Tax Tips: Maximize Your Tax Return In Canada
Do you leave money on the table when filing your taxes? Lots of people do. They ignore that crazy pile of receipts in the drawer (where they left them last year too) and don’t take full advantage of the deductions they are entitled to.
Let’s get your taxes right so you can get the greatest tax refund possible. Here are some simple tax hacks and pitfalls to avoid:
1. Calculate your tax deductions
Remember, a tax refund is not a government giveaway. It is your money! They hold onto it only for you. Get the full amount you deserve by claiming allowable deductions.
Deductions lower the taxable amount of your income. Here are three commonly used points that you can qualify for:
- Childcare costs. Did you pay someone else to look after your little ones while you went to work or advanced your education? The government allows you to deduct up to $ 8,000 per child for children under 7 years of age. You can also deduct up to $ 5,000 per child for children 7-16 years old (guesswork only, but maybe there is a government relationship there that takes into account cuteness, which drops off sharply after age 6). For disabled children of all ages, the maximum entitlement is $ 11,000.
- Home office expenses. Many Canadians started working from home during the pandemic. Deduct home work expenses with a new temporary flat rate method or the traditional detailed method.
Note that CI Financial has a number of resources, such as the Tax Calculator, that you can use to ensure you are getting the most out of this tax season.
2. Claim your tax credits
What is a tax credit? A credit is an expense that you can claim that is different from a deduction because it is not related to your income.
Here are some examples of tax credits to look out for:
- Interest on student loans. That’s a pretty sweet deal. You can claim interest on your student loan as a non-refundable credit. The federal and state tax credit is calculated by multiplying the lowest federal / state / area tax rate by the amount of the loan interest.
Pro tip: If you haven’t had any income in the past year, you may want to wait to claim the student loan interest. You can carry this interest forward and apply it to any return for the next five years.
- Medical credits. This is one that people tend to overlook. It is worth taking a moment to read through the different types of medical expenses that may apply to you. Depending on your circumstances, this could include ambulance rides, crutches, dental services, gluten-free products (if you are diagnosed with celiac disease), in vitro fertility costs, laser eye surgery, or orthodontic work (if necessary). not for cosmetic purposes).
Pro tip: If you are married or have a general law relationship, it may be best for the partner with the lower net income to claim medical expenses.
- Charitable donations. This is a popular one. Depending on which province you live in and how much you donated, you may qualify for a substantial tax credit. At the federal level, you can be credited with 15% of the first $ 200 donated. Additional donations will be credited with 29%.
Pro tip: Again, it can be beneficial to wait before using your charity tax credits, especially if you don’t owe any taxes. These credits can be used for every return within the next five years.
3. Gather all the forms required to file taxes
Are you in a hurry with tax time? We get it. However, submitting too early can cost additional time and money later, especially if you have to resubmit. Better to wait a bit and do it right the first time.
If you are not sure you have all the information you need, your best bet is to wait.
Here are some of the different forms you may need to make filing your taxes easier:
- T4 work slip. Do you have work? Your employer is expected to deliver this to you in January or February.
You may notice some new information code fields on your T4 this year. These indicate the portion of your income earned over specific time periods and affect eligibility for various government benefits granted in 2020:
– Code 57: Income from work – March 15th to May 9th
– Code 58: Income from work – May 10th to July 4th
– Code 59: Income from work – July 5th to August 29th
– Code 60: Income from work – August 30th to September 26th
- T5 Profit and Loss Account. This applies to interest paid directly by a bank or money market fund, or to dividends paid directly by a company. It’s not for income that comes from a trust (like an ETF).
- T4RSP, T4RIF profit and loss account or profit and loss account of an RRIF. When you’ve withdrawn money from your RRSP, RRIF, LRIF, or PRIF.
- T4A CRA list of pension, old-age pension and other income. Most commonly used for income from a company retirement plan, annuity, or RESP withdrawal.
You will also receive a T4A if you received income from any of the various services provided in 2020:
– Canada Emergency Response Benefit (CERB)
– Canada Emergency Student Benefit (CESB)
– Canada Recovery Benefit (CRB)
– Canada Recovery Caregiving Benefit (CRCB)
– Canada Recovery Sickness Benefit (CRSB)
– Provincial or territorial COVID-19 payments for financial support
- NR4 Statement of Amounts Paid or Credited to Non-Canadian Residents. Were you not resident for tax purposes in the previous tax year? You can get this if you are a non-Canada resident and have made a withdrawal from an RRSP, RRIF, LRIF, PRIF, or RESP, or if you have received investment income from an unregistered account.
- T5013 Profit and Loss Account of the Partnership. You get this when you earn investment income from partnerships.
- T3 List and distribution of trust income. You get this when you have investment income from mutual funds or certain trusts (such as ETFs) in unregistered accounts.
- T2200 Statement of Conditions of Employment. Your employer must complete this form to use the detailed method to deduct home office labor costs from your income (not required if the temporary flat rate method is used).
4. Report your capital losses
If you have an unregistered account, you will generate taxable capital gains by selling the assets that have increased in value over what you bought them for.
But if they fall … you can still win (well … kind of)! At least you can mitigate the effects of the loss. You will have a capital loss if you sold an investment for less than you paid for it, including the cost of selling it.
Tried to get the loss out of your head? Remember at tax time. You can carry these losses forward and use them to offset those capital gains.
Your past capital losses can easily be overlooked if you don’t keep a record. Review your prior notice of the rating. If necessary, you can also consult the investment broker’s annual report.
5. Keep a record of your taxes for 6 years
Have you ever wondered how long to keep your tax records? This is less about maximizing your reimbursement and more about minimizing the pain when you are reviewed by the rating agency.
So … what should you keep for 6 years? First, keep all of the aforementioned proof of income. If you are self-employed, you must also keep receipts of expenses for which you are claiming deductions (e.g. entertainment, utilities – if you work from home, etc.).
6th Submit your taxes online
Online tax software can help make filing quick and easy. There are a few different tax return software services that you can choose from.
There’s one big reason we recommend using software instead of the nostalgic paper package: you make fewer mistakes. You will receive a prompt about what deductions you might be eligible for and usually some useful, straightforward explanations as to why they might work for you. Accuracy is important – and can mean the difference between a good tax return and a good one.
What to do with your tax refund Bonus tip!
Remember, this is not an undeserved godsend – it is your money that you loaned to the government. Before spending, think of alternative ways that you can use your tax refund to meet long-term financial goals. Now might be a good time to pay off debt or invest in your goals.