Tax Myths #3
With the tax filing deadline fast approaching, I have devoted my columns over the past few weeks to clear up common tax filing myths. In the final column of this series, I am going to look at four more common myths that I hear on a regular basis.
The first myth I want to dispel is that gifts you receive from your employer are tax free. While Canada has very generous gifting rules for family members, these provisions do not apply to a gift that you receive from your boss or company.
A cash gift from an employer is always considered taxable income as are other perks such as social events exceeding $100 per employee. Non-cash gifts of less than $500 per year aren’t taxable if they are given to mark a “special occasion” and an employer can also give a non-cash gift worth up to $500 once every five years to mark length of service milestones.
Myth number two is that some employment insurance (EI) benefits, such as income received during a maternity leave, are not taxable. Unfortunately, this is not true. All EI benefits are taxable and, in most cases, Service Canada will withhold less tax from these payments than you will likely owe.
When you are receiving EI benefits, it is very important to calculate the approximate taxes that will be due and set aside enough money to pay these taxes at the end of the year.
A third myth is that your odds of being audited are higher if you file your taxes online. When the CRA flags a file for audit, it is generally due to several different criteria and has nothing to do with how the filing was completed.
Once you’ve filed, the CRA may reach out to verify an item or ask for supporting documentation. It is important to understand the difference between this and an audit though as the request for copies or more information is simply routine verification and not necessarily a sign that an audit will follow.
The final myth for this series is that “barter transactions” are not taxable. The CRA considers a swap or trade of goods and services to be the same as a cash transaction and therefore subject to taxation. The value of any goods or services you offer must be added into your income if they are the types of things that you normally earn income from.
For example, let’s say you’re a lawyer and you offer someone free legal work in exchange for a new set of snow tires for your car. You would need to add the amount that you would normally charge for that legal work to your income for the year.
The above issues are a few of the many tax myths floating around. Canada’s tax rules are complex and ever changing and it is probably time to stop getting your tax advice from your family and friends. Seek out the guidance of a financial professional who will be up to date on all of the latest rules and benefits available to you.
With tax laws changing so quickly and often, it can be very hard to keep up on the latest rules. While filing your own taxes might seem appealing, you could be missing out on potential credits that could easily more than offset the cost savings of not using a professional.