Many Canadians don't understand basic tax terms, which can be a source of stress, according to a recent survey.LordHenriVoton/iStockPhoto / Getty Images
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Anxiety over filing income tax returns may come down to not understanding basic tax concepts and terms. A recent TurboTax Canada survey of more than 1,500 Canadian adults found that just 14 per cent feel very confident about their tax comprehension. And new tax terms cropping up, such as bare trusts, can exacerbate the issue.
Globe Advisor spoke recently with Stefanie Ricchio, chartered professional accountant and tax expert at TurboTax Canada, about tax comprehension and misunderstandings.
What surprised you the most about the survey findings?
I was shocked that 27 per cent said they had never heard the term Netfile. The only way you wouldn’t know that term is if you’re still filing paper returns or not filing at all. If you’re getting your taxes filed by an expert, you’re going to ask when you’re getting your refund and notice of assessment (NOA). The expert would then explain how they are filing and I would think that would be part of the explanation.
Some young people may not rush to file because they are expecting a refund.
But if they do have a balance, they immediately subject themselves to the late-filing penalty and, of course, interest on top of the balance owing. While I find many newly self-employed individuals understand they have until June 15 to file, they often don’t realize that any taxes they may owe are actually due on April 30. So, to figure out the amount they may owe, that means doing your taxes by the end of April.
How do you help your clients learn about tax terminology?
It’s not just about getting the tax slips from the client. The client needs to be able to vet the information that’s within the return. I always encourage clients to go through the T1 income tax return section by section. When doing so, there’s an inherent learning that’s going to come between understanding total income versus net income versus taxable income.
What’s the takeaway for advisors from your tax terminology survey?
We know the Canadian tax code is complex. Our job as advisors is to educate our younger clients and empower them through the delivery of our services. Some young people have side hustles that didn’t make money and they think it means they don’t have to file taxes. We know that isn’t true and not filing is a blocker to receiving benefits, credits and the NOA.
– Deanne Gage, Globe Advisor reporter
This interview has been edited and condensed.
Must-reads from Globe Advisor this week
Advisors rush to revamp tax strategies after Ottawa’s surprise change to the capital gains inclusion rate
Advisors have less than 10 weeks to help thousands of Canadians navigate major financial decisions triggered by a pending hike in the capital gains inclusion rate announced in this week’s federal budget. The surprise changes, dropped at the height of the tax-filing season, are forcing advisors to manage a new onslaught of client queries as they, too, try to sort through the complexities behind the new rules. “It’s going to be a hard decision for a lot of people as to whether to pay taxes this year that they weren’t planning to versus paying a higher amount of taxes at some point later on,” says Brian Ernewein, senior advisor at KPMG in Canada’s national tax centre. Brenda Bouw reports.
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Some areas are more likely than others to be on the Canada Revenue Agency’s (CRA) radar for audits this tax season. Tax experts say they have seen audit activity trending around aggressive tax planning in the high-net-worth population, real estate transactions, business expenses, and cross-border assets and income. “The one common audit request we get on a regular basis is when a business takes a deduction for professional fees paid,” says Armando Minicucci, a partner in Grant Thornton LLP’s tax practice. Helen Burnett-Nichols reports on how advisors can ensure clients remain compliant.
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Here’s how tax planning changes once you retire
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Why this money manager is buying Estée Lauder and trimming her energy position
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What you and your clients need to know
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Investors should expect ‘new normal’ once interest rates drop, BMO head says
Bank of Montreal chief executive officer Darryl White says that even when interest rates begin to cool, banks and consumers will face a suite of new challenges in a rapidly changing market. At the lender’s annual shareholder meeting on Tuesday, Mr. White pointed to shifting dynamics from the climate and energy transition and from evolving technology demands. “While inflation fell from four-decade highs across North America, it remains sticky, keeping borrowing costs high and global demand low – risking a higher-for-longer rate environment,” Mr. White told shareholders. “And even when rates do start to ease – and they should in time – we will find ourselves in a new normal, an environment with fundamentally different characteristics than that of the past two decades.” Stefanie Marotta reports.
Change to capital gains taxes will catch many average Canadians
The inclusion rate on capital gains was 75 per cent for almost an entire decade in the 1990s before being reduced to 50 per cent in 2000. “So, when the pandemic hit in 2020 and government debt levels soared, it was felt by many tax specialists that the inclusion rate could increase,” writes Tim Cestnick. “Well, the 2024 federal budget did just that. But as with most tax changes introduced by this government, it’s far more complex than it should be. Mr. Cestnick explains that complexity in his latest column.
Taxpayers’ ombudsperson office reviewing CRA conduct over bare-trust rules
The Office of the Taxpayers’ Ombudsperson is reviewing whether the CRA violated certain rights of taxpayers in its handling of new tax rules for trusts, which saw the agency scrap onerous reporting obligations for bare trusts just days before the filing deadline. In a letter responding to Conservative MP Adam Chambers, Taxpayers’ Ombudsperson François Boileau said his office is “carrying out preliminary research” after receiving many expressions of concern from taxpayers and their representatives since the CRA announced the last-minute about-face on March 28. Erica Alini reports.
– Globe Advisor Staff