Tax Time Considerations

Q. I am completing my 2005 income tax return for submission by the April 30th deadline. My question arises because I may owe money and will not have it available by the deadline. What should I do? – Will S.

A. It’s important to file your income tax return by the deadline and to include the money owing because the prescribed interest rate for amounts owing and not paid by the due date is going up on April 1st from 7% to 8%. It would be better to borrow the funds especially if your cost of borrowing is less than 8%. To prevent a similar situation next year, arrange for your employer to deduct more income taxes throughout 2006.

Q. I was sent a notice by the Canada Revenue Agency (CRA) that I am required to make quarterly instalments even though my employer deducts income tax at source. Why is this and when do I make the payments? – Sally J.

A. The quarterly instalments for 2006 are due on March 15, June 15, September 15 and December 15. Twice a year, in February and in August, the CRA will send you a reminder notice. Instalments are required if your net tax owing will be greater than $2,000 in 2006, and if it was also greater than $2,000 in 2005 or 2004. You will be charged instalment interest if you were sent a reminder notice and did not make the payment or if it is late or less than the required amount.

Q. Should I work with an accountant to prepare my tax return or is it better to save money and do it myself? – John N.

A. Each year, many Canadians complete their own taxes either manually or using personal tax preparation software and less than half of all Canadians use the services of an accountant. Completing a tax return either manually or electronically can be daunting, especially if your situation is complex. As well, it can be potentially costly if mistakes are made or if tax-saving opportunities are overlooked. Personal tax preparation software has the advantage of reducing errors due to computation and many packages provide prompts and tips to optimize tax savings. Anyone who has been audited and found to have made mistakes would likely agree with me when I say, that the cost of using a professional is much less than needing to repay overdue taxes that also incorporate the prescribed rate of interest. Red Adair, the legendary oil-well firefighter expressed it well when he said, “If you think it is expensive to hire a professional to do the job, wait until you hire an amateur.”

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member CIPF.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.