By Carolyn Camilleri
For many people, doing taxes is like going to the dentist—a necessary evil that adds pressure more than it creates fear. So says Sunny Widerman, accountant and owner of Personal Tax Advisors. Unless, she adds, you are self-employed and looking at a mountain of receipts that you are not sure what to do with.
“People are always afraid that the Canada Revenue Agency is going to be very angry with them for not doing it right, even though most people don’t fully understand what they are doing in the first place,” she says.
Not knowing what to do leads some people to not file their taxes for a couple of years—and so the terror builds. But for self-employed people, a bigger concern than being audited should be GST/HST registration.
“People are afraid of the wrong things. The thing that everyone is afraid of—getting audited—almost never happens,” says Widerman. “The thing that does happen a lot is that [the CRA] comes back years later and says, ‘You should have been registered for the GST/HST, and we want the GST/HST that you should have been collecting three years ago, even though you never collected it.’ And it is hell.”
Keep in mind, too, that the cut-off for having to register for and file GST/HST is $30,000 income in any 12-month period; it isn’t based on the calendar year. So if you have one $15,000 job in December and another $15,000 job in January, that’s it—you have to register. It doesn’t matter that it was split over two years.
The CRA is not out to get you
The first step in getting a handle on your taxes is facing what makes them scary in the first place: the CRA and what Widerman calls “a really important distinction” when it comes to fraudulent filings.
“There is a difference between the government saying, ‘We don’t really think this full amount was warranted’ or ‘We don’t really agree’ and with their saying, ‘You are intentionally trying to defraud us,’” says Widerman.
If someone is intentionally trying to defraud the government, yes, that is tax fraud and it is against the law. People who break that law end up in court. “But if all you are doing is trying your best, the worst thing that is going to happen is that they are going to shift your numbers over a little bit and charge you some tax,” she says. “The point is that people have a fear of the Canada Revenue Agency that borders on the supernatural—they are afraid that they are going to accidentally, seriously break a law.”
Even for people who haven’t filed for a couple of years, the first step is to stop being afraid of the CRA. It turns out that the CRA’s number-one concern isn’t even the money.
“Their number-one concern is getting the return—getting the actual numbers,” she says. “The money—they will give you a lot of time on it and their interest rate is five per cent if you are overdue, and that is pretty reasonable in the world of overdue bills. They are probably the nicest about that.”
With the fear of the CRA calmed, understanding what you are doing with your taxes is still a challenge, especially if you are self-employed.
“Individuals who run their own business, either through a sole proprietorship or corporation, have several things to think about when it comes to tax compliance and tax planning,” says Jim Witty, Tax Manager at BDO Canada.
Not to mention everything they have to do to ensure their business is running successfully.
“GST/HST registration and filing, deductibility of expenses, payroll remittances, record-keeping, filing due dates, payment due dates, penalties, interest, and CRA audits are only some of the areas that small business owners need to be aware of,” says Witty. “Trying to keep up with all of this without the help of a professional tax advisor can be difficult, particularly for business owners just starting out or who are behind in their tax filings.”
Widerman gives her clients a workbook into which they sort their expenses, along with a guide that explains what can be considered an expense. Because many of her clients are freelancers, it has been customized to address expenses that they are likely to encounter, rather than the myriad complex situations detailed in government materials.
“But the bottom line is that if you are not sure, you want to be as conservative as possible,” she says.
Cellphone usage is an example of an expense people question. While Widerman has noticed that business use for cellphones is rising, she doesn’t recommend saying it is 100 per cent business use.
And then there are investments to consider, such as RRSPs, TFSAs, and RESPs that can reduce taxable income. “The benefits from these will not only vary from person to person or family to family but also from year to year,” says Witty.
For example, families with young children may need to weigh the benefits of contributing to an RESP for their children versus an RRSP for their own retirement.
“Several factors have to be considered, such as expected income levels (now and in future years), available cash flow, likelihood of children attending post-secondary institutions, etc.,” he says. “With so many different avenues to consider, the most important thing is for individuals and families to understand how these government programs affect their tax and financial situations.”
Witty adds that keeping up to date on changes and strategies is crucial and can be done by reading different articles and websites on these topics, such as BDO Canada’s monthly “Tax Factor” newsletter.
Choosing TurboTax or a professional accountant
Finally, there’s the actual filing of taxes and the method you choose. Widerman does not recommend old-fashioned paper. “With tax preparation, once the computer entered the scene, it is the computer’s job. It is so much better—so, so, so much better. Do not use paper: use an accountant or use software,” says Widerman.
TurboTax is one of the most commonly used tax-filing programs. If you are self-employed, whether or not TurboTax is a good choice depends on you. For people very familiar with tax rules, TurboTax works well because the program is really just doing the math.
“For regular people, there are always going to be little turnings and tossings of the law that are shifting on something that was kind of murky,” says Widerman. “It is a bit like doing your own home repair. Nine times out of 10, it is something really simple and you are going to do fine. But one time out of 10, it is going to be something you don’t know, and it is either going to cost you money or it is going to cause a huge bureaucratic headache months or years down the line.”
And there are other risks.
“Most online tax-filing programs are sophisticated enough to ask the right questions to ensure that average user inputs all their information correctly and optimizes their tax savings,” says Witty. “The problem, though, is that the major benefits of tax planning are not obtained when filing your tax return, and by this point it is often too late.”
Widerman recommends getting a professional to do your taxes—if not every year, at least once every few years to be sure you aren’t missing something critical.
“The computer will make sure that the numbers more or less go in the right place, but it can’t ask you insightful questions, it can’t ask you what your plans are for next year, and it can’t give you suggestions on how to manage stuff in the future,” she says.
And the computer doesn’t know what it is like to be an editor.
“You have to look at quality of life here,” she adds. “If taxes stress you the hell out and having a professional standing by you and saying, ‘I have done a thousand of these,’ makes you feel as good as a lost weekend, then it might be worth the money just to feel that way.”
Accountant Sunny Widerman from Personal Tax Advisors is the featured speaker for the EAC Toronto branch’s meeting on February 17 at the Miles Nadal Jewish Community Centre. Her presentation promises to be an enlightening—and entertaining—evening of tips and practices for getting taxes done as painlessly as possible.
Carolyn Camilleri is a freelance magazine editor and writer based mostly in Toronto, but sometimes in Victoria. She is also program chair for the Toronto branch of EAC.
This article was copy edited by Sylvia McCluskey.