Not many people think about taxes during the Christmas holidays, but it’s a great time to start getting them in order, even though you won’t be filing a return for another four months.
Now is a good time to open a tax envelope or folder and start collecting whatever slips or receipts you can and keep adding as they come in between now and the tax deadline.
“Trying to find your slips just before the tax deadline is never a good thing,” said Cleo Hamel, senior tax analyst with H&R Block. “You can wait to file your return until the last day, but at least have all your slips and receipts together.”
There are some expiring programs and new credits this year that Canadians should be aware of if they’re going to take advantage of them.
The federal government’s eco-energy retrofit program ends on March 31, 2012, and offers up to $5,000 in tax-free grants for home energy renovations, including new oil and gas furnaces, windows, insulation, hot water tanks, heat pumps, geothermal, solar and tankless hot water heaters, low-flush toilets and more.
To qualify, you need to have a home energy audit done before and after the work is done. This could take some time, so you might need to get going soon to be sure you meet the deadline.
The new children’s art credit allows parents to claim up to $500 a year from Jan. 1, 2011, for enrolling their children in artistic or cultural activities such as scouting or guiding, music and dance lessons and language classes. The program is similar to the fitness tax credit. It‘s only for programs in Canada and results in a $75 federal tax savings.
The end of the year also is good time to review your stock portfolio. This was a pretty dismal year on world stock markets and you may be able to use some of your losses to offset gains, if you had any.
“It’s a smart strategy to review your portfolio before the year end to see if you can find a tax advantage in taking a loss or cashing in a gain,” Hamel said.
With a lot of natural disasters like earthquakes and hurricanes taking place around the world in 2011, charitable donations appear to have increased, Hamel noted. Donations to Canadian charities can be claimed against income, up to a maximum of 75 per cent of your pre-tax income. But again, be sure to keep your receipts.
You can receive a 15 per cent credit for donations up to $200 and a 29 per cent credit for every dollar above $200.
“You get a bigger bang for your buck over $200, receipts are claimable over five years and you can combine all your donations with other family members,” Hamel said.
Pay all items that qualify for tax breaks, such as tuition fees, medical expenses, child care bills, child support payments and tax-deductible fees for legal, accounting and other services. Most financial and investment transactions that qualify for credits or deductions on your 2011 tax return must be made before Dec. 31.
If you don’t have one or haven’t put in your full contribution, open up or top up your tax free savings account (TFSA). You are only allowed to contribute a maximum of $5,000 a year, but unused contributions carry forward to future years.
A lot of confusion still exists about the TFSA. The Canada Revenue Agency recently sent out more than 100,000 letters to TFSA holders warning they likely over-contributed in 2010 and owe more tax.
Under the TFSA rules, excess contributions are taxed at a rate of one per cent for each month there is an over-contribution.
Hamel says problems are occurring when people feel they can get a better rate or deal at another bank and take out their TFSA contributions themselves and move them to another TFSA account at the other bank or financial institution. On paper this could appear that two contributions were made, which might exceed the yearly contribution limit.
“If you are going to make a transfer from one institution to another, do it through a direct transfer through the bank, don’t do it yourself because it can create a lot of confusion,” Hamel said.
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.