5 Common Myths About Canadian Tax Laws
If you've ever felt uncertain about the Canadian tax system and the rules about filing tax returns, you're not alone. Here are five common myths about Canadian tax laws clarified to help set the record straight about the Canada Revenue Agency rules:
Myth #1: Some people wait until the last week of April to do their taxes, even though they have all of their paperwork ready March 1. This is because they think if they owe money, they have to pay the amount owing immediately.
Truth: Regardless of when you file your taxes, you aren’t required to pay any amount owing until April 30.
Myth #2: Some individuals claim that they have not filed a tax return in years and believe they cannot be forced to by the government as they consider the Income Tax Act to be unconstitutional
Truth: Be aware that it is possible to have been fined for failing to file tax returns. In cases where an individual has not been fined, it could mean that the CRA has not yet taken action against a noncompliant individual. There are very specific resources in place to monitor the activity of taxpayers who attempt to flee from required obligations. If an individual fails to file a tax return as required each year, or does not comply with a court order to file they are liable to a fine, and up to 12 months imprisonment, as well as having to pay their unpaid taxes with interest. The CRA provides information and assistance to the majority of Canadians who accept their tax obligations and comply with the law. According to the CRA, “Audit, prosecution, or other enforcement activities are carefully targeted on the small minority of taxpayers who attempt to evade their obligations.”
Myth #3: Lottery and sweepstake winners in Canada have to pay fees and taxes to the CRA before claiming their prize.
Truth: In Canada, you are not required to pay the CRA any taxes or fees on any money won through a lottery or sweepstake. If you receive any information via email, phone call or letter claiming you do, contact the agency being misrepresented and the RCMP immediately.
Myth#4: You can make tax-free withdrawals from your self-directed RRSP.
Truth: If you use your RRSP as security for a loan, the value of the RRSP will be added to your taxable income.
Myth #5: You can claim a flat rate amount for your business mileage on your tax return.
Truth: If you are going to deduct or claim allowable motor vehicle expenses, you must maintain an accurate logbook of business travel over the entire year. This includes documenting every business trip, the destination, the reason for the trip and the distance covered. When a vehicle is used partially for business purposes and partially for other purposes the expenses related to business travel or commercial activities must be apportioned.
When in doubt be sure to talk to a professional accountant or tax filing service provider to get your questions answered.
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