14. How to file your taxes in 2021 featuring Luke Hergott CPA

Transcript:

Evan Neufeld: Hello and welcome back to the Canadian Money Roadmap podcast. I'm your host Evan Neufeld. Today, joining me from EY is Luke Hergott. He's a CPA and tax manager at the EY location here in Saskatoon. He primarily works with owner managed businesses, but he's filed more personal tax returns than he can count.  So he's our expert today on how to file your taxes. So, Luke, thanks for joining me. 

So I imagine, first things first, people should probably know when tax time starts and when they need to file. So can you clear up a few of the deadlines for filing your taxes?  

Luke Hergott: General rule of thumb, everyone's tax return is due on April 30th. If you are self-employed, you get an extension to file your return until June 15th, but everyone has to pay their taxes by April 30th, whether or not you get that extended filing deadline. 

Evan Neufeld: So you should probably have an idea of if you owe some money, but if you're going to put it off to June 15th. 

Luke Hergott: Exactly, or make sure you've made your installments for the year. But technically, if you don't owe anything, there's no real requirement to file on time. The filing deadline really only creates late filing penalties and interest on late payments. 

However, usually if you don't owe anything, the government owes you. So it's in your best interest to file on time and get that refund back.  

Evan Neufeld: Because if you're late, they're going to charge you interest. But if they owe you money, they're not going to pay you interest.  

Luke Hergott: They do pay a small amount of interest, but yeah. 

But you know, money's better in your pocket than in the government’s, I think.  

Evan Neufeld: Maybe that's a misconception there. Okay. So last year there was changes to the filing deadlines. Is that still the case? You mentioned April 30th. So it's back to the normal schedule now, correct?  

Luke Hergott: Yes. They pushed it back a bit due to all the changes with the COVID lockdowns, but as far as we know right now, it's still April 30th.  

Evan Neufeld: Gotcha. Okay, so before you get into filing your taxes. Is there any housekeeping things you should have in order before you sit down and start the dirty work of getting it all put together?  

Luke Hergott: The number one thing that I think all Canadians should have is their CRA “my account” and this is their online tax account. Essentially, you're able to access all sorts of personal information. You can get previous years notices of assessments. You can look at what your balance owing is, what your installment payments are and that's also a really great way to update your banking information, your address, your name. If you get married or change your name really easily without having to call the CRA on their hotline, which wait times to get to an agent can be up to an hour sometimes.  

Evan Neufeld: Yeah, no kidding. I remember when Becky and I got married and we had to do some address changes and name changes, and for whatever reason, I was locked out of my account. 

So I had to call them and people tend to all call CRA around tax time. So there was a situation where I wasn't even able to wait on hold. They've just said, twofold call back later. And I had that for about a week. So if you're listening to this and you have enough time, maybe call in advance or make sure that you're not locked out of your CRA account. 

Luke Hergott: Okay. For sure. So the registration process is pretty easy. Just one thing to know is that you have to have filed the tax return before in Canada. 

So if you're a first time filer, or if you have a child who's going to file the tax return for the first time, they won't be able to get an online account yet. You can just easily google CRA my account, you'll be brought to the login page and there's three ways that you can log in. You can use your bank credentials, you can use your BC services card if you live in BC or you can register for a CRA user ID. That last one, it takes a while to get because I believe the CRA has to send you out a letter with your login information. So I recommend getting on this now. Well, in advance of when you're actually going to go file your tax return. 

Evan Neufeld: Gotcha. Okay, I'm going to get you off topic here a little bit, because you mentioned a child registering to pay for taxes. When do you have to pay taxes, as soon as you start making money or when you turn 18 or what's the rule there?  

Luke Hergott: So yeah, once you earn money, you have to pay taxes. So if you get your summer job at a grocery store, you should file a tax return.  If you don't work, you should at least start filing your tax return when you turn 18 years old, because that's when credits like the GST tax credit and the climate action incentive kicks in. So you'll start getting money from the government. But you won't get those things if you don't file a tax return. 

