Its that time of the year again! And I have to say, I’m always excited about it. Why? Because income tax time is also income tax REFUND time (did you know that the average refund in 2012 was $1,641?)! Even though we do get my hubby (the higher earner) to claim our kids as dependants on his T1213 to ensure we pay less taxes throughout the year, because of new tax rules, charitable donations, etc we usually end up with a refund.
As a professional accountant, people often ask me for tax advice – so here are some of my top tips for getting the most money back.
1. File your taxes YOURSELF!
Unless you have some very complicated tax situation, there is no reason to not do your tax returns yourself. Programs like TurboTax, Ufile etc make it pretty fool-proof and are much cheaper than paying a professional accountant or even going to H&R Block (who, FYI, don’t even use professional accountants for the most part and just give their employees some basic training before hand).
The hardest part of any tax return is gathering all the documents and you need to do that yourself anyway – why pay upwards of $100 for someone to just plug the numbers into the form? Even if you have a moderately difficult tax return (such as having to declare rental or investment income), I really think anyone with half a brain can do this themselves.
2. File your tax returns together
If you are married or in a common-law relationship, file your tax returns together. Doing so allows you to transfer certain non-refundable tax credits (like charitable donations or a spouses medical expenses) and let you allocate them based on who would get the best refund (most tax programs will figure this out for you).
This year it especially makes sense to do so with the new income splitting rule that came into effect. While this tax break is somewhat controversial, the fact is that many Canadian families with children under 18 will benefit from this new Family Tax Cut. Basically, the higher earning spouse can transfer up to $50,000 of their income to the stay-at-home parent or lower earning spouse. This will trigger a tax refund for the higher earning spouse but will also trigger a tax liability for the lower/non-earning spouse – however the net effect will be a refund, which is capped at $2,000.
3. Be organized
Like I mentioned earlier, gathering documents is probably the most arduous part of doing your tax return. So to make this as simple as possible, its a good idea to have everything ready to go. How will this save you money? Well for one thing, it will help ensure you don’t miss or forget about some important receipts (i.e. deductions) and will enable you to finish faster and get your refund faster. Time is money!
I use a very basic and easy tax filing system that consists of just two things – a folder in my email and a manilla envelope in my filing cabinet. Each is labelled “Tax 2014” and in both I file anything tax related. So for example, when I make a donation to a friend’s Movember campaign or pay for my son’s swimming lessons and have the tax receipt emailed to me, I immediately file it under my Tax 2014 folder. At the end of each month I’ll pop in my husband’s transit passes into the envelope. When our T4s or RRSP contribution statements come in, I add those. When I have everything, I just take everything out of the envelopes, print off all my emailed receipts and just plug away. Then when I’m done and have filed my return, I print out a copy and put it and all the receipts, T4s, statements etc that I used to prepare my return into that same envelope. That way, if I am audited, I can immediately retrieve the relevant documents. Just remember that you need to keep these documents for 7 years after filing.
4. Keep your medical and dental expense receipts
Did you know that you can claim medical and dental expenses if their total is great than 3% of your net income or $2,171? And you can even choose any 12 month period, as long as it ends in the 2014 tax year (so you can claim items from April 2013 to April 2014, for example, if it helps you reach that 3% or $2,171 amount).
This is great for anyone who has had significant medical and dental expenses that weren’t covered by their work health insurance plan (or if you don’t have one or are self-employed). And bonus for couples that file together – you can merge your and your partners and your kids expenses to meet the above mentioned threshold.
So if you had laser eye surgery or your kid got braces, these things can be deducted. But even a bunch of small expenses throughout the year may end up reaching the threshold, so make sure to keep all those receipts! I found out that if you have celiac disease and need to buy gluten-free food, even that can be claimed! For a full list of what can be claimed, go here.
5. Contribute to your RRSP
When you make a contribution to your or your spouse’s RRSP, that amount is used to lower your income – hence triggering a refund. So not only are you saving for the future, you actually get some of that money back! The amount that you can contribute depends on how much you made that year and how much contribution room you have left over from prior years (this will be on your previous year’s Notice of Assessment).
