Are you leaving money on the table when it comes time to file your taxes? Lots of people do. They leave 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. Deduct your deductions
Remember, that 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 two 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, you can simply check the receipts provided by your financial institution. These will outline contributions made between March 1 and December 31, 2019, and an additional receipt will outline contributions made before March 2, 2020.
It’s a good idea to hang on to 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 off to work or advanced your education? The government lets you deduct up to $8,000 per child, for children under 7. You can 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.
2. Claim your credits
A credit is an expense you can claim that’s different from a deduction because it doesn’t come off your income. Unlike a deduction, a $500 credit is not the same as $500 off your taxable income.
Here are a few examples 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 should 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, 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%.
Meanwhile, each province has its own tax credit rate, which means you can be credited an additional 5.05% to 20%on the first $200 depending on where you live, and 11.16% to 24% on any amount above that.
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 information you need
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 all over 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’s 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.
- 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 or T4RIF. Statement of RRSP Income or Statement of Income from an RRIF. If you withdrew funds from your RRSP, RRIF, LRIF or PRIF.
- T4A – CRA. Statement of Pension, Retirement Annuity and other income. Most commonly for income received from a workplace pension plan, annuity or RESP withdrawal.
- NR4. Statement of Amounts Paid or Credited to Non-Residents of Canada. Were you an expat in 2019? 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.
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 gone up 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 everything for 6 years
This is a little less about maximizing your refund and more about minimizing pain if you’re audited by the CRA.
It’s not just something that happens to other people. There are plenty of exacerbating factors that may make you more likely to be audited.
So… what should you keep for 6 years? To start with, 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 (eg. entertainment, utilities – if you work from a home office, etc).
Not a paper person? There are dozens of good apps these days for quickly scanning and organizing that paperwork, so make use of them.
6. File your taxes online
Online tax software can help make filing is easy and fast. 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.
Bonus Tip! What to do if you get a tax refund
Remember this isn’t an undeserved windfall: it’s your money which you’ve been lending to the government. Before spending it, consider how it can bring you closer to your financial goals. Now could be a great time to pay down debt, or invest towards your goals.