Clients may be leaving money on the table at tax time

Specifically, the study showed a knowledge gap exists in how investments and savings are treated from a tax perspective. For example:

• only 42% of respondents understand how capital gains are taxed;
• fewer than one-third understand how dividend income is treated; and
• just two-thirds appreciate the tax implications of contributing to an RRSP and TFSA.

IGWM draws attention to three tax topics clients might not be paying enough attention to: the principle residence exemption; tax on split income and TFSA overcontributions.

For the principle residence exemption, the government requires Canadians to report basic information on the sale of a principle residence on their tax returns. If taxpayers don’t comply with this relatively recent change to the tax code, penalties could apply, IGWM says in a release.

Income splitting opportunities for business owners have also been significantly reduced for the 2018 tax year, IGWM says. This affects incorporated business owners and their family members, particularly if the business owner is in a high tax bracket.

As for TFSA overcontributions, clients who dip into their TFSAs must be cognizant that withdrawals aren’t added back to contribution room until the following tax year, says IGWM. Paying attention to this is important if taxpayers want to avoid non-deductible interest charges.

According to the Canada Revenue Agency, most Canadian income tax and benefit returns for 2018 are due on April 30. Sole proprietors or people whose spouses are self-employed have until June 15 to file (though, since June 15 is a Saturday, the CRA says it will consider a return filed on time if it is received or postmarked no later than Monday, June 17). Any balances owing must be paid by April 30.

The online study was conducted for IGWM by Pollara Strategic Insights with 1,505 adult Canadians between April 4 and 9.