Make the most of all the possible ways to maximize your tax return in the 2019-20 tax season. You may not be familiar with the many tax deductions and credits that may be available to you.
We’ve got the checklist, facts, and links that you might need when preparing your tax return. We’ll look at the changes for this tax season too.
Here are a couple of basics you’ll need to know to get out of the starting gate...
In Canada, every person files their own tax return, even if you have a spouse. But there are ways to maximize your ‘spousal’ tax situation by various methods such as splitting income or transferring some deductions between spouses. Although there are noteworthy exceptions, the spouse with the higher income and tax bill should maximize deductions first, as they are more likely to be in a higher tax rate.
When is the tax return deadline in Canada?
For most, income tax and benefit returns are due April 30th, 2020. If you're self-employed, the deadline is June 15th.
COVID-19 Tax Update
The April 30th deadline has been extended to September 30th, 2020. Penalties and interest will not be charged if payments are made and returns are filed by September 30th, 2020.
How to maximize your tax return in Canada
When preparing your income tax return, you should use as many tax deductions as you can. These deductions (non-refundable credits, expenses, and deductions), are used to lower your gross income to reduce the taxes you owe. Once you know what your taxable income is, you will calculate how much you owe in income tax.
Your tax bill is based on which tax range/tax bracket your income falls into. Each range has a percentage used to calculate the dollar amount of your income tax owed. This percentage is called your marginal tax rate.
These deductions are not designed to provide you with a refund unless you’ve already paid too much in income tax throughout the year (e.g. withheld directly from your salary). However, there are tax credits (known as refundable), which are designed to provide you with a refund whether you owe taxes or not.
What tax return deductions can you use?
According to TurboTax, a leading Tax Return software provider, there are over 400 credits and deductions possible. Let’s look at 17 of your best chances for deductions and credits in 2020.
1. Childcare expenses
Child Care Expenses are the daycare expenses you paid throughout the year. Generally, these must be deducted by the spouse with the lower income. Hiring a live-in child care provider may qualify. If your child attends any day camps whenever they are not with their regular childcare provider, those may also be deducted.
2. Deduct spousal/child support payments
Your payments to support your former spouse and/or your child(ren) can have a noticeable impact on your tax bill.
3. Deduct student loan interest
If you or your child is a student in a post-secondary institution, you can deduct the interest charged on their student loan. The interest need not have been paid this year. Only apply this deduction in a year in which you owe some taxes. Otherwise, it’s better to carry it forward (which can be done for up to 5 years.) Only interest on the original student loan will qualify.
4. Maximize your RRSP contribution
If you don’t currently contribute to an RRSP (Registered Retirement Savings Plan), it’s not too late to benefit from the significant tax deduction for the 2019 tax year. You have until March 2nd, 2020. Your maximum contribution (called your RRSP contribution limit) depends on an annual percentage of your income (18% currently), plus some of the unused amounts for previous years.
You are encouraged to maximize your RRSP contribution in any way you can, including borrowing (if it’s right for you), as there are sizeable financial benefits from contributing any amount to an RRSP. You can even choose to transfer TFSA interest gains (which are tax-free) to bump up your RRSP contribution.
5. Deduct property taxes (owners) or rental payments (tenants)
There are a few ways for homeowners to deduct their property taxes, while tenants can also deduct their rent payments. This varies by province and is likely to be affected by your income.
6. Deduct professional and/or union dues
Most professional association fees and union fees are tax-deductible, lowering your taxable income.
7. Deduct employment expenses
Some employees are asked by their employers to pay some of the supplies they need for work. These expenses are deductible. In recent years, teachers can also deduct a certain amount of the supplies they buy for their classrooms.
8. Deduct education/tuition expenses
Post-secondary tuition costs can be deducted by either the student or a relation of the student.
9. Deduct moving expenses
If you moved to get at least 40km closer to your work, a new business, or for post-secondary schooling, you can claim your expenses from that move.
10. Deduct medical and charitable expenses
You may receive a partial deduction for certain medical expenses and for your charitable donations. Spouses should look at whether they ought to pool their contributions on one spouse’s tax return for maximum benefit.
11. Apply for the First-Time Home Buyers’ (FTHB) tax credit
If you purchased your first home this year, you should definitely claim your $5,000 tax credit. If neither you or your partner owned a home in the preceding four years, you should be eligible. You apply the lowest federal income tax rate against that $5,000. Recently, the lowest tax rate has been 15%. At 15%, your rebate is a cool $750.
12. Apply for GST/HST new housing tax rebate
If you bought a newly constructed home or made significant renovations to a home, which is your (or a relation’s) primary residence, you may qualify for a rebate on the GST/HST taxes already paid. A similar provision exists, under certain conditions, for landlords.
13. Apply for various provincial credits
In addition to the federal and provincial GST/HST credits, many provinces have additional credits, for certain segments of the population. These include safety-related home renovations for seniors in New Brunswick and Climate Action Incentives to rebate carbon taxes in provinces like Saskatchewan, Ontario, and others. There are many more credits, especially for seniors, such as the Ontario Transit Pass credit, so check with your province’s website.
14. Reduce taxes from capital gains
Use your TFSA account and RRSP accounts. Any interest earned in there is tax-free. While this won’t create a tax deduction, it is a tax-free place to earn extra income. As mentioned above, RRSP contributions also help boost your tax return.
15. Write off capital losses
If one of your investments goes sour and you sell it at a loss, you may be able to report this loss on your taxable income. This only applies if you sell at a loss, if you’re still holding the investment and haven’t “realized” the loss, then it doesn’t count.
If you have an investment in a non-registered account that's at a loss, and you wish to keep it, you can transfer it to your RRSP. This would reduce your tax bill in two ways:
- You're making an RRSP contribution,
- and because you're realizing a loss, you can write this off for a refund.
You can't deduct capital losses in a taxfree account, such as TFSA or RRSP.
You can find out more about capital losses and deductions on CRA's website.
16. Deduct self-employed business expenses
Small business owners who work from home can include part of their home’s utilities, insurance, maintenance, office tools (e.g. internet), and supplies. This portion is based on what portion of your house you use for your business.
17. Apply for the disability tax credit
Have you or any family member been debilitated by an illness or accident? You might qualify for the disability tax credit. To qualify for the DTC, you must work with a medical practitioner to prove you or your family member are living with a severe mental or physical disability. The amounts you're entitled to vary by province, but if you qualify for this tax credit, it could open the door to other benefits too.
How to do your taxes online
You can use free tax software, upgraded tax software (offers extra help), or the CRA website for online help. Just make sure whichever one you choose, qualifies for Netfile, the online tax filing system in Canada (unless you prefer to use the hard copy paper version).
What if I notice an error in my tax return?
If you receive your notice of assessment and notice an error, you can file an objection to get it corrected. This quick guide will show you how.
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