Hey there, time traveller!
This article was published 7/3/2013 (1568 days ago), so information in it may no longer be current.
In spite of a fire March 2 at the Winnipeg regional taxation office, the Canada Revenue Agency is ready and willing to accept your tax return as soon as you have it completed.
Believe it or not, a survey last month by Thomson Reuters, the makers of UFile tax-return software, showed 41 per cent of Canadians say they "enjoyed" preparing their income tax returns. For my part, I can say I enjoy when they are "done."
More disturbingly, the UFile press release showed about 55 per cent of Canadians are not aware of the CRA initiative to reduce and gradually eliminate paper filing of returns. This is something we should talk about, as it may affect you directly.
The CRA has a goal of moving almost all taxpayers to their Netfile system (www.netfile.gc.ca) within the next couple of years. In 2014, the agency will no longer provide paper return packages at post offices, as they have done forever.
The CRA has also eliminated its free Telefile system, which allowed people with basic returns to file them for free, using the telephone. This will be a shock to some readers, as I know a number of you use this system. Hopefully, this will give you enough notice to make alternative arrangements.
For my part, I think the CRA's moves are a little sudden, poorly advertised and perhaps premature. The CRA says two-thirds of Canadians now file using Netfile, either on their own or with a professional preparer, but that still leaves a lot of people using either Telefile or paper.
The survey I mentioned found 20 per cent of people plan to file their tax return by paper and mail this year, whether prepared by hand, with packaged software or by a professional. About 50 per cent of taxpayers use an accountant or other professional tax-preparation service, according to this survey.
Recently, you probably received a letter from the CRA advising it will not be sending you a paper version of the return, or sending mailing labels anymore, if you filed an electronic return last year.
There's no disputing the advantages of filing electronically, for the government and the taxpayer. The returns are processed much quicker, refunds are sent out faster and millions of dollars of government costs eliminated. However, the taxpayer is still the customer, in my book.
Let's touch again on that figure of 41 per cent of people who said they enjoy preparing their returns. (The statistic was 46 per cent in Toronto, so go figure.)
I actually have to prepare six returns for my household, though this year my commerce-educated son is going to do his own and maybe a few of the others. I find the process very educational and valuable, as I will explain to him.
Preparing your own tax return -- or at least reviewing it in detail after it's prepared by your accountant or other tax preparer -- can give you great insights into your personal financial situation and how the tax system works. The real value, of course, is how you use that knowledge to improve the way it works for you and ultimately reduce the amount of income tax you pay.
Take investment income, for example. Reviewing your Schedule 4 shows you the amount of investment income on which you are paying tax. If you follow the calculations, you can see the difference in tax on interest, dividends and gross capital gains.
Preparing your own return with tax software allows you to learn an immense amount. For example, you can hypothetically add another $100 of interest income and see how that change increases your taxes. This difference, as a percentage of the $100, tells you your actual marginal tax rate in percentage terms.
But what about the 50 per cent of people who use accountants or other professional preparers? Well, being a total tax geek, I naturally think you should still invest 20 bucks in your own tax software package and prepare a mock return before giving your slips to your accountant. You can then see these things for yourself and follow up by having an intelligent conversation with your professional preparer about what factors affect the tax you pay and what improvements you might be able to make for the future.
David Christianson, BA, CFP, R.F.P., TEP, is a financial planner in Winnipeg and author of Managing the Bull, A No-Nonsense Guide to Personal Finance.