Tax Return Checklist for Individuals and Unincorporated Business Owners

The deadline to file tax returns is starting to loom large, resulting in anxiety for some individuals and small business owners.  The good news is that the stress can be managed fairly easily with some simple organization techniques.  The best starting point is to evaluate your tax situation and prepare a checklist of all the documentation that you will need with respect to your specific tax situation. A checklist can help reduce (or eliminate) important items that might get forgotten in the rush to put everything together (and its always satisfying to cross something off the list). I have compiled a list of some of the more common income, deductions and credits that the majority of taxpayers are likely to have:

Basic Information:

If this is the first time that you are filing your tax return, you will need the following information with respect to yourself, your spouse (common law or married) and dependants:

• Full name

• Social Insurance Number

• Current Address (if this has changed since the last time you filed your tax return, you must contact Revenue Canada and, if applicable, Revenue Quebec to advise them of the change before e-filing your return to avoid the inevitable confusion that can ensue from filing the tax return without making this change. Note that this can also be done online by signing up for my account with CRA and RQ)

• Date of Birth

• Province of Residence (this will determine where you are taxed at December 31st, 2020)

• Marital Status

• For Quebec residents - do you use the Quebec prescription drug plan or do you have private insurance that covers this.

If you have filed your tax return before either using tax software or with an accountant, this information can be carried forward. Any changes since 2019 should be assessed and changed on the tax return, if applicable.

covid slips and benefits

• Anyone who received CERB, CRB, CESB(students) CRB etc. will receive either a T4A (box 197 to 204) or a T4E. If you have not received the slips in the mail, they should be available in your CRA online account.

• Most tax software will allow you to enter the amounts from the boxes so that they can correctly calculate the amounts.

• If you received a T4a for your Covid benefits should be reflected on the “other income” line 13000 of the tax return

• If you received a T4E for Covid benefits, this is reported on line 11900 of the tax return.

• It should be noted that CERB is taxable income and no deductions were taken by CRA on the amounts paid.

• CERB repayments for those did not end up qualifying for CERB are repaid directly to CRA. This is not done through the tax return.

• For benefits starting in November like CRB, CRSB and CRCB, 10% was taken of the total paid to apply to taxes owing.

• The Quebec equivalent of a T4a is the RL1 while the T4e will also have a T4e(Q) for residents of Quebec.

• Boxes 57 to 60 on the T4 are simply for information purposes for CRA and do not require any action by the taxpayer.

• If you worked from home in 2020, there is a new benefit that is available that allows you to claim $2 per day up to $400 per year subject to certain criteria. Read more about the employee home office deduction. If you are self employed, you would use the same method to calculate home office expenses as in previous years.

Foreign Income verification statement T1135

If you have any foreign property, investments, bank accounts etc. the combined total of which exceeds $100,000 in Canadian dollars it must be reported on the T1135. Failure to report this by the deadline of April 30th for individuals or June 15th for self employed individuals can result in a hefty penalty.

Related: T1135 Foreign Income Verification Statement

Employment Income - T4 and RL-1(Quebec):

If you are or were an employee at any point during the year, you will have received a T4 (AND an RL-1 in Quebec) for every place that you worked whether part time or full time (even if for just a couple of weeks). If you have not received the T4/RL1 you should contact your employer and make sure that they send it to you as there can be penalties for failing to include all relevant slips. Another way to see your T4s is to access your account online, where the majority of T4s are posted for the current and previous years.

other t-Slips

If you received CPP or QPP during the year, you will receive a T4(P) slip which reflects amounts received and any taxes withheld. You might also receive other pension benefits or EI benefits both of which are accompanied by slips that should be reported. Note that if you have received income during the year a determination should be made as to whether it is taxable (google can help with this task) and find (or request) the accompanying slip.

Investments and Dividends - T5 and RL-3 (Quebec):

• T5 slips and RL3s are issued by financial institutions and corporations to anyone who has earned investment or dividend income in excess of $50 annually.  If you have any investments in corporations, trusts or banks ensure that you have the tax slips. 

• Note that there are no slips for investments in RRSPs as income accumulates tax free until it is withdrawn at retirement. There are however situations where you might withdraw funds from your RRSP early for which you will be issued a T4RSP tax slip. There is usually a withholding tax that is automatically taken which should also be entered as tax paid .

• There is also no tax slips for contributions to, or income earned in a TFSA account as the income in this account accumulates tax free. Just make sure you are not trading frequently otherwise CRA might consider it to be a business and disallow the TFSA tax exempt status

• If you are an owner of an incorporated business and have taken dividends during the year, you should have a T5 slip and an RL3 (if you reside in Quebec). 

Capital Gains and Losses:

If you have an investment portfolio, any gains or losses on sales of investments (i.e. realized gains or losses) must be reported on your tax return. Most investment brokers will provide clients with a T5008 - Statement of Securities Transactions - which reflects the sale of investments. However, they don’t always provide you with the cost of securities which is required to calculate the capital gain or loss. If this is not provided by the investment provider, you will have to keep track of your purchases along with related costs and foreign currency rates on the date of purchase, if applicable.