Evan Neufeld: Okay. So regardless of your income, that would be a good time to start filing. Okay, perfect. So now when it comes to filing, I remember the first time I filed a tax return. I went to the post office and there was big stacks of paper there. And I came home and was fumbling through it with the calculator and my dad's help and whatnot.  But software has gotten a lot better since the days of doing things on paper. So what kind of programs are available for doing your taxes yourself? 

Luke Hergott: Yeah, it's definitely gotten better and there's a lot of options out there. The CRA keeps a list of all certified tax software and that's something you can easily Google or find on the Government of Canada website.  The options they range from completely free, a pay what you want model or set prices and those different price ranges kind of depend on the types of services or bonuses you wanted when preparing your tax return. 

For example, do you want an actual human being to review your tax return? You're going to have to pay a little bit for that service, or if you just want to go completely on your own, you can do a completely free option. I actually worked with my firm this past year to develop a tax software called EY tax chat and that's one where there is going to be a reviewer at the end. Looking at your return and making sure that all the information that you provided is correct. So if you have a bit of stress about, I don't know if I put everything incorrectly and I kind of want somebody to double check my work, that's a good option for you. 

Evan Neufeld: So that's kind of like a hybrid model then between a full do it yourself and having someone take a look at it for you. 

Luke Hergott: Exactly. Yeah. You're not going to have to go to an accountant's office and give them all your information, it puts a lot of work back onto you to tally everything up, make sure that you have all the information available. 

But you do have that peace of mind at the end of the day that somebody has looked at things and you're not claiming something that’s not appropriate   

Evan Neufeld: okay. So the, the EY option, is that available to just folks based here in Saskatoon or is that across Canada?  

Luke Hergott: It's across Canada and it has an app version or online desktop version. 

And that's the same with a lot of other softwares that are out there. You know, there's ones that are just for your phone, ones that you'll have to download an app onto your computer and ones that are just in your desktop browser. You can still file by paper, I believe that's an option if you want to go old school. 

I have a friend who we went through business college together, and she took an accounting and tax class even, but she still filed her returned paper for a number of years. And I made fun of her every year for it, but she said it helped her understand how the tax system worked and how she was coming up with her income and a refund. 

So, you know, if it works for you, I'm not going to knock it. 

Evan Neufeld:  There's something to be said for going through the process or seeing how the sausage is made, if you will. Then once you realize how it's made, it's like, Oh, maybe the software is a better option.  

Okay. So now we've got an idea of the software that you can use and you're registered for CRA account. What other things should you have in place before you start the process?  

Luke Hergott: So before you start, you kind of want to make sure you have everything that you need. That's just going to make filing your taxes a lot more efficient. 

So firstly, I would recommend having is a copy of last year's notice of assessment. And if you've had any reassessments of previous years during the current tax year, you want all the assessments that you received from the CRA, because that's going to have important information. Like if you have to claim any refund, interest that the CRA paid you on your tax return. 

It'll tell you if you have any tuition, credit carry forwards, for instance in Saskatchewan you get the graduate retention program, it'll tell you what your current balance or what you're able to claim this year. That's all on your notice of assessment. Next thing that you're going to want to have is all of your current tax slips. 

So these are your T4s from employment, T3, and T5s from investments. Your RRSP contribution slips. Anything like that  

Evan Neufeld: The big one that I see on my end is people say, Hey, where's my tax slip for my TFSA. The best part about a TFSA or one of the best parts about TFSA is no tax slips. You don't have to report anything. 

The CRA gets that information from your financial institution directly, but if you have a TFSA investment, make contributions or withdrawals, there's no slips for that one. 

Luke Hergott: Exactly. You can check your TFSA and RRSP contribution, new balance online with your CRA my account. That's another good reason why you should register. 

Evan Neufeld:  We just slipped that in there, so, okay. So we've got the tax slips. What about things for really credits and deductions and whatnot? What kind of things should people be looking out for?  

