Last minute tax tips from KPMG

Every year it arrives like clockwork, yet the end-of-April tax filing deadline still manages to catch some Canadians off guard, sending them scrambling to file at the last minute. This year, they’ll get a 24-hour reprieve, but many will still miss out on all the deductions and credits to which they are entitled.

Because April 30 lands on a Sunday this year, taxpayers have until midnight on May 1 to file their 2005 return. For the self-employed, the filing deadline is not until June 15, but interest charges on any amount owing will accrue as of May 1.

For many last-minute filers, it’s not entirely their fault, says Michel Matifat, partner, private client advisory services at KPMG.

“More people are investing in income trusts and the problem is the latest they can remit their information to individuals is March 31,” he says. “This year, a lot of people received information really late in the process. We have clients who were still receiving some slips last week.”

With the trusts having until the end of March to send out their tax slips, there can be an additional lag as brokerages receiving the information must compile it into their client’s overall tax information before forwarding it to the investor.

Late receipt of tax slips can lead investors to forge ahead on their own, and Matifat says errors in calculating the adjusted cost base for investors is common among investors who try to calculate it on their own.

“Usually their broker would have the information, but if they bought the investment through a stock option plan, it might be worthwhile to make sure they have the right information,” he says.

Matifat says there is also a correlation between the date of Easter and Canadians’ tax preparedness, as many people take the long weekend to start assembling their tax information. Easter came late this year, delaying this traditional prep time and consequently the filing of returns.

“Being aware of the little details can help prevent the unnecessary separation of you from your tax dollars,” he says.

Matifat reminds investors that interest on investment loans is tax deductible, if the investment is made with a reasonable expectation of earning a profit. This deduction is not available if the investment is made through an account which is already tax-deferred, such as an RRSP.

Investors may also be able to deduct certain investment-related fees they pay, such as charges for the management and safekeeping of investments, investment-related accounting fees and fees for investment counselling.

For married couples, Matifat recommends claiming deductions on the higher income earner’s return, and any transferable income on the lower income earner’s return. Charitable donations, for example, should not be claimed separately, but should instead be combined under the name of the spouse earning the higher income.

Credits for up to $5,000 in tuition fees and education amounts can be transferred from one spouse to another, as can the age amount, pension income or disability amounts, as long as the transferor has used as much of these credits as they could.

There is also a long list of medical expenses which qualify for tax credits, if the expenses total more than 3% of family net income. The medical expense credit will apply to qualified expenses above the 3% threshold — or any amount above $1,844 if the family earns more than $61,466. Like charitable donations, medical expenses can be claimed by either spouse.

Among small business owners, he says a common mistake is not keeping personal and business expenditures separate. He says small business owners are probably not claiming as many expenses as they could, and recommends a separate credit card for business spending.

“If I’m an owner of a small business, I’m promoting that business 24/7,” he says. “I need to capture all of those expenditures that I may be making during the week and on the weekend. That’s crucial for a small business owner.”

If a tax-filer still thinks they will owe money to CRA, even after all applicable deductions and credits, KPMG stresses they should file on time, even if they do not have the money they owe. While the filer will still face interest charges on the amount owing, they will avoid the 5% late-filing penalty.

If they cannot file on time, but know they will have a balance owing, they should try to make a payment by May 1, to reduce late-filing penalties.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(04/24/06)

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