Just remember, the deadline to contribute to your RRSP is March 1st, NOT the filing deadline of April 30th, for it to count towards the prior year (i.e. the year you are filing for). This is important because sometimes people may have a balance owing and this can be offset or lowered just by making an RRSP contribution (and I don’t know about you, but I’d rather pay myself than pay the government).
6. Remember to claim your deductions!
Monthly transit passes, child care costs this includes a summer or March break day camp!), child fitness costs (like membership or registration fees for a physical activity), children’s arts amounts, charitable donations, tuition credit and the aforementioned medical/dental expenses are expenses that most families should expect to claim.
Other deductions you may want to consider are:
- A portion of your cell phone bill if your employer uses it to call you to obtain work from you (just make sure it can trace back to your airtime on your statements)
- Student loan interest – the one good thing about those loans!
- Home office expenses if you work from home more than 50% of the time – so a portion of your internet, stationary expenses or office equipment etc can be claimed.
- Moving expenses – you can claim eligible moving expenses if you move for work or run a business at a new location, or if you move to take courses as a student in full-time attendance enrolled in a post-secondary program. Note you have to have moved at least 40km closer to the work or school (via the shortest route possible).
7. Do them ASAP
The deadline to file your tax return is April 30th in Canada (for all but self-employed workers and their spouses or common-law partners). But most people have the information and documents they need much earlier than that. So you really should start preparing as soon as you can because it gives you time to:
a) gather all your documents to make sure you have everything you need and if you are missing something, time to get another copy,
b) top-up your RRSP to offset a balance owing or increase your refund,
c) lets you avoid any late fees and penalties in the event you have an amount owing but didn’t realize it until you prepared your return and lastly (and most importantly)
d) get your refund faster – you should get your refund within a few business days if you file online using NETFILE and the closer you file to the deadline, the longer it will take as the number of people filing increases.
The only time I’d recommend filing right before the deadline (and I mean filing, not preparing!) is if you are self-employed and/or if you know you are going to have an amount owing.
8. Don’t lie
I know this may seem obvious, but please don’t cheat or lie on your income tax return. I know someone who claimed 12 months of transit passes – even though she only had 2 – and got audited.
This also applies if you just lost a receipt – if you don’t have proof that you had an expense, you can’t claim it. You may be able to get away with a credit card or bank statement (for example, if you purchased your subway pass on the first of the month and the amount matches the amount a pass costs), but this should be an exception and not a rule for substantiating a deduction.
Getting caught can lead to fines and penalties and will make you the target of audits more frequently in the future. And while audits usually just mean that you need to submit receipts or statements, an audit may involve a CRA auditor coming to your home and looking at all your financial information, including your bank statements or whatever they believe is required to complete their audit. Also, remember that they can ask for your tax return supporting evidence as far back as 7 years, so make sure you keep it (and know where it is!).
What to look forward to in 2015
Universal Child Care Benefit Increases
In 2015, the Universal Child Care Benefit is going to increase from $100 to $160 for kids under 6 and kids 6 to 17 will receive $60 (before, they got nothing). This benefit won’t be paid out until July, however it will be back-paid till the start of the year – so expect an additional lump sum of $420 per kid to be deposited in your account (for kids 6 and under the amount for July will be $420+$100 and for kids 6 and older will be $420). Afterwards the amounts will be paid monthly at $160 and $60 respectively. Good news is that if you are already enrolled in this program (reminder, its available to ALL children, regardless of income), you don’t need to do anything.
Child Fitness Tax Credit will be doubled
This credit is being doubled from $500 to $1,000 per child 16 years of age or younger in 2015.
Child Care Expense Deduction
The government proposed to increase the dollar limits of the CCED by $1,000—i.e., to $8,000 from $7,000 per child under age 7, to $5,000 from $4,000 for each child aged 7 through 16 (and for infirm dependent children over age 16), and to $11,000 from $10,000 for children who are eligible for the Disability Tax Credit in 2015.
Resources:
http://www.budget.gc.ca/efp-peb/2014/overview-apercu-eng.html
Canada Revenue Agency website
A modern mommy's guide to managing money 