Luke Hergott: The most common ones are medical expenses, donations, childcare, moving expenses, student loan, interest, all of those things, you will get receipts and statements for. 

So for example, if you make a charitable donation, you'll get an official donation receipt. So you want to make sure you have all of those medical receipts, make sure you keep track of those over the year. So prescriptions, chiropractor, dental, things like that. One thing to keep in mind with medical expense claims is that not everything is claimable and it also varies by province. So for example, in Saskatchewan, you cannot claim massage therapy, but I know in other provinces that is an eligible expense and that's something that you can easily find online. If you just search on the CRA website, they have a really great list of medical expenses and you can search and it'll tell you if it's eligible, if you need a prescription in order to claim it and things like that. 

Evan Neufeld: Gotcha. Okay, so if you have a pretty similar situation with your credits and whatnot It’s pretty likely that that's going to stay the same year over a year, more often than not. Is that true?  

Luke Hergott: Correct? If you had a certain tax slip last year, you probably have the same tax slip in the current year, unless you had a life change. 

You know, if you now have children or you got married or you moved or switched jobs, If those things didn't happen, you probably are the same year over a year. I looked back over my tax returns for the last six years and basically I've claimed the exact same things on my return every year.  The numbers change every year but I know I need my T4 and I know I need my RRSP contribution slip. So I know if I'm missing something before, I even start my tax return.  

Evan Neufeld: Awesome. Okay. So now that we've kind of got our ducks in a row here now, the general process, where do we start with that?  

Luke Hergott: Yeah. So, once you've gotten all the information and you know what tax software you're going to use, first thing you want to make sure is that you're filling out your personal information and you're updating it. 

So your address is correct or social insurance number. If you have any new dependents you want to add them to your tax return because depending on which province you're in, you could get a tax credit for them. And then once that basic information is in there most, if not all softwares and programs have a feature called CRA's autofill my return, which is really great because the CRA has record of all of the tax slips you receive.  So the program will log into the CRA using your My account, and it will automatically download all your slips and populate them into the tax return. It's not 100% accurate all the time, especially depending on the time that you prepare your tax return, because some information slips aren't due to be filed by say your employer or your investment advisor and those things until February 28th or March 31st. 

So if you're trying to file your tax return, like on April 1st, those March 31st slips might not be available online just yet. So you can't trust it, but it's a good way to save on some of the manual data entry.  

Evan Neufeld: Good to know. Those deadlines kind of keeps the people that really want to get after it.  You just make sure you pump the brakes so you’re sure that you have all your information first before you start.  

Luke Hergott: Exactly. I'm ready and raring to go to file my tax return, but I haven't received my T4 just yet, so I'm going to have to be patient.  

Evan Neufeld: Gotcha. Okay. Cool.  

Luke Hergott: Next thing that you're going to want to do after you do the CRA auto fill my return is compare what's there to what the physical slips or most like their digital slips that you received in your email. But comparing those to what's in the tax return, especially keeping in mind if any of the slips that you have say amended or canceled, you want to make sure that that has been appropriately reflected in what the CRA has downloaded for you. 

And then another thing that you really want to keep an eye out for is if you have T3 slips. Now, the funny thing or the complicating factor is that your broker is very nice and they will consolidate all of the individual T3 slips into one nice slip. So you just get one T3 slip. However, if you have mutual funds that have different types of funds in there, each of those individual funds issues, a separate T3 slip. 

And that's what the CRA has. So when you go do your CRA download, you might show that you have five T3 slips when you only got one. So some softwares have kind of a consolidation feature that will make it easy for you to reconcile and make sure that you're not missing anything, but sometimes you might just have to get out your calculator and manually tally up what all the individual slips are and make sure that it tallies what you physically have from here.  

Evan Neufeld: Well that's good to know because we, we sent out very few T3, but on CRA  they see it as multiple. That's a good tip to just keep in mind. So then you know, if say you're self-employed or you have other types of income. Your self-employment is not going to issue any these slips for that. 

