And some tax deductions too!
Yes, I know, no one wants to think about taxes. But tax-filing deadline is April 30, and now is a great time to make sure you’re taking advantage of every single tax break you can get. Besides the exemption for the basic personal amount ($11,038 for 2013), there’s a host of lesser-known, but potentially very lucrative, tax deductions and credits you may be able to use to cut your tax bill. Here’s a quick primer to help you get started.
Note that 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. To claim these, you must fill in the appropriate boxes on your tax return form.
In the credit column
Children’s Activity Tax Credit. If you have a child enrolled in activities such as painting classes, soccer, hockey, or music lessons, you can claim up to $500 in eligible expenses and get up to $50.00 back for each child under 16 for 2013.
First-Time Homebuyer Credit. You can claim a personal amount of $5,000 in respect of the purchase of a qualifying first-time home. The tax savings generated after by the non-refundable tax credit will be $750 (that is, $5,000 x 15%).
Healthy Homes Renovation Tax Credit. This Ontario tax credit is designed to assist with the cost of permanent home modifications that improve accessibility or help a senior be more functional or mobile at home. The credit could be worth up to $1,500 each year. Most provinces have similar credits, so be sure to check what applies in your province of residence.
You must meet eligibility requirements for tax credits, and each tax credit has different rules. There are many different types of tax credits available, so be sure to check with your tax specialist to determine if you qualify.
Public Transit Credit. This one lets you can claim a non-refundable tax credit of 15% of the cost of monthly public transit passes for 2013 for commuting on buses, streetcars, subways, commuter trains, and local ferries. It is available to everyone. Keep your monthly passes and receipts as documentation.
Family and personal deductions
There are also a few lucrative family deductions available. Here are the most popular ones:
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 is $7,000 for each child under six at the end of the year, and $4,000 for each child over seven and under 16. The deductions cannot exceed two thirds of your earned income.
Student deductions. Students can claim tuition, education, and textbook amounts. If they have graduated recently, they may be eligible to claim the interest that they paid on their student loans. The beauty of this one, and it’s often overlooked, is that unused amounts can be transferred to other family members. Any tuition, education, and textbook amount a student doesn’t use can be transferred to a parent, grandparent, or spouse in the year. Amounts carried forward by the student cannot be transferred.
Tradesperson’s tools deduction. Employed tradesperson’s may be able to deduct the cost of eligible tools purchased in 2013 to earn employment income as a tradesperson and as an eligible apprentice mechanic. A $500 maximum applies.
Do it now!
Don’t wait to file your tax return! Penalties for late filing and not paying any balance owing are harsh. And good intentions don’t count. The Canada Revenue Agency must have your T1 form and payment in hand on April 30. (An April 30 postmark doesn’t count.)
You could always use a pop-up tax prep office in your local mall or supermarket. They’ll likely use basic tax software to fill out your return. And they’re unlikely to delve deeper than that. And will they be there if your Notice of Assessment brings bad news in June, or worse, an audit? If you don’t have an accountant or bookkeeper, check in with your financial adviser now! Most have decent tax preparation services on call, as I do in my own practice.
© 2014 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.
