Don’t leave money on the table
Are you taking all the tax deductions and tax credits you’re entitled to? If you’re a do-it-yourself-type, you may be missing out on some lucrative tax savings because you’re not claiming everything you should, even if you’re using top-quality tax-preparation software.
Very often it’s because you may not know whether a particular deduction or credit applies to you. That’s not surprising, because there are nearly 100 personal tax deductions and credits available, and not all apply to everyone, or do so in only very limited circumstances. And many are often overlooked, even if they do apply. Here’s a rundown of the most commonly missed credits and deductions. Consult with your tax preparer to see if they apply to you.
First, let’s clarify the difference between credits and deductions. A “tax deduction” reduces your taxable income for the year. For example, a common tax deduction for Canadians is an RRSP contribution. Small business owners, those who are self-employed, or those who have a business on the side may also deduct business expenses.
A “tax credit” is taken directly off the tax you owe, and is usually calculated as a percentage of an amount set by the government up to some pre-defined maximum. There are two types of tax credits. 1) Refundable credits entitle you to the entire amount of the credit, even if the claim results in a negative tax liability – which simply means you get a tax refund of any excess amount. 2) A non-refundable credit simply reduces your liability for that amount to zero, and any excess is forfeit. To claim tax credits, you must fill in the appropriate boxes on your tax return form.
Employment expenses. You can deduct certain expenses (including any GST/HST) you paid to earn employment income, but only if you were required to pay expenses under the terms of your contract, did not receive an allowance for them, or if an allowance was included in your income. This deduction typically will not apply to most employees, and you cannot deduct the cost of travel to and from work or any other expenses, including tools and clothing. In addition, you can deduct any legal fees paid to collect salary or wages.
However, the Tradesperson’s Tools Deduction lets employed tradespeople deduct the cost of eligible new tools over $1,195 purchased in 2018 to earn employment income as a tradesperson and as an eligible apprentice mechanic. A maximum claim of $500 applies.
Home Buyer’s Amount. You can claim $5,000 for the purchase of a qualifying home in 2018 if you or your spouse or common-law partner acquired a qualifying home and you did not live in another home owned by you or your spouse or common-law partner in the year you bought the home or in any of the four preceding years (first-time home buyer). The maximum tax savings generated by the non-refundable tax credit will be up to $750 (that is, $5,000 x 15%). This is also available to existing homeowners who qualify for the Disability Tax Credit and who purchase a more accessible home.
A qualifying home must be properly registered and must be located in Canada. Both existing homes and homes under construction qualify, and include single and semi-detached family houses, townhouses, mobile homes, condominiums, and apartments in duplexes, triplexes, fourplexes, or apartment buildings.
Medical expense deductions. You may claim only eligible medical expenses if you or your spouse or common-law partner paid for the medical expenses in any 12-month period ending in 2018 and did not claim them in 2017. Generally, you can claim all amounts paid, even if they were not paid in Canada. You can find a list of common medical expenses at the CRA website.
Canada Caregiver Amount. This tax credit is available to those caring for a dependant relative. If the relative is over 18, the credit is $6,986 minus any net income above the $16,405 threshold for the 2018 tax year. The credit will be zero if the dependant’s income is $23,391 or more. For dependants under the age of 18, the credit is $2,182, but is not reduced by income.
Annual union, professional, and other dues. This one is often overlooked because the amounts may be withheld from your pay or may be paid as an automatic withdrawal. But they can add up. The CRA lists the following amounts you can claim if they related to your employment and if you paid them yourself in the year or if they were paid for you and reported as income:
* Annual dues for membership in a trade union or an association of public servants.
* Professional board dues required under provincial or territorial law.
* Professional or malpractice liability insurance premiums or professional membership dues required to keep a professional status recognized by law.
* Parity or advisory committee (or similar body) dues required under provincial or territorial law.
Initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs do not count as annual membership dues. Neither do pension plan premiums, even though they may be shown on your annual slips as dues.
Moving expenses. You can claim eligible moving expenses if you moved to a new location for employment or business purposes, or you moved to attend college or university as a full-time student. To be eligible for the deduction, your new home must be at least 40 kilometres (by the shortest usual public route) closer to your new work or school than you were before.
Interest on student loans. Interest paid on your student loan in 2018 or the previous five years may be claimed as a credit by you or a related person. If you have no tax payable for the year, you can carry the interest forward for five years and claim it when you do have tax payable.
Childcare expenses are deductible from income where one or both parents are working or where one spouse is attending school for all or part of the tax year. Childcare expenses can include daycare fees, boarding school, hockey school, or summer camp fees. The maximum you’re allowed to claim under the childcare deduction in 2018 is $8,000 for each child under age six at the end of the year, and $5,000 for each child over seven and under age 16. The deductions cannot exceed two thirds of your earned income.
Legal fees. Certain kinds of legal fees can be claimed. These include fees paid to respond to or object to or appeal a CRA assessment, legal fees paid to collect a retiring allowance or pension benefit, and fees incurred to try to make child support payments non-taxable. You cannot claim fees you paid to get a separation, divorce, or establish custody of or visitation arrangements for a child.
Transferring tuition, education, and textbook amounts. The education and textbook credit was eliminated as of Jan. 1, 2017; however, you can carry forward unused amounts. The tuition credit is still applicable for tuition fees totalling $100 or more paid to a post-secondary institution. If there is any amount remaining after a student reduced their own tax owing, they may transfer it to a parent, grandparent, spouse, or common-law partner. Note that amounts for transfer cannot be carried forward from previous years and cannot exceed $5,000, less the amount the student used to reduce their own tax owing. Only one person can claim this transfer from the student, and it can be a different person each year.
Climate Action Incentive (CAI) Payment. This is a payment designed to offset the federal carbon tax in Saskatchewan, Manitoba, Ontario, and New Brunswick. It consists of a basic amount and a 10% supplement for residents of small and rural communities. Only one person per family (you or your spouse or common-law partner) can claim the CAI payment.
You can claim the CAI payment if on Dec. 31, 2018, you lived in one of the four provinces it applies to, and you were over the age of 18. If you were younger than 18, you can claim the CAI if you were married or lived common law, or were a parent living with your child.
You can also claim the CAI for a dependant if on Dec. 31, 2018, your unmarried child or dependant under the age of 18 was dependent on you for support and was not a parent living with their child.
Here’s a summary of the maximum CAI payments you can claim in various circumstances:
As always, each person’s tax situation differs, and not everyone can claim every deduction or credit. See your financial advisor for more information on which deductions and credits you may be able to use to cut your tax bill.
© 2019 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.