So is that where you come next and you have to self-report those types of correct? 

Luke Hergott: Yeah. A lot of your information is captured on T-slips, but not everything. Like you said, self-employment income, rental income. If you had any capital gains or losses from the sale of some assets or income earning assets, usually. 

If you paid or received any spousal support, all of those things, the government doesn't know about no one filed the tax for. So it's up to you to make sure that you're kind of capturing that yourself. The same goes for most of your deductions as well. RRSP slips will get downloaded by the CRA, but, you know, moving expenses, childcare expenses, spousal support, paid employment expenses, all of those things that you're going to have to claim yourself. 

Evan Neufeld: I'll get you to cover some of those employment expenses a little bit later on, because things are a little bit different this year, but you just want to take a look to make sure that those things are eligible to be claimed. And then there's some other credits that we talked about before, about donations and medical.  Anything else that people can claim as credits?  

Luke Hergott: Yeah. These ones definitely depend on your life situation. They're not applicable to all Canadians, but if you're a student you'll likely have tuition credits. If you bought your house or bought a house for the first time, you can get the home buyers amount. 

If you have a disability or you have a dependent with a disability, you could be eligible for tax credits. There’s so many small tax credits and it's impossible to cover all of them. But If you do a quick Google search, you should be able to find a list of all applicable tax credits in your province. And that can be a good way for you to check if you're missing anything or you can claim something for the first time this year.  

Evan Neufeld: Gotcha. Yeah, Google's a pretty good resource when it comes to tax things, as crazy as that might sound. CRA typically pops up as one of the first resources when you Google a tax question and so that's a nice way to find the answer anyways, for something you might be looking for there.  

Luke Hergott: Google is my friend and the CRA website is great but navigating it's tough. So usually I just use Google to find what I want to find on the Government of Canada website.  

Evan Neufeld: Okay. So I alluded to changes that were coming forward 2020.  Where do you want to start there? We talk about employment expenses. There's a bunch of new support programs. I'll let you take it away here  

Luke Hergott: For sure. Let's start with employment expenses. So myself, like a lot of people were forced to work from home this year and when you do use your house for business or for your employment, you are able to claim some expenses against that to make it easier on everyone. 

The government has a temporary flat rate method. That they're calling. And for this, you get $2 for every day. You worked from home due to COVID-19 up to a maximum of $400, and you can claim this amount without any supporting documents required. Your employer doesn't need to certify that you work from home. 

It's just you claim it. And you essentially get it. Okay.  

Evan Neufeld: Well, that's interesting because a lot of the employment expense calculations before start to get a little convoluted with square footage, there's a couple of different methods you could do there. So using a simplified method here, I think will be a huge benefit to people. 

Luke Hergott: Yeah, definitely. If you do need to claim more than $400, that detailed method is still available, but that's when you need a signed T2200 form from your employer It says that yep, you're required to work from home or required to incur any other type of expenses in order for you to be employed, whether that's mileage or cell phone or things like that. Then you actually need to claim the actual expenses that you incurred as opposed to just claiming two bucks a day.  

Evan Neufeld: Okay. And so now with all the other government programs that were introduced this past year, a lot of them actually provided money in your pocket. Is that taxable income in all or most cases  

Luke Hergott: it is and the unfortunate thing is that the government did not take any withholdings off of that. So, you know, normally with your employment income, you get a deduction and some of that money goes to tax, but for all of these programs like CERB, and then I don't know if there's a fun acronym or way to say all the other ones, but like CESB, which is for students. 

And then the newer ones, CRB, CRSB, CRCB. All of those are taxable. So you'll receive a slip, but no tax would have been with withheld from those amounts. So you might have to actually pay taxes here if normally you expect to receive.  

