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File Your Taxes -- Electronically

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It is not exactly a date marked on every calendar, but February 11 is the official start of tax season. It is the day the Canada Revenue Agency opens its electronic filing system for 2012 returns.

The e-filing option started in 1991 and has grown significantly. Last year, more than 17 million tax returns were filed electronically, either by taxpayers directly or tax preparers. If you use a third-party to file your tax return, they submit returns using EFILE. If you file yourself, the service is called NETFILE.

There have been some changes to NETFILE this year to make life a little easier. First, you do not need to have a NETFILE access code. Since scrambling to find the code mailed to you on April 30 was always stressful, this is good news for all tax procrastinators. Now your Social Insurance Number and Date of Birth are used to verify your identity.

Also, first-time filers in Canada can now use NETFILE. Prior to 2012, you could not file electronically yourself if you hadn't filed before. However, new Canadians still cannot use NETFILE; they have the option of mailing in a paper return or having a third-party e-file it for you.

If you emigrated from Canada or live outside of the country, you cannot use NETFILE either. You have to have a Canadian address. You will have to mail your return to the CRA's International Tax Services Office for processing; this takes longer than usual so be patient if you are expecting a refund.

To use NETFILE, you need to prepare your return using a certified CRA tax software program. Using tax software can be an easy process but you still need to ensure your return makes sense. If your refund is thousands of dollars more than you expected, you may want to double check your work. There should be a reason for the extra dollars.

Submitting electronically does reduce the risk of a data-entry error when a paper return is processed by the CRA. And there is the benefit of receiving your refund in as few as eight business days if you use direct deposit. Paper filing a return can take six to eight weeks for processing.

Filing electronically does not absolve you from paperwork and slips. Every summer, the CRA checks thousands of returns and can request receipts or slips to support your claim. For example, moving and employment expenses are two of the most commonly reviewed deductions. If you do not provide the proper receipts in the requested timeframe, the CRA will reassess your return without the deduction. This is why it is very important to open every letter from the CRA, whether you really want to or not.

And the CRA is strongly encouraging taxpayers to embrace doing everything online. It takes a few days for a My Account sign-up to be registered, but the process is straightforward and gives you access to previous T4 slips and Notices of Assessments. Even without your access code from the CRA, you can find out your RRSP limit for 2012 with information from your 2011 tax return.

But I know some people are hesitant to submit their taxes online because of security. It is understandable, since your tax return contains all the information someone needs to steal your identity. The CRA's system has strong security protocols, but you should also make sure you are smart when you submit your return. Using an unsecured network at a coffee shop or not clearing the Web browser cache after using a public machine could leave you vulnerable. Try to be as security conscious as possible.

NETFILE is open until November 30 for 2012 tax returns. If you want to submit returns for other years, you are stuck mailing your paperwork. Only current-year tax returns can be submitted electronically. So if you are planning to procrastinate past the April 30 tax filing deadline, you may not want to miss the NETFILE window or you could be waiting even longer for your refund.

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