If you have not yet filed your 2019 personal income tax return, then it is time that this task got your full attention. The return is due by midnight on Monday June 1st, unless you report self-employment income on your personal tax return, in which case the return is due by June 15th. There is a late filing penalty if – wait for it- your return is filed late, and you owe money.
This year due to the COVID-19 pandemic, we do not have to pay 2019 personal income tax until September 1, 2020. However, we do still have to file the return. If you have already filed your personal income tax return and paid your bill, then this message is not for you. I am talking to the procrastinators.
Personal tax season continues and tax preparers are getting tired and cranky. This year the first part of tax season is a full 30 days longer than usual. I get asked the same question all the time, so here is the answer. The answer to the question, “do I have to pay tax on that?” is yes.
Yes, the amount is taxable even if someone handed you $20 bills in payment. Getting paid in cash does not mean that you do not have to declare the income. Yes, you have to pay tax even if the income was earned in the United States or some other country. Canadian residents have to pay tax on their world wide income. If you think that you have some earned income that is not taxable, I suggest that you are wrong. (The exception being the gain on the sale of your principal residence, which we talked about last week.)
Canada Revenue Agency (CRA) has had lots of lawyers working on the Income Tax Act since 1918, therefore I don’t think you have come up with a legal way to avoid tax on whatever income you are asking me about. So, be sure to tell your tax preparer about all of the income that you have earned from whatever source in 2019 because it is likely that the income is taxable.
Canada Revenue Agency is deeply interested in where you live and how many properties you own. Since 2016 we have had to report the sale of a principal residence on our personal income tax returns. The gain on the sale of a principal residence is not taxable if it was your principal residence for all of the years that you owned the property. However, you do need to report the sale on your personal income tax return in order to use the principal residence exemption.
If you have only ever owned one home at a time and have never rented any part of the home to other people, then you will not have to pay any income tax on the gain on the sale of your home. If you have more than one property, or have rented the property, you may have to prorate the principal residence deduction.
For example, if you rented the house for two of the ten years that you owned it, then you will lose 20% of the principal residence deduction. There is a form for this, of course. The form T2091 must be filled out and included on your tax return in the year that you sell your property.
So, the important thing to remember is that you do have to include your principal residence sale on your tax return even if you do not have to pay income tax on the sale.
We are well into tax season, and what I am seeing is that, as usual, taxpayers have forgotten the same two deductions. The types of deduction that are missed are the ones that you cannot download from CRA’s site because CRA does not know about them. What CRA does not have on their site is your medical expenses and your charitable donations.
Medical deductions that are missed include the premiums you pay for medical and dental insurance. And don’t forget that travel insurance often includes an amount for medical insurance, and that portion is deductible. You can also deduct for kilometers that you had to travel for medical treatment. You can google the distance if you did not keep track.
Then there is donations. How often did you make a donation online during the year? Search your email for those receipts. Did you set up a file to keep all the paper copies of donations that you made?
People ask me all the time how to save on income taxes. The easiest way to reduce your income tax bill is make sure that you keep the receipts for all your legitimate deductions.