Tax season always sparks questions and a fair bit of misinformation. From online advice to social media gurus, it’s easy to hear conflicting ideas about what you can and cannot do on your tax return. Some of those tax tips can lead to costly mistakes, missed deductions, or CRA penalties. In this post, we’re breaking down eight of the most common Canadian tax myths so you can file with confidence and avoid unwanted surprises at tax time.
Myth 1: You Don’t Need to Report Cash or Side Income
Fact: All income is taxable in Canada, even if it was earned informally.
All income must be reported, including freelance gigs, online sales, and cash jobs. Failing to do so can lead to penalties and interest charges.
The CRA uses third-party data, banking information, and digital reporting tools to identify discrepancies.
Myth 2: Small Businesses Only Charge GST/HST Once They Make a Profit
Fact: GST and HST registration is based on revenue, not profit.
If your business earns $30,000 or more in taxable revenue in a single calendar quarter or over the previous four consecutive calendar quarters, you must register for GST/HST and begin collecting it on applicable sales.
Waiting until you’re profitable can lead to retroactive taxes, interest, and penalties. Keep a close eye on gross revenue to stay compliant with CRA thresholds.
Myth 3: Incorporating Automatically Lowers Your Taxes
Fact: Incorporation can provide tax planning options, but it is not a guaranteed tax cut.
Incorporation offers tax deferral opportunities and planning flexibility, but earnings left in the company and personal withdrawals, like salaries or dividends, are taxed differently.
It also comes with extra costs and filing requirements. Review your income profile and long-term goals with a professional accounting team (like SBLR!) before deciding.
Myth 4: Filing Late Is Fine If You Pay Later
Fact: File on time, even if you cannot pay the full amount.
Filing late comes with a 5% penalty on the amount owed plus 1% interest for each month your return is overdue, up to 12 months. Filing by the deadline avoids those penalties.
If you did not make your instalment payments on time or didn’t pay enough, you’ll be charged CRA instalment interest at the prescribed interest rate, which updates every three months. If you cannot pay, file as required and then contact CRA to arrange a payment plan.
Myth 5: Claiming Deductions Triggers an Audit
Fact: Legitimate deductions, when properly documented, do not automatically trigger an audit.
Many people skip deductions out of fear that it will trigger a CRA audit. In reality, audits are based on data comparisons and risk models, not legitimate expenses.
The key is to have accurate records and receipts that support the expense and its business purpose.
Myth 6: Your Notice of Assessment Means Everything Is Final
Fact: The Notice of Assessment can be followed by reassessments.
The CRA can reassess your return for several years after filing if new information or inconsistencies come up. You can also request an adjustment if you discover an error or a missed deduction.
Keep tax records for at least six years after filing to support any future review.
Myth 7: The CRA Only Audits High-Income Earners
Fact: The CRA audits based on risk and patterns, not solely on income level.
Audits happen when returns show anomalies or don’t align with similar filings, not just because you earn a high income.
Small businesses and contractors are routinely included in reviews when items in their filings look inconsistent.
Good bookkeeping and consistent reporting reduce audit stress for anyone.
Myth 8: The CRA Never Sends Emails, So Every Email Must Be a Scam
Fact: The CRA does send emails, but it will not request personal information or direct payment by email links.
The CRA may email you to say a new message is waiting in your online account, but it will never include links asking for payment or personal details. Those messages are phishing attempts.
Always log in directly at the official CRA My Account or My Business Account portals to view legitimate correspondence.
Believing tax myths can cost you time and money. Staying informed helps you make better decisions and avoid unnecessary stress during tax season. Need help navigating your taxes? Our team can guide you through tax planning, GST/HST compliance, and CRA reviews. Request a consultation or call us at 416-646-0550 to get started.