Did you know that over 25% of Canadians make errors on their tax returns yearly, leading to penalties, missed deductions, and delayed refunds? Filing taxes may seem straightforward, but even small mistakes can cost you big time. Whether it’s forgetting to report all income or missing eligible deductions, these errors can cause financial headaches down the line.

In this post, we’ll explore the most common tax filing mistakes that Toronto residents make and, more importantly, how to avoid them. From late filing to overestimating deductions, we’ll highlight the pitfalls you must be aware of. We’ll even uncover one mistake that many people overlook entirely—reporting the sale of your principal residence, which, if missed, could lead to steep penalties. By the end, you'll know how to file your taxes and avoid unnecessary costs confidently.

Failing to Report All Income

One of the most common tax filing mistakes is reporting only some income, which the CRA takes seriously. All income must be declared, whether part-time or freelance, rental, or investment earnings. Even if you don't receive a T4 slip for specific income sources, you're still responsible for reporting it. Failing to do so can result in penalties and interest charges.

For instance, if you forget to report income of $500 or more, you could face a penalty of 10% of the unreported amount. If this happens repeatedly, the CRA may impose harsher penalties, including up to 20% of the unreported income in severe cases.

How to Avoid It: Keep track of all your income streams and double-check your records before filing. Consider hiring a tax accountant to ensure no income is left out.

Missing the Filing Deadline

If you miss the deadline for filing your taxes in Canada and you owe money, the penalties can add up quickly. The tax filing deadline for most individuals is April 30, while self-employed individuals have until June 15 to submit their return. However, any balance owing must still be paid by April 30.

Failing to file on time when you owe taxes can result in a late-filing penalty of 5% of the amount due, plus an additional 1% for each month you are late, up to a maximum of 12 months. If you have been late in the past and have been warned by the CRA, this penalty increases to 10% of the balance owing, plus 2% per month until it's filed, up to a maximum of 20 months.

Even if you can’t pay the total amount right away, filing on time is essential to avoid the late filing penalty. Interest on unpaid taxes also compounds daily at the CRA’s current rate of 9%.

How to Avoid It: Plan, set reminders for critical dates, and organize all necessary documents. If you’re concerned about missing the deadline or paying late, contact a tax professional to help ensure your taxes are filed correctly and on time.

Claiming Ineligible Deductions

One common mistake taxpayers make is claiming deductions that aren’t eligible under Canadian tax law. This mistake often happens because people misunderstand which expenses are deductible or misinterpreted guidelines. A frequent error involves moving expenses. To claim moving expenses, you must have moved at least 40 km closer to a new job or school, and you can only deduct specific costs like transportation, storage, and utility hookups. However, home repairs, mail forwarding, and staging fees are not deductible.

Another typical example is claiming personal loans or credit card interest as student loan interest, which is not allowed. Ineligible deductions can also lead to audits, additional penalties, or reassessments by the CRA.

How to Avoid It: Always check CRA guidelines or work with a tax accountant to confirm that your deductions are valid. A professional can help you differentiate between eligible and ineligible expenses, reducing your risk of penalties.

Overlooking Medical Expense Deductions

Medical expenses are one of the most overlooked non-refundable tax credits available to Canadian taxpayers. To claim these expenses, your total eligible medical expenses must exceed 3% of your net income or $2,479 for the 2023 tax year, whichever is less. However, many people fail to track or claim all allowable medical expenses, which can result in missed savings.

Everyday eligible medical expenses include:

Prescription medications
Dental care and vision aids (such as eyeglasses or contact lenses)
Health insurance premiums
Costs for medical services like physiotherapy and chiropractic care
Travel costs for medical treatments outside your local area, including mileage and accommodation.

One commonly missed deduction is the cost of service animals, including veterinary care and food for guide dogs. Additionally, many overlook medical expenses for dependents, like elderly parents or children, can also be claimed.

How to Avoid It: Keep detailed records of all medical expenses throughout the year, including receipts, prescriptions, and mileage logs. It’s also essential to check CRA’s list of eligible costs or consult a tax accountant to ensure you claim everything you’re entitled to.

Not Keeping Adequate Records

One of the most critical tax filing mistakes is failing to maintain proper records of income, expenses, and deductions. The CRA requires taxpayers to keep all supporting documents for six years from the end of the tax year to which they relate. The CRA may disallow deductions without proper documentation, leading to penalties or reassessments. This process applies to personal and business taxes, including receipts for medical expenses, charitable donations, and business expenses.

How to Avoid It: Use accounting software or work with a tax professional to securely organize and store your records.

