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Tax

Filing tax returns crucial — even for part-time earners

A student’s part-time earnings may seem too insignificant to file on a tax return, but there are potential advantages to doing so, including the ability to claim credits and build up RRSP contribution limits, Toronto tax attorney David J. Rotfleisch tells Newstalk 1010’s The Night Side.

“Even if you have part-time income, you can start building up your RRSP room, so it’s important to file the tax return. It’s a good idea to start filing tax returns as soon as possible,” Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation tells listeners.

As he explains, while Canadians pay taxes on every cent earned, there are exemptions available which will likely eliminate taxes owed on small amounts of income, starting with the personal exemption.

“If you’re in school, you have tuition credits, other exemptions related to education, all of which will reduce your tax liabilities. So if you only earn a few thousand dollars, your personal exemptions will wipe out any tax liability.”

For taxpayers in the opposite situation — those who owe money to the Canada Revenue Agency (CRA) and can’t pay, Rotfleisch says the best option is to pay as much as you can when you file, and then send post-dated cheques, if possible.

“Depending on how much you owe in total, there may be no further collection action, they may just accept all of your post-dated cheques. If there’s a large amount owing, the payments that you’ve made establish credibility, so when the collections officer contacts you, at least you have a leg up in terms of making a payment arrangement,” he says.

During the show, Rotfleisch also responded to questions from the public via call, email and text, with one caller asking whether she would be liable for the fact that her employer insisted she is an independent contractor, even though she believes she is actually an employee.

“The risk is more for the employer, who would be on the hook for source deductions. As an independent contractor, you may have more deductions that you can claim and if CRA deems you to be an employee, they may deny some of those deductions,” Rotfleisch explains.

At the very least, he says, independent contractors should ensure they have a written agreement, detailing their flexible work hours, and the fact that they are allowed to come and go as they please.

If the employer or the taxpayer gets audited, he explains, the CRA “will take a look and say ‘OK, you’re showing up at 9 a.m., you’re working until 5, you have to do what the boss says all of the time, you’re under their complete control, they’re providing you with the tools and equipment, everything that you need.’ These are all the indicia of an employee.”

Upon making this determination, the CRA would then require the employer to withhold source deductions and remit EI and CPP, which Rotfleisch says can be a large amount, plus penalties.

“In terms of the employee, her downside is she’s not getting any benefits, she’s not getting any vacation pay, what she’s entitled to under the Employment Standards Act, they can let her go tomorrow without having to pay her any compensation,” he tells listeners.

A number of callers asked about the ability to amend tax returns retroactively. Rotfleisch says taxpayers can make amendments by filling out a T1 Adjustment form.

However, he tells one listener, there is a four-year window for adjusting returns, so in a case where you find receipts from 2008, for example, you can file the adjustment, but the CRA does not have to accept it.

“There’s certainly no downside to filing it, and there is certainly a chance that they will accept it. So by all means fill it out and try for the claim. You may end up with a cheque,” he says.

One question texted into the show asked whether it would be a good idea to request a new T4 for the 2014 tax year, after the taxpayer realized they misplaced the document.

As Rotfleisch explains, 2014 returns should have already been filed — the T4 is only evidence of income, so if you filed your 2014 T1 tax return, you no longer need your T4.

However, if you have not filed, he says, your return is late and you will need to request a new T4.

In addition, “If you have not filed 2014 and CRA has not asked you to file it, you may qualify for the Voluntary Disclosures Program to avoid those penalties,” he explains.

“The Voluntary Disclosures Program is a CRA program that is designed to get people to come in from the cold. So, if you have unreported income, if you have unfiled tax returns, if you have unreported offshore assets, if you come to CRA voluntarily before they come to you, there will be no tax evasion prosecution, there will be no penalties and there is often a reduction on interest rates. But the key is you have to go to them before they come to you,” says Rotfleisch, in cases where the tax return is at least one year late.

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