A crop of lucrative tax breaks ripe for the picking
Every year around this time, I get lots of questions about what kind of tax deductions and credits are available to help you cut your tax bill. So here’s a summary of the more popular tax breaks, along with some new ones introduced for the 2014 tax year.
Besides the exemption for the basic personal amount ($11,138 for 2014), 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
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. Most provinces have similar credits, so be sure to check what applies in your province of residence.
Tuition, Education, and Textbook Credits. Tuition fees totaling 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.
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 2014, you may be eligible to claim the $4,530 Caregiver Amount for each eligible dependant. The 15% Caregiver Tax Credit may also be available on up to $2,058, for a credit of up to $308.70 per dependant.
Children’s Fitness Tax Credit and Children’s Art 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. In addition, the government has raised the limit for the Fitness Tax Credit to $1,000 starting with the 2014 tax year, and will make it a refundable credit starting with the 2015 tax year.
Public Transit Credit. This one lets you claim a non-refundable tax credit of 15% of the cost of monthly public transit passes for 2014 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 and 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. You may claim a wide variety of medical expenses, including such things as laser eye surgery and home care services. You calculate your claim based on the total of your medical expenses minus $2,171 or 3% of your income, whichever is less.
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 2014 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.
Tradesperson’s tools deduction. Employed tradespeople may be able to deduct the cost of eligible tools purchased in 2014 to earn employment income as a tradesperson and as an eligible apprentice mechanic. A $500 maximum applies.
Family Tax Cut. This isn’t exactly a credit or deduction. Rather, it’s an income-splitting mechanism that takes effect for the 2014 tax year, whereby couples with children under age 18 may 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.
© 2015 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.