Lucrative, but often overlooked, tax breaks
There are in fact some 70 personal tax deductions and credits available. Not all apply to everyone. And many are often overlooked, even if they do apply. 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. Here’s a sampling of some of the most often overlooked tax credits and deductions.
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.
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 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.
Healthy Homes Renovation Tax Credit. This is a permanent, refundable personal income tax credit in Ontario, for seniors and family members who live with them. It 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. Qualifying individuals may be able to claim up to $10,000 of eligible home improvements, resulting in a credit that could be worth up to $1,500 each year. This credit will be discontinued in Ontario effective Jan. 1, 2017. Most provinces have similar credits, so be sure to check what applies in your province of residence.
Tuition, Education, and Textbook Credits. Tuition fees totalling more than $100 per institution for full-time and part-time students in Canada (and in some cases outside Canada) are eligible for a non-refundable Tuition Credit.
A non-refundable Education Credit is available for each month a student studied at an accredited institution, co-op program, or eligible training program, either inside or outside Canada. For full-time students, the federal credit is 15% x $400 per month and 15% x $120 per month for part-time students.
Post-secondary students who buy textbooks qualify for a non-refundable Textbook Credit, if the student is also eligible for the Education Credit. The Textbook Credit is 15% x $65 for each month the student is registered full-time or 15% x $20 for each month the student is registered part-time.
Family Caregiver Amount and Caregiver Tax Credit. If you were a caregiver for a dependent physically-impaired person with whom you lived in the same residence in 2015, you may be eligible to claim the $4,608 Caregiver Amount tax credit for each eligible dependant. The Family Caregiver Amount of $2,093 may be available for dependants under 18.
Children’s Fitness Tax Credit and Children’s Arts Tax Credit. If you have a child enrolled in activities such as soccer or hockey you can claim up to $1,000 in eligible expenses for 2015 under the Children’s Fitness Tax Credit. However, this credit will be cut to $500 for the 2016 tax year and eliminated for 2017 and subsequent years. The Children’s Arts Credit of up to $500 is available for children younger than 16 at the beginning of 2015, for registration or membership costs in prescribed programs of artistic, cultural, recreational, or developmental activity. The credit will be reduced to $250 in 2016 and eliminated starting in the 2017 tax year.
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 2015 for commuting on buses, streetcars, subways, commuter trains, and local ferries. It is available to everyone. Keep your monthly passes and receipts as documentation.
Search and Rescue Volunteer or Volunteer Firefighters’ Credit. There is a 15% non-refundable tax credit for search-and-rescue volunteers, which became effective for the 2014 tax year. It’s based on a $3,000 amount that could result in a credit of $450. A Volunteer Firefighters’ Tax Credit is based on $3,000 for volunteer firefighters serving at least 200 hours in a year. You may claim only one of these two credits if you qualify, but not both.
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.
Family and personal deductions
There are also a few lucrative family deductions available. Here are the most popular ones:
Medical expense deductions. According to the CRA, you can claim only eligible medical expenses on your return if you or your spouse or common-law partner paid for the medical expenses in any 12-month period ending in 2015 and did not claim them in 2014. 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.
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 2015 is $8,000 for each child under six at the end of the year, and $5,000 for each child over seven and under 16. The deductions cannot exceed two thirds of your earned income.
Tradesperson’s tools deduction. Employed tradespeople may be able to deduct the cost of eligible new tools in excess of $1,146, purchased in 2015 to earn employment income as a tradesperson and as an eligible apprentice mechanic. A maximum claim of $500 applies.
Family Tax Cut. Although it is treated as a a non-refundable tax credit of up to $2,000 based on a “notional” transfer of income, it was really an income-splitting mechanism introduced by the previous Conservative government that took effect in 2014 and is still available for the 2015 tax year. Couples with children under age 18 are be able to split income by transferring up to $50,000 of taxable income from the higher-bracket spouse to the lower-bracket spouse, providing a potential tax saving of up to $2,000 for the couple. The new Liberal government has eliminated this tax cut for 2016 and subsequent tax years.
© 2016 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.