Date with the taxman fast approaching

I apologize for talking about taxes on such a bright sunny spring day, but the time has come. Your return is due at CRA on Monday and I know several of you out there have not yet filed.

Your consolation is we will talk about ways to reduce your taxes in 2012, as well.

Here's a tip: If you think you might owe taxes on filing, then definitely file a return, even if it's incomplete. Pay an amount you think you might owe.

Both of these steps will avoid or reduce penalties.

The penalty for late filing is five per cent of your 2011 balance owing, plus one per cent of your tax balance for each full month your return is late, to a maximum of 12 months. These penalties double if you have previously late filed.

Even filing an incomplete return without payment eliminates the penalty, and all you pay is five per cent daily compound interest on the amount you owe. If you are short for payments, you may be able to borrow more cheaply than from the CRA.

You can file adjustments later. Make sure you have accounted for all slips -- T3, T4, T4A, T5, T5013, and the rest of the T-family -- as the CRA will be matching these with their copies.

You must claim all income, whether a slip is received or not, and they are often not issued for amounts less than $50. A second offence of failing to report all income results in a big penalty, so be diligent.

If you file electronically, you file without slips, or receipts for things such as donations, but keep that paper on hand. Many e-filers are subsequently asked to provide random receipts or proof of deductions or expenses after filing.

Self-employed people and incorporated professionals (generally, taxpayers who use the form T-2125) have until June 15 to file. However, if tax will be owing when that return is completed, then the tax must still be paid by April 30, even without the tax return. So, if in doubt, make a payment, and avoid the five per cent interest charge.

If a tax filer is claiming a refund, then there are no penalties or interest for late filing, but there is obviously a cash incentive to file sooner, to get the refund in hand.

Pension splitting is an effective way for older couples receiving eligible pension income to reduce the family tax bill, and sometimes even reduce OAS clawback, if one spouse is in a lower tax bracket than the other. Both spouses (or common-law partners) file form T1032 with their returns.

Up to 50 per cent of employer pensions at any age, and RRIF or LIF income after age 65, can be transferred from one tax return to the other. OAS and CPP payments cannot be transferred.

If you missed this in years past but see that you could benefit, you can submit a late-filed pension transfer election, up to three years after a Notice of Assessment has been received. This could cover your 2008, 2009 and 2010 returns, but move quickly on the 2008 return. It might be too late.

In Manitoba, there is the Manitoba tuition fee income tax rebate for people who have graduated from post-secondary institutions since January 2007 and remain in (or return to) Manitoba to work. Workers can recover up to 60 per cent of total tuition paid -- anywhere -- to a maximum refund of $25,000 over six years.

Remember, you can transfer certain unused tax credits -- such as tuition and education -- from dependent children or grandchildren, if those students don't need the credits to reduce their tax to zero.

These are non-refundable credits. They are wasted if no one uses them to offset tax that would otherwise be payable, unless carried forward to a future year.

Claim all charitable donations on one spouse's return or the other, and you will save a bit of tax. Medical expenses are also combined onto one spouse's return, usually the spouse who has the lower income.

Technically, you don't need to file a return if you are paying absolutely no tax. But the only way to accumulate RRSP room is to report earned income. TFSA entitlement is also based on filing a tax return, as is the GST tax credit, child tax benefit, eligibility for the OAS supplement and other government programs.

If available, it's always a good idea to have a second set of eyes check your return for accuracy of entries. That step may save you time and headaches later.

And above all, remember it's fun!

David Christianson is a fee-for-service financial planner with Wellington West Total Wealth Management Inc.,

a portfolio manager (restricted).

dchristianson@wellwest.ca

Republished from the Winnipeg Free Press print edition April 27, 2012 B11