You must file your own return, even if you have a spouse. There are ways to maximize your spousal tax situation using methods like income splitting and transferring deductions between each other. Generally, the spouse with the higher income and tax bill should maximize deductions first as they’re likely to be in a higher tax bracket.
How to maximize your tax return in Canada
In order to maximize your tax return, you need to calculate your taxable income first and then lower it using as many tax deductions and credits as possible. A deduction reduces your taxable income, while a credit minimizes the amount of tax you owe.
COVID-19 tax update
The Canada Emergency Response Benefit (CERB) and the Canada Emergency Student Benefit (CESB) are considered taxable income and the government did not withhold any taxes at source. If you received either of these benefits, you have to report 100% of those payments as income in your 2020 tax return. The CRA will send you a T4A tax reporting slip for 2020 showing the total amount to report.
When is the tax return deadline in Canada?
You need to file your taxes by April 30, 2021. The deadline is extended to June 15, 2021 if you're self-employed or have a spouse or common-law partner who is self-employed. All taxes owed must be paid to the CRA by April 30, 2021.
What tax deductions and credits can you use?
There are hundreds of credits and deductions you can take advantage of. Let’s look at 20 of the most common ones so you can increase your chances of getting a bigger refund.
- Childcare expenses
- Deduct spousal and child support payments
- Deduct student loan interest
- Maximize your RRSP contribution
- Deduct property taxes (owners) or rental payments (tenants)
- Deduct professional and/or union dues
- Deduct employment expenses
- Deduct education/tuition expenses
- Deduct moving expenses
- Deduct medical and charitable expenses
- Get the Home Buyers’ Amount
- Apply for the GST/HST New Housing Rebate
- Apply for provincial and territorial credits
- Reduce taxes from capital gains
- Write off capital losses
- Deduct self-employed business expenses
- Apply for the disability tax credit
- Deduct home office expenses with the new temporary flat rate method
- Claim the Canada Workers Benefit
- Take advantage of the Canada Training Credit
You can claim up to $8,000 in childcare expenses for kids under age 7 and up to $5,000 for children aged 7 to 16. Childcare expenses include daycare centres, summer camps, overnight boarding schools, and caregivers such as nannies. Generally, childcare expenses must be deducted by the spouse with the lower income.
Support payments sent to a former spouse and/or children can have a noticeable impact on your tax bill.
If you or your child is studying at a post-secondary institution, you can deduct the interest charged on a student loan. Apply this deduction if you owe taxes, otherwise, it’s better to carry it forward. Interest can be carried forward and applied to any tax return for the next five years.
Read more: How to Pay Off Student Loans Fast in Canada
If you don’t currently contribute to an RRSP (Registered Retirement Savings Plan), it’s not too late to benefit from a significant tax deduction for the 2020 tax year. You have until March 1, 2021 to contribute.
Your RRSP contribution limit is 18% of your earned income from the last tax year, plus any unused amounts from previous years. Check out your latest notice of assessment or log into your CRA My Account to find out what your RRSP contribution limit is.
It’s a good idea to maximize your RRSP contribution in any way you can, including borrowing (if it’s right for you), as you can enjoy sizeable financial benefits. You can even choose to transfer TFSA interest gains, which are tax-free, to bump up your RRSP contribution.
Landlords can use Form T776 to claim property taxes for the period in which a rental property was available for rent. Employed and self-employed tenants can claim partial rent payments as a home office expense if they use their home for employment or business purposes.
Most professional association fees and union fees are tax-deductible, therefore lowering your taxable income.
Post-secondary tuition fees can be deducted by either the student or transferred to a qualifying relative.
If you moved at least 40 kilometres closer to your work, a new business, or for post-secondary schooling, you can claim expenses from that move. Qualifying expenses include storage costs, travel expenses, temporary living expenses, the cost of cancelling a lease, and more.
You may receive a partial deduction for charitable donations and certain medical expenses, including any medical cannabis products you purchased as a patient. Spouses should consider pooling contributions on one spouse’s tax return for maximum benefit.
You can claim a $5,000 tax credit if you purchased your first home and did not live in another home owned by you or your partner in the past four years.
You may qualify for the GST/HST New Housing Rebate if you did substantial renovations or purchased or built a new home. A similar provision exists for landlords under certain conditions.
In addition to federal and provincial GST/HST credits, many provinces and territories have additional credits for certain segments of the population. These include safety-related home renovations for seniors in New Brunswick to climate action incentives in British Columbia. Check out your province’s website to see what credits you may be entitled to.
Invest using your TFSA and RRSP as all interest earned in these accounts are 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.
If one of your investments goes sour and you sell it at a loss, you may be able to apply it against your taxable capital gains. If you don’t have enough capital gains to cover the loss, you can claim the leftover amount as a net capital loss. Net capital losses can be used to lower capital gains in any of the three preceding tax years or carried forward to future tax years.
Keep in mind you can't deduct capital losses in tax-free accounts like RRSPs and TFSAs. Learn more about capital losses on the CRA website.
Small business owners can deduct various business expenses, including advertising costs, bank fees, office supplies, and travel expenses. Those who work from home can claim a portion of their utilities, insurance, and maintenance costs. Deductible amounts are based on what portion of the residence is used for business purposes.
The disability tax credit (DTC) helps disabled individuals and family members reduce the amount of income tax they pay. To qualify for the DTC, a medical practitioner must certify you’re living with a severe mental or physical disability. Payment amounts vary by province, but if you qualify for this tax credit, it could open the door to other benefits.
Did you work at home during the pandemic? If so, the CRA has implemented a new temporary flat rate method that makes it easier to claim deductions for home office expenses. You can claim $2 for each day you worked from home, up to a maximum of $400 (200 working days). There is also no need to calculate the size of your workspace, keep supporting documents, or submit Form T2200.
If you’re a low-income worker, you can claim the Canada Workers Benefit (CWB) when you file your taxes. The refundable tax credit provides up to $1,381 for single individuals and $2,379 for families. It also includes a disability supplement if you have an approved Disability Tax Credit Certificate (Form T2201) on file with the CRA. If you qualify, you can request an advance payment, which allows you to receive half of your benefit in four separate payments.
The Canada Training Credit supports workers over age 26 by reducing barriers to professional development. It offers $250 every year ($5,000 lifetime limit) for eligible tuition and other course fees.
How to do your taxes online
You can file your taxes using free tax software or upgraded tax software if you need additional support. Make sure whichever option you choose is compatible with NETFILE, Canada’s online tax filing system that sends tax returns directly to the CRA.
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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