Evan Neufeld: Okay. That's a good one to keep in mind there. So I know we don't have a whole lot of time between now and the end of April, but better late than never unplanned to pay for it and not expect a tax bill.  All of this stuff kind of goes through the software that I know those software that I've used in the past. It kind of walks you through step by step and it's, it's tough to miss something. But sometimes people have a more complicated situation, like, especially when you're self-employed and you have some assets or, or tools that you use or things like that. So even though the process of doing your taxes yourself has gotten a lot easier. When should I hire an accountant to do my taxes? Is there kind of a rule of thumb or what are some of those cases?  

Luke Hergott: Yeah, not really a rule of thumb, but definitely some situations where I would strongly recommend getting a professional to help you is if you're in this situation where you're filing a return for a deceased individual, definitely I would get an accountant involved. 

There's new things that you need to claim and just gets more complex. Speak of complex. You know, if you have sale of assets like your house, or if you had some farm land that you sold, or even if you sold your business, things like that, you definitely want a professional looking at if you have any significant medical expense claims or donation claims, anything where the numbers start to creep up a little bit and then there's kind of more room for error. You know, if you make a mistake on a hundred thousand dollar medical expense claim that can hurt you as opposed to making a mistake on a $3,000 claim. As you said, self-employment rental income, those types of things, where you have a bit more judgment and there's more gray area in what you can claim and what you can't. 

That's when having a professional to double-check things and use their judgment, use their experience to see what is most appropriate to claim for you.  

Evan Neufeld: Okay. Okay. What if you listened and got this far and you just said I'm not really interested in doing it myself. Is that still an appropriate time to talk to somebody else? 

Luke Hergott: Definitely. Yeah. There is no shame in wanting someone else to deal with your taxes. I know that it can cause a lot of people's stress and anxiety or sometimes you just don't have the time to file it yourself. Definitely accountants, that's what I'm here for. That's what I do for so many of my clients and I'm happy to do it.  I enjoy being able to give my clients peace of mind about their tax situation. And I know that some people will gladly pay a few hundred dollars for that peace of mind.  

Evan Neufeld: Right. And, and one more thing that I've had come up a couple of times here recently, my own office is just some cross-border tax issues.  Would you have to find a specific accountant that focuses on that or most as CPAs trained in cross-border tax issues that could help with that  

Luke Hergott: Depending on the complexity of your situation? I think. You know, if you just spent some time in the States need to file some additional forms or you have a certain amount of foreign property in the States that you need to report, most accountants will be able to deal with that.  But as you get into those more complex immigration,having like an actual foreign business or, you know, if you're a us citizen resident in Canada, that's really want to look for someone who's specialized in cross border issues. Myself personally, I just deal with Canadian issues. There's enough for me to know on that side. 

So I have colleagues that I refer all of my clients with cross border issues too.   It's a whole different set of rules and you definitely don't want to get it wrong. Yeah.  

Evan Neufeld: One of the things that I'm sure I'm not the only one that worries about getting on the bad side of the tax man, it's being on the bad side of the tax man in two countries. 

Luke Hergott: Exactly. Yeah.  

Evan Neufeld: Awesome. Okay. Look, this was a really good practical overview of how people can go about doing it.  Is there anything else that you wanted to share with people about filing their own taxes?  

Luke Hergott: I think just in closing, it's not that hard. Anyone can do it, but you know, there's no shame if you don't want to do it or you want to hire somebody else, you know, that's what I do for a living and I'm happy to help. 

Evan Neufeld:  Awesome. Well, thanks so much, Luke, for joining me today, I'm sure our listeners will really appreciate that.  

Thanks for joining me today on the Canadian Money Roadmap podcast. If you enjoyed today's episode, I'd really appreciate if you left me a review on Apple podcasts with your biggest takeaway. If you have questions or ideas for topics you'd like me to discuss on future episodes, please reach out via my contact info in the show notes. 

This podcast is intended to be educational in nature, and you should always consult your financial, tax and legal advisors before making changes to your financial plan. Any rates of return discussed are historical or hypothetical and are to be used for educational purposes. Evan Neufeld is a Qualified Associate Financial Planner and registered] investment fund advisor. Mutual funds are provided through Sterling Mutuals Inc.