Rental Property Income

All amounts earned from rental property must be declared, while expenses relating to rental property may be deducted.  Ensure that you have these amounts on hand to enter into form T776. These include:

• Rental income

• Interest paid on the mortgage (most banks will send you year end summary which details the interest portion only)

• Property taxes including municipal, school and water tax

• Insurance

• Utilities (if not paid by the tenant)

• Repairs and maintenance during the year

Related: Details on Rental Property Income and Expenses

Unincorporated/Self Employed Business Income

If you are self employed, have an unincorporated small business or a part time business, you are required to fill out a statement of business activities form T2125.  You will need your sales from your business and related expenses along with all related documentation including invoices, bills, receipts, bank and credit card statements . A profit and loss statements can be prepared using accounting software. Alternatively, many small business owners list their revenues and expenses in an excel sheet. It is important to include the date of each transaction along with the supplier, category of the expense (eg. rent, office supplies, cost of goods sold etc.), net amount before sales tax and sales tax. You should also supporting documentation such as a bill or receipt for each purchase.

Many small business owners also receive a T4A for business services provided. This is usually reflected on box 20 or box 48 on the slip. These should be reported on the T2125 in the line item for income from T4As.

Related: 

• Tax Tips for Self Employed

• Preparing your small business return with ufile 

RRSP Contributions and Withdrawals

You should receive a slip from your financial institution for contributions to your RRSP from March 2nd of 2020 to March 2nd of 2021. The slip will indicate whether it is “remainder of the year 2020” of the “the first 60 days of the current year 2021” both of which can be deducted in 2020.   Keep in mind that you are only allowed to claim RRSP contributions that do no exceed your unused contribution room, which can be found on the prior year notice of assessment from Revenue Canada, otherwise penalties will apply.

The T4RSP slip represents any withdrawals taken during the year along with the withholding tax. This must be reported on your tax return.

Related: 

• Invest in RRSPs or repay your mortgage

• RRSP Facts and Figures

 Medical Expenses

Individuals are entitled to claim all medical expenses that exceed 3% of income. Note that medical expenses can apply to any 12 month period as long as at least one month pertains to the current taxation year and was not previously claimed.   All expense receipts including date of visit, name of healthcare provider and amount should be accumulated which includes any amounts paid to a private health insurance plan (this does not include employer portions)

Related: Details about the Medical Expenses Tax Credit

Union or Professional Dues

If you contribute to a union or are a member of a professional order, you are usually allowed to claim this as a deduction.

Related: Line 21200 - Annual union, professional, or like dues

Charitable Donations

All amounts paid to charities must be supported by official receipts from the registered charity.  Amounts contributed to an American charity can only be deducted against income received from the US.

Related: 9 Facts About Charitable Donations

Tuition Amounts

If you have enrolled for post secondary education, you will likely receive a T2202, T2202A, TL11A, B or C.  from your educational institution which means that it is deductible. Any scholarship or grants should also be reported as income, for which you will usually receive a tax slip. Usually full time education offsets any taxes owing on scholarships.

First Time Home Buyer’s Credit

If you are a first time home buyer, you are entitled to claim a tax credit of up to $5,000 To qualify both of the following conditions should apply:

• you or your spouse or common-law partner acquired a qualifying home

• you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years (first-time home buyer)

Although no documents need to be sent at the time of filing, the CRA might ask to see copies of the purchase agreement and other documentation (which you should maintain anyway)

Related: Line 31270 – Home buyers' amount

Dependants

You are allowed to claim certain expenses for your dependants for which you must have documentation.  These include: 

• Babysitter

• Boarding School

• Daycare

• Camp

• Tuition (see above)

In most cases you will receive a specially designated slip that will provide you with the exact amount that you are allowed to claim. In Quebec, individuals receive the RL24 which must be reported on the tax return.

other income and deductions to consider

• Workers compensation T5007

• Moving expenses can be deducted if certain criteria are met.

• Carrying charges (e.g investments fees) on investments can be deducted against taxable investment income

• Determine if the caregiver amount is applicable to your situation

• Eligible teachers are entitled to a tax credit for school supplies purchased by them

• Disability tax credit for disabled members of the family

There are a variety of other tax items, the majority of which will be accompanied by some sort of tax slip or other documentation.  When you receive something that looks vaguely official it is always a good idea to keep it and if you are unsure what to do with it, seek the guidance of an accountant.  If you are e-filing your return, then it is not necessary to include any of the tax slips or supporting documentation, however the tax authorities might ask for this at any time generally up to 6 years after the year for which the income tax return is filed.  It is important to note that it is the responsibility of taxpayer to ensure that they meet their tax obligation and report all (worldwide) sources of income .  Although this same obligation does not necessarily extend to deductions and credits, it is clearly in the taxpayers interest to ensure that they claim everything that they are entitled to.

Are you a small business owner or freelancer looking to better understand your small business/self employed taxes?. Check out our small business tax guide that takes you through the process step by step in an easy to understand way.