Incorrect or Missing Deductions

Another common tax filing mistake is incorrectly claiming deductions or forgetting to claim eligible ones altogether. This mistake can result in paying more tax than necessary or facing penalties if you claim something that isn’t allowed. Common mistakes include:

Forgetting RRSP Contributions: Many taxpayers fail to claim their Registered Retirement Savings Plan (RRSP) contributions, which can reduce your taxable income. You can also carry forward unused contributions for future years.
Missing out on Charitable Donations: You can claim charitable donations for up to five years, maximizing the credit when it benefits you the most. However, many must remember to keep receipts or claim smaller donations.
Incorrect Business Deductions: Self-employed individuals often need to correct errors in deducting business expenses, like overstating vehicle or home office expenses. The CRA requires some of these expenses to reflect business use, so keeping detailed records is crucial.

How to Avoid It: Work with a tax professional to ensure all eligible deductions are claimed and reported correctly, especially for complex situations like home offices or self-employment expenses.

Filing Based on the Wrong Residency Status

Determining your residency status for tax purposes is more complicated than stating where you live. For tax purposes, the CRA looks at where you have your “significant residential ties, " including where you, your spouse, or your dependents live and where your personal property, such as bank accounts or vehicles, is located. If you’ve moved provinces or lived abroad temporarily, you may need to re-assess your residency status before filing.

For instance, if you moved to Ontario from another province but maintained ties like property or dependents in the previous province, your taxes must be filed for the province where your most significant ties exist as of December 31 of the tax year. Misreporting your residency can lead to incorrect tax credits or refunds and potential CRA penalties.

How to Avoid It: If you’ve moved provinces or lived abroad temporarily, consult a tax professional to ensure you're filing under the correct residency status. The CRA offers forms like NR74 to help determine if you're considered a resident or non-resident for tax purposes.

Forgetting to Claim All Eligible Tax Credits

Many Toronto residents miss out on tax credits that could significantly reduce their tax bill or even result in a refund. Some of the most commonly missed credits include:

Canada Workers Benefit (CWB): Designed to assist low-income workers, individuals who don’t realize they qualify often miss this refundable tax credit. You can claim this credit if you earned over $3,000 in 2023 and meet the eligibility criteria.
Home Buyers’ Amount: If you purchased a home in 2023 and it qualifies as your first home, you can claim up to $10,000, which translates to a $1,500 tax credit. Many people miss this if they’re unaware of the eligibility rules.
Childcare Expenses: If you paid for daycare, nannies, or even summer camps while you worked or attended school, you can claim these costs. The deduction limits are $8,000 for children under six and $5,000 for children between seven and 15.

How to Avoid It: Work with a tax professional or use comprehensive tax software to ensure you claim all eligible credits. This step can help reduce your tax burden significantly.

Overlooking the Principal Residence Exemption

One mistake many homeowners make when filing their taxes is forgetting to report the sale of their principal residence. Since 2016, the CRA has required all homeowners to report the sale of a principal residence, even if it’s fully exempt from capital gains tax. Failing to report this can result in penalties of $100 per month, up to a maximum of $8,000. Additionally, if the sale is not reported, you may lose the exemption, meaning the CRA could tax the capital gains from the sale.

The Principal Residence Exemption allows you to exclude any profits (capital gains) from the sale of your primary home from your taxable income. However, if you rented out your house for some time or used it for business purposes, you may only be eligible for a partial exemption. When selling a home, you must complete Schedule 3 on your tax return and submit Form T2091 to claim the exemption.

How to Avoid It: Always report the sale of your home, even if no tax is due. If your home was used for personal and rental purposes, consult a tax professional to determine how much of the gain qualifies for the exemption.

Conclusion

Filing taxes can be challenging, especially when small mistakes lead to penalties, missed deductions, or audits. By understanding the most common tax filing errors, such as failing to report all income, missing deadlines, claiming ineligible deductions, and overlooking valuable tax credits, you can avoid costly surprises and ensure you're fully compliant with the CRA. It's also essential to remember lesser-known requirements, like reporting the sale of your principal residence, even if no tax is owed.

Whether you’re a first-time filer or a seasoned taxpayer, staying informed and organized is the best way to avoid these pitfalls. Partnering with a trusted tax professional like GTA Accounting can help you navigate these complexities confidently and accurately.

Ready to avoid tax filing mistakes? Contact GTA Accounting today for a free consultation and ensure your taxes are filed accurately and on time.

Common Tax Filing Mistakes Toronto Residents Should Avoid