It’s June which means we are almost halfway through the 2018 tax year. With the exception of small business owners and their spouses, almost all individual Canadian taxpayers will have filed their 2018 income taxes and likely received the Notice of Assessment which summarizes their tax situation for the year.
At this point, you will have made almost six months’ worth of payments toward your income taxes for 2018 in the form of deductions at source, taken from each of your pay cheques.
In addition, you’ll have incurred almost six months’ worth of expenses, some of which (e.g. medical, child care, rent, employment costs, etc.) will result in tax credits, benefits and deductions that can offset your tax owing come the next tax filing season.
It is for this reason that June and July is a good time to review your current tax position and create a strategy that will ensure there are no surprises when it comes time to file your 2018 taxes. While you can wait until later in the year, planning ahead will give you an opportunity to take advantage of even more opportunities you may have otherwise missed the chance to take.
Ensuring your Tax Filing Obligations Are Up-To-Date for 2017
For most individual taxpayers the filing deadline was April 2018 for their 2017 tax return. For small business owners and their spouses, the due date is not until June 15, 2018.
If you have yet to file your tax return, it is important that you make plans to do so in the near future, especially if you were required to file in April. This will help you to avoid late-filing penalties and interest charges.
While this is not as critical for taxpayers who expect to receive a return (versus owing taxes), delaying the filing of your taxes will result in the temporary or permanent loss of certain benefits, such as the GST/HST credit or Canada Child Benefit. This is because these credits are calculated based on your previous year’s income. If you do not file, the government will not have the information required to determine your eligibility and the amount you are to receive.
Ensuring Current Tax Obligations Are Being Met and Making Adjustments Where Necessary
As mentioned above, once you file your taxes, you can expect to receive a Notice of Assessment. Best case scenario, your refund or taxes owing will be little to none. While the best-case scenario may seem like a large refund, this actually means that you overpaid your taxes and provided the government with an interest free loan.
In contrast, a large balance owing means you paid too little in taxes throughout the year. If one of the latter two are true (i.e. you paid too much or too little) you will want to make adjustments to the amount of tax you pay the government throughout the year, where possible.
To determine whether you need to make an adjustment, you must first determine a reasonable estimate of your tax liability. If your income and expenses, which eligible for tax credits and benefits, have not changed greatly since last year, you can simply use your 2017 income to make a reasonable estimate of your 2018 income.
For a more precise estimate, however, we recommend finding current tax rate brackets and credits on the Canada Revenue Agency (CRA) website or reaching out to your professional tax preparer.
Once you have arrived at a reasonable estimate of your 2018 tax situation, you must now figure out whether income tax payments made to date, either by source deductions or instalment payments, match your liability figure.
If your liability is greater than payments made, you will want to increase your instalment payments or deductions made at the source. The latter can be done by reaching out to your employer, the former by contacting the CRA.
If your liability is substantially lower than your payments, employees will want to file a Form T1213 to reduce deductions at the source while instalment payers will want to simply adjust their instalment payment to reflect their actual 2018 tax liability.
For help determining whether your current payments will accurately meet your tax liabilities for 2018 and to discuss strategies to optimize your after-tax position in 2018, contact us today!
