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The Globe and Mail

Ten tax myths: Yes, maternity leave income is taxable

Cleo Hamel, a senior tax analyst at H&R Block Canada, says these are some of the most common misconceptions when it comes to taxes

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Myth #1: Maternity leave income is not taxable. You are required to report your EI benefits as income. In most cases, Ottawa does not withhold enough from your payments for your taxes so you may be facing a bill at the end of the year.

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Myth #2: RRSP contributions do not have to be reported if I do not use the deduction. Even if you are not claiming a deduction for the contributions you made in the year, you still need to report that you made them. So all your contributions from March 2, 2012 until March 1, 2013 should be recorded on your 2012 tax return.

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Myth #3: Tips are not considered income. Servers and others in the hospitality industry are required to record and report their tips on their tax return. For servers, tips could make up 200 to 400% of their income. For example, if the income on a server’s T4 slip is $10,000, the CRA expects their tips to range from $20,000 to $40,000. So servers - keep a log and report your tips.

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Myth #4: Students get refunds on their tuition. To get a tax refund, you need to have overpaid your income tax during the year. If a student does not have taxable income, they cannot use their tuition and education credits on their return. They have the option to transfer up to $5,000 to a parent, grandparent or spouse - or they can carry forward credits to use in a future year.

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Myth #5: Mothers are required to claim the children first. The lower-income spouse, whether it is the mother or father, is required to claim childcare expenses. Either parent can claim the child tax credit.

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Myth #6: I earned less than $10,000 so I do not have to file a tax return. Whether or not to file a tax return is not determined by how much money you earned. Even if you did not earn more than the $10,822 personal amount, filing a tax return may trigger benefits like the quarterly GST/HST payment. And if you had tax withheld, you should receive a refund.

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Myth #7: I can claim a flat rate amount for my business mileage. Self-employed Canadians are required to keep a logbook to calculate the auto expenses for their business.

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Myth #8: Child support is a tax deduction. Unless your agreement is dated was made before May 1, 1997, child support payments are reported on your tax return but they are not a deduction or included in income.

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Myth #9: If I work outside of the country, I do not need to file a tax return. The Canadian tax system is based on residency. If you are emigrating, you should indicate your date of exit on your last tax return. If you are working outside of the country but have substantial residential ties to Canada, you will be required to file a Canadian tax return.

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Myth #10: Mortgage interest is a tax deduction. Only self-employed Canadians who work from home are allowed to claim a percentage of their mortgage interest as a business expense. The tax benefit of owning a home comes when you sell. Every Canadian receives a capital gains exemption on the sales of their principal residence.

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