With the personal tax filing due date fast approaching, this is a great time to see if you’re taking full advantage of all the tax benefits you are entitled to. Here are some of the common items you should consider in order to maximize your personal tax refund.
Capital gains and losses
If you have a net capital loss in the current year, ask your accountant to carry back the losses to offset against any capital gains that you’ve reported in any of the past 3 years. By doing so, you will receive a refund on some of the taxes you paid in the previous years.
If you have a taxable capital gain in the year, check with your accountant to determine whether you have any unused capital losses carried forward from previous years. You may be able to apply these losses against your current year capital gains to reduce your taxes.
For any securities in a non-registered account that ceased to have value during the year, consult with your accountant to determine if they’re considered “worthless” for tax purposes. If so, you may be eligible to claim a capital loss.
Sale of real property
There are no capital gains tax on the sale of a principal residence due to the principal residence exemption. However, if you sold a real property in which a portion of the time was your principal residence, you may be eligible for a capital gains tax reduction. Consult with your accountant on whether you are eligible to make a principal residence designation for the qualifying years on your personal tax return.
Medical tax credit
To claim a medical tax credit, your eligible medical expenses must generally be more than 3% of your net income. To maximize tax savings, consider claiming your family’s medical expenses together on the lower income spouse’s tax return, assuming that the lower income spouse is required to pay at least some taxes.
Donation tax credit
You are eligible for a federal tax credit of 15% on the first $200 of charitable donations. For amounts over this threshold, the credit increases to 29% or 33%. To the extent that you have taxable income that is subject to tax rate at 33%, you will receive a federal tax credit at 33% on donations in excess of $200. Otherwise, you will be entitled to a 29% tax credit. To maximize tax savings, you and your spouse can combine charitable donations and claim them on the higher income spouse’s tax return.
Tuition tax credit
If you have a child or grandchild who’s attending a qualifying educational institution and are unable to use some or all of the tuition credits, they can transfer up to $5,000 of credits to you. You must use the transferred credits in the year the tuition was paid. If the amounts are not transferred, your child or grandchild can carry forward unused credits to future years when they are required to pay taxes.
Child care expenses
You may be able to deduct a portion of the child care expenses you incurred if it allowed you to earn employment / business income or pursue an education. For example, payments made to caregivers, day nursery schools, daycare centres and education institutions qualify for a tax deduction. The maximum deduction is $8,000 per child under the age of seven, $5,000 per child between the ages of seven and sixteen and $11,000 for children who are diabled. In general, the lower income spouse must claim this deduction.
Disability tax credit
If you, your spouse or your dependants are suffering from a prolonged and severe mental or physical impairment, you may be eligible to claim the disability tax credit. You’ll need to complete Form T2201 (Disability Tax Credit Certificate) with a medical practitioner and submit it to the CRA for approval.
Filing due dates
The general tax filing due date for your 2019 personal tax return is April 30, 2020 (extended to June 1 for 2020 due to COVID-19). If you or your spouse/common-law partner were self-employed, you will have until June 15, 2020 to file your tax return. Regardless of your filing due date, your tax owing for 2019 should be paid by April 30, 2020 (extended to September 1 for 2020 due to COVID-19).
To avoid a late filing penalty, file your tax return on time, even if you’re unable to pay the taxes you owe. The late filing penalty is 5% on the balance due, plus 1% for each month the return is overdue up to a maximum of 12 months.
If you don’t pay the tax balance by April 30, 2020 (extended to September 1 for 2020 due to COVID-19), the CRA will charge interest on the outstanding amounts compound daily at the CRA prescribed interest rate. The CRA will also charge interest on penalties starting the day after the return is due. If you’re self-employed, the CRA will also charge interest compounded daily on unpaid CPP contributions and applicable EI premiums until you pay off the outstanding tax balance.
Foreign reporting requirements
If you owned a foreign property with a total cost of more than CAD $100,000 at any time during the year, you are required to disclose the foreign property on your tax return. These foreign properties include investment properties outside of Canada, shares of foreign corporations held in a Canadian investment account, foreign mutual funds and exchange traded funds listed on a foreign exchange. Failure to disclose your foreign property is subject to a penalty up to $2,500.
Income from mutual funds, trusts, and limited partnerships
Issuers such as mutual funds, income trusts, and limited partnerships tend to issue tax slips later than most other investments. You may want to wait and file your tax return until closer to the tax filing due date so that you have all the information you need to file a complete return.
Missing tax slips
If you receive a tax slip after filing your tax return, be sure to report the missed income as soon as you can by amending your tax return. Failure to report income may result in penalties.
Tax refund from prior year
If you received a tax refund from the CRA for the prior year, check your latest Notice of Assessment to see if you received any interest on your refund. You must report the interest as income on your tax return.
Record keeping
After filing your tax return, be sure to retain all supporting documents. By law, you must keep tax records for at least 6 years after tax filing. If the CRA selects your return for review, you will need these records to support your claims.
While there are numerous tax planning strategies you may implement during the year, this article highlights the key points you should be aware of when filing your tax return. For more information on how you can maximize your personal tax refund, please speak with a qualified tax accountant.