The Dangers of Tax Credits : Free money or an invitation to audit?

Tuesday, 14 August 2018


The Dangers of Tax Credits : Free money or an invitation to audit?

The Dangers of Tax Credits : Free money or an invitation to audit? - 4.4 out of 5 based on 274 votes

( 274 Votes )

Come tax time, Canadians and their media are obsessed with tax refunds. Getting money back when you file your return seems to be the greatest good and the standard by which all accountants and financial advisors are measured. And all in pursuit of the candy trail laid carefully by politicians to buy your vote.

While there is merit in organizing one’s financial affairs to pay the least amount of tax possible under the law, the unmitigated quest for a tax refund creates dangers for both the tax filer and anyone with whom they have had financial dealings. And to what end?

Here’s a short list of 4 write-offs and tax credits that, while worthy of consideration, may expose you or others to the scrutiny of the Taxman:

1. Children’s Arts Tax Credit. You can claim fees paid in 2012 of up to $500 per child for the dance/piano/arts classes your kids take. But before you go after the maximum of $75 (per child) you might get back, consider this. In order to get the credit, you’ll need receipts from the school or the nice lady down the street who teaches Jimmie the do-re-mi’s of keyboard. When you’re assessed, the CRA might ask to see your receipts, your proof of payment (cancelled cheques, or bank or credit card statements – something you really don’t want to be showing the CRA for a $75 credit). CRA might also request more info from you about the teacher, such as her name, address, SIN # and whether she charged you HST on the lessons. When the CRA asks, you have to answer. And the piano lady will thank you when the CRA comes to audit her and requests the names and addresses of all her students. And after all that, you still might not get the credit. See this cautionary note reproduced from the CRA website:

A receipt does not guarantee the eligibility of a program.

2. Children’s Fitness Tax Credit . For soccer/hockey/baseball/gymnastics and other kids “fitness” programs. The same principles apply as above.

3. Ontario Healthy Homes Renovation Tax Credit. This renovation credit, designed to buy the votes of the aging, and the aging baby boomers who are now so often caring for aged parents, succeeds the home renovation credit from a couple of years ago. (That one had a hidden catch. To get the credit for your new furnace or the window retrofit you had to pay $500 for an energy audit from a government-accredited energy audit company, who reported on the energy efficiency of your home…likely so your energy audit could be held against you if and when the government found a way to introduce a “green” tax, like a carbon tax, to be levied against everyone whose home wasn’t up to the standard determined by the government. Sounds like pre-revolutionary France where you were taxed on the size of each window… But we digress.) This healthy homes renovation tax credit reimburses Ontario residents over age 65 for up to 15% of the cost of eligible home renovations ( to a maximum credit of about $1500) for the purpose of making the home safer for seniors. Eligible expenses are things like ramps, stair lifts, handrails and other home safety aids for seniors. Before you go to grab the credit, make sure your renovator or handyman gave you accurate invoices and charged HST, etc. Because the CRA will want your receipts so they can make sure the renovator reported everything.

4. Public Transit Tax Credit. If you took public transit to get to work or school, you deserve a break. Just make sure you’re not trying to write-off parking, gas and mileage at the same time. If the Taxman thinks you’re double-dipping, he’ll look closer.

At the end of the day, there’s no such thing as free money. Every write-off has strings attached to someone else, somewhere else in the system. But, if you’re still hell bent on squeezing every dollar you can from the Public Treasury, remember the Rules of Tax Refunds.

You’ll only get a tax refund if:

  • You file a tax return.
  • You identify and qualify for the tax credits you’re after.
  • Your return is assessed as having no tax owing, meaning that you’ve already paid throughout the year, and you have no balance owing from earlier years.
  • Your return is assessed as filed, meaning that CRA accepts everything you’ve reported.

After you receive your refund, the CRA can still go back and review any of your
write-offs and expenses for up to three past tax years
, ask to audit what you claimed, and then may deny the write-off(s) and ask for the refund back with interest. So just because it worked last year doesn’t guarantee you’re safe.

Now go get those refunds! And many happy returns.

Join the Conversation

rather not say   24.02.2014 15:41
deceptive tax credits

unbelievable! and I thought the government just wanted to help me..

Garnet Leib   30.01.2014 00:27
great Info

Thanks for the info

Valerie   29.01.2014 18:57
Tax Credits

I still think it is always worth it to try to get any tax credit you can.

Brian Lampert   29.01.2014 12:47

good advice

Richard Skeen   31.05.2013 17:00

Lots of valuable info!

Gerald Sheri   29.05.2013 23:42
CRA powers

Fuck the CRA and fuck the government. These overpaid lazy fucks shouldn't have the rights they do. Fuck them

JENN KENNEDY   12.04.2013 04:53


isabel m   11.04.2013 09:51
tax page

Very informative page; Taxes--federal provincial and municipal--seem like a tangled web that is almost impossible to navigate on your own, so l appreciate the info.

Isabelle Legault   01.02.2014 15:18
Re: Tax page

I agree with Isabel, it's nice to have someone explain this "tangled web" in understandable terms.

Sandra   09.04.2013 14:43

Scary Stuff - good to know!


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