What’s new in 2016 tax season?

What’s new in 2016 tax season?

This year’s tax season includes a few changes to what you can claim, what you can’t, and what you should be careful about.

A: What aspects of tax returns are being more closely looked at by the CRA this year?

For the last number of years, we’ve been electronically filing tax returns. And in the last two years, we’ve been required to electronically file tax returns. That means (the CRA) no longer receives any of the slips or receipts that we used to have to submit when we were filing by paper.

They’ve always picked a percentage — let’s say 10 to 15 per cent of people to contact and ask for proof of certain deductions. We don’t have a specific number in 0ur experience, but we have noticed that the scrutiny of tax returns has probably doubled in our practice. So, if we had 15 per cent of our clients being asked to provide receipts, maybe we’re having 25 to 30 per cent now.

We’re not talking about audits. We’re talking about specific line items, like asking to see the RRSP receipts or child care receipts. Or the children’s fitness amounts. A big one is medical.

B: So what aspects should people be extra thorough with?

Medical expenses, because anyone who makes a substantial claim for medical expenses will be asked for receipts.

Lots of people aren’t even aware you can make the claim at all. The majority of people may know that you can claim, but they don’t understand how the medical expense credit works. And there are a lot of rules regarding what is allowable and what isn’t. In our experience, a lot of the people who have very high medical expenses are often people who are paying for things outside of the health care system. So they may be seeing alternative care practitioners maybe chiropractors or naturopaths and the fees to those licensed practitioners are allowable. They are able to be claimed.

The issue, though, is when those practitioners prescribe things like herbs or vitamins or any of those kinds of things, those costs are not allowed. And a lot of people in 0ur practice who want to be able to claim vitamins and nutritional supplements, because in their mind they’re taking them for health benefits and avoiding prescription drugs.

C: What about the new tax brackets announced by the Liberal government for 2016?

It will not affect your taxes until next year. They’re introducing a new higher tax bracket, and they’re promising a slightly lower bracket for the middle bracket of people.

D: So could some people not deduct their RRSP contributions this year, and do it next year instead?

The only people who are thinking of that are people who are in the highest tax bracket, who earn over $230,000 a year.

E: Have any of the tax benefits around children changed?

Yeah. They’ve doubled the amount you can claim for children’s fitness. It went from $500 to $1,000. It’s a big deal because parents spend a huge amount of money on sports. But it doesn’t actually wind up saving people that much (up to) $150. You can’t register a kid in hockey for $150.

Last year, they increased the monthly child care benefit. In an odd twist it’s something that governments don’t often do they turned around and started paying families with kids over the age of seven (and younger than 16) who previously didn’t qualify for a benefit. They started paying them a benefit. Of course, it’s a taxable benefit, so you have to give part of it back. So a lot of us saw a lump sum of money deposited to bank account last July. It’s taxable income.

F: What about new penalties?

The No. 1 thing we tell all our clients is avoid penalties altogether by filing on time. Even if you can’t pay your bill, file your return. But one thing we’ve seen happen this year which we’ve never seen before, even though the government has always had the ability to charge this penalty, we’re just seeing it enforced now.

If you miss reporting some of your income it could be small or it could be big and if you have missed reporting income in any of the three preceding years, there’s a penalty they’re charging that’s quite punitive.

One of the things we can do to try to avoid this is a new service this year that the government has implemented called auto fill my return. It means if you’re working with a professional tax preparer and you’ve given them consent, we can actually download whatever tax slips the government has for you. This is good because it helps avoid typing errors. It also means there could be slips there the client has forgot about.