With all the number crunching and receipt wrangling, even the most basic income tax returns can be frustrating. If you're someone who gets paid in cash or earns tips, works abroad, or takes parental leave, there's more to keep track of — and a mistake in your filing could result in a penalty.
The good news is that H&R Block can help you out with the tough stuff. Here are four tax expert-approved tips for navigating tricky tax situations.
Working for cash
It's common for people in the service or construction industries to be paid in cash but don't assume that means you're undetectable by the Canada Revenue Agency (CRA). Though you may not be getting official documents like pay stubs, that doesn't mean you're being paid under the table. Companies can declare the amount they pay employees on their own returns, even without the detailed paperwork. Ultimately, that means your earnings are traceable and that the taxman can audit your bank records. Any steady but unexplained deposits could come under question.
Dealing with tips
There may be no greater perk for hospitality servers than finding a sizeable tip on a settled bill. But did you know that you can't just pocket that extra cash without scrutiny from the CRA? Whether you're cutting hair or slinging cocktails, your tip income is taxable. Unless the tips are controlled by your employer — for example, by adding a mandatory gratuity to the bill and collecting it on your behalf — they will not be included on your T4 slip. This means you have to keep track of them yourself.
A direct tip, like taking cash from a diner without employer intervention, will be subject to taxes after the fact. Making a rough estimate of your tips at the end of the year can be dangerous — if you're subject to review, you should have something to fall back on. Keeping a log of your tips each night might seem like a hassle, but being hit with a hefty penalty for not reporting your income properly would be much worse.
Teaching overseas
Just because you're out of the country for a while doesn't mean the CRA has forgotten about you. At the same time, the tax authorities in your new country of employment will probably want a piece of the action. Fortunately, there are tax treaties in place to sort out competing claims and ensure you're not subject to double taxation.
There may also be treaty provisions that exempt your employment income from tax in the other country. Even if there are no treaty exemptions, you will be allowed a foreign tax credit on your Canadian return for any tax you have pay to the other country. However, the CRA will want proof of the amount you paid. Ideally you should get a Notice of Assessment issued by the foreign tax authorities confirming your final liability.
Taking parental leave
You may technically be off work but we all know raising kids is a full-time job. In most cases, while on leave you'll receive about 50 per cent of you regular income. Because you're still earning a form of income through parental benefits, you're required to pay taxes on those wages. In some instances, your employer may not be withholding enough tax at source, so you might even end up owing money at the end of the year.
With over 50 years of expertise and year-round assistance online or at one of their hundreds of locations across Canada, H&R Block is ready to look at your unique situation and give you the best outcome on your tax return.