Tax myths debunked

Here are the most common fiscal myths in Canada (and specifically Quebec)

These misconceptions often cost taxpayers money or lead to trouble with the tax authorities.

1. The "Overtime" Myth (Tax Brackets)

This is the #1 myth, and it is mathematically false.

• The Belief: "If I work overtime or get a raise, I’ll jump into a higher tax bracket and end up with less money in my pocket."

• The Reality: Canada uses a progressive tax system. If you move into a higher bracket, only the money earned above that threshold is taxed at the higher rate.

  • Example: If the tax rate jumps from 15% to 20% at $50,000, and you earn $51,000, only that extra $1,000 is taxed at 20%. The first $50,000 is still taxed at 15%.

  • Bottom Line: Earning more gross income always results in more net income (except in extremely rare cases involving the loss of very specific social benefits).

2. The Myth that a Tax Refund is a "Gift"

• The Belief: "Awesome! The government sent me $2,000. Free money!"

• The Reality: A tax refund simply means you gave the government an interest-free loan for the entire year. Too much tax was deducted from your paycheck compared to what you actually owed.

  • The Financial Ideal: A refund close to $0. This means you kept your money in your pocket throughout the year to pay down debt or invest.

3. The "Optional" Common-Law Partner

• The Belief: "We aren't married, so I'll check 'Single' on my tax return to keep my benefits (GST credit, Child Benefit, etc.)."

• The Reality: This is considered tax fraud. In Canada, common-law status is not a choice.

  • Once you have lived together for 12 consecutive months (or immediately if you have a child together), you must file as common-law.

  • The CRA and Revenu Québec cross-reference addresses. If they catch you 3 years later, they will claw back thousands of dollars in benefits deemed "overpayments," plus interest.

4. The Self-Employed Expense Myth

• The Belief: "I have a side hustle, so I can write off my groceries, my suits, and my drive to the office."

• The Reality: The tax agencies are very strict here:

  • Clothing: Generally not deductible (unless it is a specific uniform or safety gear). A business suit is considered a personal expense.

  • Commuting: Driving from your home to your main place of work is never deductible. Only travel between client sites or business locations is deductible.

  • Meals: Only deductible if there is a business purpose (like taking a client out), and usually capped at 50%. Eating lunch alone is a personal expense.

5. The Lottery & Gift Myth

• The Belief (influenced by US TV): "If I win the lottery or inherit money, the taxman will take half."

• The Reality: In Canada, lottery winnings, inheritances, and cash gifts are tax-free. If you win $1 million, you keep $1 million.

  • Note: Any income (interest/dividends) that money generates after you invest it is taxable.

6. The "Tax-Free" Maternity Leave

• The Belief: "My QPIP (Quebec Parental Insurance Plan) payments are social assistance, so they aren't taxed."

• The Reality: QPIP (or EI outside Quebec) is taxable income that replaces your salary.

  • The Trap: The tax withheld at the source on these payments is often set very low (around 10-15%) by default. Many new parents get a nasty shock in April when they discover they owe $1,000+ in taxes, right when their expenses are highest.

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