anyone worried about having enough money set aside to pay their taxes. It also means that, if you do have to pay, you can hold off for a bit, and leave that money in a high-interest savings account and build a bit more interest. 

Unfortunately, for self-employed people like freelancers, contractors, and small-business owners, the tax deadline hasn’t changed — the deadline to file is still June 15. But, like the rest of us, you do have a bit more time to make the actual payment with an extension until September 1.

Even though the tax deadline is June 1, the government isn’t going to chase you to file — especially if you’re getting a refund. That said, it’s better for you financially to file your 2019 taxes sooner rather than later. This is especially true for those in a lower tax bracket, or who are eligible for certain tax credits, or are able to claim tax deductions from their 2019 expenses. For example, expenses or payments contributed towards union dues, child care, donations to a registered charity, and even your RRSP contributions all count as deductions, which lower your gross income. The lower your gross income, the less you pay after filing your taxes.

If you’re late on filing your taxes, that can also delay the government issuing you some of those non-refundable benefits, like monthly Canada Child Benefit payments, since they don’t know what your household income is until you file. Or, they’ll estimate based on your last filing, which may not be accurate. 

If you qualify for a tax refund, what are you waiting for? The sooner you file your return, the sooner there’s money in your pocket to use towards essentials during this time, like groceries, rent, transportation, and other bills. Especially if you’ve been laid off or furloughed during COVID-19. 

Freelancers and self-employers, these rules apply to you, too. The sooner you file, the better. Imagine you waited until August 20 to do your return and realized you have less than two weeks to fork out thousands of dollars — yikes! Know what that number will be ASAP, and start planning and setting aside money for that September 1 payment deadline. 

Moving forward, financial experts recommend setting aside 25% to 30% of your gross income in a high-interest savings account for your taxes. To stay on top of this, it’s a good idea to put aside that money every time you get paid, whether that’s through a regular direct deposit, or through issued invoices. This also includes your provincial sales tax rate, by the way. Whatever you charged your clients in sales tax needs to be remitted, or paid back to the CRA. But, you only have to pay back the difference from what you deduct from your own business expenses. For example, if I charged a total of $10,000 in HST, but paid $7,000 in HST, I’d owe $3000 in HST. Are you still listening? Don’t care about all these numbers? Make sure to work with a chartered professional accountant (CPA) to help you. 

Getting the financial assistance you need during this crisis is amazing. However, it’s important to remember that the Canada Emergency Response Benefit (CERB) is a temporary financial assistance package, not a long-term financial strategy. And, most importantly: it’s considered taxable income. That means that $2,000 per month issued to eligible Canadians hasn’t had tax deducted from it. It’s up to you to make sure you’re setting aside at least 30% of that money to be paid back to the government before next year’s income tax deadline.

One of the best ways to plan and prepare for your 2020 taxes is to plan how you’ll reduce your tax bill. One of smartest ways to do this, regardless of your income, is to invest in a Registered Retirements Savings Plan (RRSP).

By investing in your RRSP, you’re reducing your taxable income. So, if you earn $100,000 gross income, you’re allowed to invest at least 18% of that into the RRSP annually (or up $26,500, whichever is lower). This brings your taxable income from $100,000 down to $82,000, and you just saved $18,000! 

If you’re looking for additional support, and are eligible for assistance, check out these free tax clinics that can help you plan for and file your taxes if you’re in a lower income tax bracket ($35,000 or under; requirements vary depending on your number of family members). And, if you’re unsure of how to file taxes on your own using paid or free softwares, working with a CPA or bookkeeper can make sure you maximize your return.

If your finances are fairly straight-forward, and you feel confident to do your own taxes, you absolutely can and should! Few things are more satisfying than clicking that “submit” button on CRA NETFILE, pouring yourself a well-earned glass of a dry, full-bodied red, and patting yourself on the back for kicking ass with this whole adulting thing. Now, get to cleaning the kitchen sink.