Canada Revenue Agency: Avoid These 3 Mistakes While Filing Your 2020 Income Tax

It’s time to gather essential information on your 2020 income tax filing. Don’t make these mistakes while doing your taxes.

| More on:

The 2020 tax year is over and, unlike last year, the Canada Revenue Agency (CRA) won’t extend the income tax-filing deadline in 2021. It’s better to start reading about your taxes and collecting supporting documents as that will take time. Although the deadline to pay your 2020 income tax is April 30, the CRA encourages you to file your returns as early as February’s end. Here are three common mistakes that delay the whole tax process.

Not filing income tax returns because you don’t have an income 

Many Canadians don’t file their income tax returns if they have no working income. But they could forget to account for the money you earned from investments or income splitting with your spouse. Even if you don’t work, you should file your tax returns, as the CRA offers many refundable benefits to low- and mid-income earners.

For instance, a single person above 19 years of age can get an average goods and service tax (GST) credit of $296 and up to $451. You can also get $1,381 in the Canada Workers Benefit (CWB). For both credits, your annual net income should be below $47,527 and $24,573, respectively. You can also get child benefit if you are a parent and the old age security (OAS) pension if you are above 65 years of age.

You can get all the above cash benefits just by filing your returns.

Not reporting income from all sources 

The CRA noted another common mistake Canadians make while filing returns is that they only state their working income. There is other income like tips, gratuity, income from part-time work, dividends, investment income, and taxable benefits like the Canada Pension Plan (CPP). This year, there will be an addition of Canada Emergency Response Benefit (CERB), Canada Recovery Benefit (CRB), and other taxable COVID-19 benefits.

Ensure that you add these benefits to your 2020 taxable income. If you have maxed out your CERB and Canada Recovery Benefit (CRB), you will have to add $19,500 ($14,000 from CERB and $5,400 from after-tax CRB) in your 2020 taxable income.

Claiming the wrong deductions or missing out on eligible tax breaks

The third most common mistake is missing or misunderstanding the tax breaks. The CRA offers many tax credits and deductions depending on your age, income, marital status, and the number of children. There are tax breaks like the basic personal amount, pension income amount, age amount, and caregiver amount.

Moreover, the CRA introduced three new tax breaks in 2021: the digital new subscription credit, Canada training credit, and home office expense deduction. You can learn about these tax credits in my Tax Planning 101 series.

Make your investment grow in a tax-effective way

The right information can significantly reduce your tax bill and give you several tax-free cash benefits. The CRA also offers another way to grow your investment income in a tax-efficient way. You can contribute $6,000 in your Tax-Free Savings Account (TFSA). This contribution will be taxed, but your income from these investments will not.

The tech stocks surged to unprecedented levels last year, limiting their upside. If you are looking for strong growth, you can consider investing in electric vehicles (EV). Many EV-related stocks came into the limelight as the U.S. president Joe Biden supported EV adoption and EV infrastructure.

Ballard Power Systems (TSX:BLDP)(NASDAQ:BLDP) is not directly related to EV. But it supports the electrification of heavy-duty vehicles. Its fuel cells are an effective way for buses, trucks, and trains to reduce carbon emissions.

Ballard Power has won several contracts in Europe and China. The addition of the United States opens a huge market for the fuel cell maker. Moreover, the rising e-commerce trend is driving logistics demand to the next level. Companies like Amazon and Shopify adopt environmentally friendly initiatives to reduce their carbon footprint.

For the last few decades, clean energy companies have suffered from tepid growth. But the growing awareness of environment, social, and governance policies is making capital easily available for such companies. Moreover, they are benefitting from government policies and generous subsidies. Ballard Power stock has surged almost 65% year to date and has the potential to grow significantly in the 2030 decade.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Puja Tayal has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Shopify, and Shopify and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon.

More on Investing

Canadian dollars are printed
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Toronto-Dominion Bank (TSX:TD) stock could do well in the year ahead.

Read more »

monthly desk calendar
Dividend Stocks

Monthly Income: Top Dividend Stocks to Buy in November

Here are two of the best monthly dividend stocks in Canada you can buy in November 2024 and hold for…

Read more »

hand stacks coins
Investing

A Top TSX Stock to Buy Now for Real Wealth Later

Intact Financial (TSX:IFC) stock is a fantastic dividend-growth play for the next 15 years and beyond.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, November 14

The U.S. wholesale inflation data and Fed chair Jerome Powell’s remarks about the economy will remain on TSX investors’ radar…

Read more »

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »