Should I wait to file my taxes?
As part of the Canadian government’s COVID-19 response, the deadline for individuals to file their taxes has been extended to June 1st, 2020. The deadline to pay your balance, which has historically been April 30th, has been extended to September 1st, 2020. This extra time is a welcome break for many Canadians, but should you take advantage of the extension or still aim to get your taxes done by the end of this month? Let’s take a look.
Money now is better than money later
With so much uncertainty caused by the COVID-19 pandemic, this old saying has never been more relevant. As more businesses are forced to close, and more people lose their jobs, the imminent recession is looking more and more likely to hit hard. With fewer guarantees about where money might come from in the future – even if things seem stable right now – it’s a good idea to collect as much as you can while you can.
The flip-side of this is also true. Handing over money for anything non-essential right now is not necessarily the wisest move. Don’t get me wrong, taxes are essential. But you will have lots of other necessary costs come due between now and September.
The critical question: who owes whom?
Your decision of whether your taxes can wait or whether you should get them done now depends primarily on whether you will have a refund or a balance owing. The best way to get a definitive answer is to do your taxes right away. If you can use that time to do something else, however, you can do some back-of-a-napkin math to figure out whether you can continue to procrastinate.
Take all your T4s from your employer(s) for the year and separately add up your income, federal tax, provincial tax, CPP/QPP and EI deductions. Subtract any registered retirement savings fund (RRSP) contributions from your income. Then use a Canadian income tax calculator to determine what all those amounts should be based on your income. Subtract the calculator amounts from your real costs to find out whether you paid too much or too little. Add all the results together to get an idea of whether you will have a refund.
Here’s an example based on someone from British Columbia making $50,000 per year with $2,000 in RRSP contributions in 2019.
The person in this scenario would have a refund of approximately $500. If the result was negative, they would owe that amount.
This is a gross oversimplification of income taxes but is likely enough to give most Canadians an idea of whether they can expect to owe money. If your taxes are complicated by things like self-employment, capital gains or a dependent with a disability, the many unknowns make this rough math unreliable.
Check out our comprehensive guide – personal finances during COVID-19
Do your return now for the best results
This approach is quick and dirty, so for best results aim to do your return sooner rather than later. You can do them with a pencil and paper or use one of the tools available to make it faster. These include services like TurboTax, which is free for simple returns, and SimpleTax, which operates on a “pay what you can” model. The CRA publishes a list of certified tax software online divided by free and premium options.
You can also do things the old-school way and have someone do your taxes for you. H&R Block, for example, is offering a “drop off” service that lets you bring your papers in so they can be done with minimal contact. They also have an option that allows you to submit your documents online, as do some other services like TurboTax.
Should I file now or file later?
Should you file your taxes ASAP? Or put it off until the revised deadline of June 1st?
If you expect to have a refund, get your taxes done and filed at your earliest opportunity. The sooner you file your return, the faster the refund will be in your hands. The government doesn’t pay interest on that money, so it’s in your best interest to get it back as soon as possible.
If you expect to have a balance owing, then feel free to file at your leisure. It doesn’t really matter whether you submit right away or not, because the balance won’t be due until the new deadline of September 1st. If you have time to do your taxes, submit them now and make sure you set a reminder for yourself to pay before the deadline. If you don’t have time right now but aren’t expecting a sizeable refund, it can wait.
The bottom line
The government’s decision to postpone the deadline to file and pay your personal taxes is a welcome one that’s sure to help many families through the coming months. But it’s not necessarily an offer you should take advantage of.
If you expect to have a refund, don’t wait to file your taxes. Do it as soon as possible so that you can get your money back and put it to good use.
If you expect to have a balance owing (or a small refund that’s not worth the hassle), then take your time. Even if you file your taxes right away, you’ll still have until September 1st to pay.
ALSO READ