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Tax Tips: Maximize Your Tax Return in Canada

April 7, 2021

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Tax Tips: Maximize Your Tax Return in Canada

Planning & Advice

Are you leaving money on the table when filing your taxes? Lots of people do. They ignore that ratty pile of receipts in the drawer (where they left them last year, too), and they don’t take full advantage of the deductions to which they are entitled.

Let’s get your taxes done right, so you can get the biggest possible tax refund. Here are some easy tax hacks and pitfalls to avoid:

1. Calculate your tax deductions

Remember, a tax refund isn’t a freebie from the government. It’s your money! They’re just holding onto it for you. Get the full amount you deserve by claiming allowable deductions. 

Deductions lower the amount of your income that’s subject to tax. Here are three common ones that you may qualify for:

  • RRSP contributions. If you contributed to an RRSP before the deadline, then you can deduct those contributions. To find this number, simply check the receipts provided by your financial institution. These will outline contributions made in the last 10 months of the previous tax year, as well as contributions made in the first 60 days of the current year, which can be applied to the previous tax year.

    It’s a good idea to hang onto these receipts in case you’re audited – but you don’t actually need to submit them for filing!
  • Child care costs. Did you pay someone else to look after your little ones while you went to work or advanced your education? The government lets you deduct up to $8,000 per child for children under 7. You can also deduct up to $5,000 per child for those aged 7 to 16 (just guessing, but maybe there’s a government ratio in there that accounts for cuteness, which declines precipitously after age 6). For disabled children of any age, the maximum claim is $11,000.
  • Home office expenses. Many Canadians started working from home through the pandemic. Deduct work-from-home expenses using a new temporary flat rate method, or the conventional detailed method.

Keep in mind, CI Financial has a number of resources like the tax calculator that can help ensure you’re making the most of this tax season.

2. Claim your tax credits

First, what is a tax credit? A credit is an expense you can claim that’s different from a deduction because it doesn’t come off your income.

Here are a few example tax credits to look out for:

  • Interest paid on student loans. This is a pretty sweet deal. You can claim any interest on your student loans as a non-refundable credit. The tax credit (federal and provincial) is calculated by multiplying the lowest federal/provincial/territorial tax rate by the amount of the loan interest.

    Pro tip: If you didn’t earn income in the past year, you may want to wait to claim the interest on student loans. You can carry that interest forward and apply it on any return for the next five years.
  • Medical credits. This is one that people tend to overlook. It’s worth taking a moment to read through the different types of medical expenses that may apply to you. Depending on your circumstances, these 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 it is done out of necessity, not for cosmetic purposes).

    Pro tip: If you’re married or in a common-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 could qualify for a significant tax credit. At the federal level, you can be credited 15% on the first $200 you donated. Any donation amounts above that are credited at 29%. 

    Pro tip: Again, it may be beneficial to wait to claim your charitable tax credits, particularly if you don’t owe any taxes. These credits can be claimed on any return over the next five years.

3. Gather all of the forms required to file taxes

In a rush to be done with tax time? We get it. But filing too early could cost you extra time and money later, particularly if you need to file again. Better to wait a bit and do it right the first time.

If you’re not sure you have all of the information you need, it’s best to wait.

Here are some of the different forms you might need to make filing your taxes easier:

  • T4 Employment slip. Are you employed? Your employer will likely deliver this to you in January or February.

    You may notice some new information code boxes on your T4 this year. These report the portion of your income earned during specific time periods and impact eligibility for various government benefits provided in 2020:

    – Code 57: Employment income – March 15 to May 9
    – Code 58: Employment income – May 10 to July 4
    – Code 59: Employment income – July 5 to August 29
    – Code 60: Employment income – August 30 to September 26
  • T5 Statement of Investment Income. This is for interest directly paid from a bank or money market fund, or dividends directly from a corporation. It’s not for income that comes from a trust (like an ETF).
  • T4RSP, T4RIF Statement of RRSP Income or Statement of Income from a RRIF. If you withdrew funds from your RRSP, RRIF, LRIF or PRIF.
  • T4A CRA Statement of Pension, Retirement Annuity and other income. Most commonly used for income received from a workplace pension plan, annuity or RESP withdrawal.

    You will also get a T4A if you received income from any of the various benefits 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 financial assistance payments
  • NR4 Statement of Amounts Paid or Credited to Non-Residents of Canada. Were you a non-resident for tax purposes in the previous tax year? You’ll get this if you are a non-resident of Canada and made a withdrawal from an RRSP, RRIF, LRIF, PRIF, or RESP, or if you earned investment income from a non-registered account.
  • T5013 Statement of Partnership income. You’ll get this if you have investment income from partnerships.
  • T3 Statement of Trust Income Allocations and Designations. You’ll get this if you have investment income from mutual funds, or from certain trusts (like ETFs) in non-registered accounts.
  • T2200 Declaration of Conditions of Employment. Your employer must complete this form to deduct home office employment expenses from your income using the detailed method (not required if using the temporary flat rate method).

4. Carry forward your capital losses

If you have a non-registered account, you trigger taxable capital gains when you sell the investments that have increased in value from what you bought them for.

But when they go down… you can still win (well… sort of)! At least, you can mitigate the effect of the loss. You’ve got a capital loss when you’ve sold an investment for less than what you paid for it, including the cost of selling it.

Tried to put the loss out of your mind? Well, remember it at tax time. You can carry these losses forward and use them to offset those capital gains.

Your previous capital losses may be easy to miss if you don’t keep a record. Check your previous Notice of Assessment. If need be, you can also check the annual report from the investment broker.

5. Keep a record of your taxes for 6 years

Ever wondered how long to keep your tax records? This is a little less about maximizing your refund and more about minimizing pain if you’re audited by the CRA.

So… what should you keep for 6 years? To start, keep all those income slips mentioned earlier. If you’re self employed, you’ll also need to keep receipts of expenses for which you’re claiming deductions (e.g. entertainment, utilities – if you work from a home office, etc.).

6. File your taxes online

Online tax software can help make filing fast and easy. There are a few different tax filing software services that you can choose from. 

There’s one important reason why we recommend using software over the nostalgic paper package: you’ll make fewer mistakes. You’ll get prompts about which deductions you might be eligible for, and usually get some pretty useful, straightforward explanations for why they might work for you. Accuracy is important – and can make the difference between a good tax return and a great one.

What to do with your tax refund? Bonus Tip!

Remember, this isn’t an undeserved windfall – it’s your money which you’ve been lending to the government. Before spending it, consider alternate ways to use your tax refund that can help you achieve long-term financial goals. Now could be a great time to pay down debt or invest towards your goals.

A few minutes today could save you thousands tomorrow.
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