For many Canadians, preparing a tax return is about as much fun as going to the dentist for a root canal.
No matter how distasteful, you can make tax time more pleasant by taking full advantage of all the tax credits and tax deductions available to you. Getting knowledgeable about tax changes and doing some homework is the first tip to help you save on your return.
Before starting this year’s return, make sure you’ve filed all previous years and paid any tax on those returns that you might owe.
Assuming you are current, you might want to check out the Canada Revenue Agency (CRA) guidelines, brochures and website, which will give you general information, planning and filing tips, and a list of what’s new for this year.
Go through this material and understand it, and then go through your return line by line for income, credits and deductions to see if they apply to you.
You’ve also got to keep in mind the filing deadline.
For most taxpayers, the tax-filing deadline this year is April 30.
Those with self-employed income or who have a spouse or common-law partner with self-employed income have until June 15 to file, but the payment of any taxes owing for the year is still due by April 30.
“Missing the filing/payment deadline will cost you,” said Aurele Courcelles, director of tax and estate planning at Investors Group. “There’s an initial penalty of five per cent on all taxes owing after the deadline, plus one per cent a month on your unpaid balance to a maximum of 12 months. The penalty may actually be higher if you are a repeat offender.”
Pay what you owe.
If you file on time but don’t pay all taxes you owe, you will be assessed interest at CRA’s prescribed rate plus four per cent. The prescribed rate changes each quarter and has ranged anywhere from one to three per cent in the last four quarters.
Check the accuracy of your numbers before you file, particularly if you’re using CRA-approved paper forms, to avoid an over-taxed return. Even in this computer age, mathematical errors are still one of the most common mistakes made by tax-filers.
There are a variety of online filing options available.
If you use a computer program, your chance of mathematical error is substantially reduced. Figures from CRA confirm that fewer Canadians are preparing their tax returns by hand and more are doing it online.
Get all deductions you’re entitled to. Tax deductions reduce the amount of income subject to tax and can also reduce your marginal tax rate.
One of the most important is your registered savings plan (RSP) deduction.
It is generally recommended that you make your maximum RSP contribution and use up any carry-forward contribution room. Not only will you save on the amount of tax you pay, you’ll also enhance the growth potential of your RSP.
Some of the most commonly overlooked deductions include spousal support payments, interest charges on loans to purchase income-producing assets, union and professional dues, company pension plan contributions, certain moving expenses, expenses related to self-employment and some child-care expenses for a working parent or student, Courcelles noted.
Give yourself full credit. Tax credits directly reduce your tax bill.
To maximize the tax credit on medical expenses, for instance, pool them on the tax return of the lower earning spouse or common-law partner, assuming they have enough taxable income to use the credit.
The tax credit for charitable donations increases substantially above the $200 threshold. So pool your donations or carry them forward for up to five years to surpass the threshold.
The eligible dependant credit is available to an unmarried person who supports a family member.
A higher-earning spouse or common-law partner may be able to claim a spouse or common-law partner credit, which decreases as the spouse’s income increases.
Certain credits, such as the medical expense credit, disability credit, tuition and education credits, can be transferred to a spouse or supporting relative when not used by a dependant.
Making the most of your tax return requires a little time, effort and pre-planning. Do your homework, get the paperwork, and don’t leave it till the last minute.
“The best solution to stress-free tax preparation is tax planning,” said Courcelles. “Effective tax planning helps ensure you make appropriate and tax-efficient financial decisions throughout the year.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at boggsyourmoney@rogers.com.