Employees at Risk for Missing Deductions and Tax Planning
The average tax refund in Canada is now over $1620 – and that means millions of dollars of overpaid taxes are being taken out of the hands of average people all year long. At particular risk are employees.
Be sure all eligible tax provisions have been applied; here are two issues often forgotten:
Don’t miss employment deductions. If you get a T4 slip and are required to pay out-of-pocket expenses as part of your employment contract, a deduction may be possible on your tax return.
Here’s the catch: you must be required to pay your own expenses under your contract of employment and the employer must certify this on Form T2200 Declaration of Conditions of Employment.
Lots of taxpayers forget to claim back the GST/HST paid on tax deductible amounts using the GST370 Form. Expenses can include accounting and legal fees, motor vehicle expenses, travel costs, parking, supplies used up directly in your work, office rent or certain home office expenses as well as amounts paid to an assistant, which could be a family member.
If you missed this claim, file an adjustment to your prior filed returns and remember to be prepared to show receipts, auto distance logs and Form T2200 if audited.
Minimize tax on severance. If you’ve lost your job, your severance package can help but it can also put you into a high tax bracket because it’s usually paid in a lump sum. One way to reduce your taxes is to maximize your RRSP contribution. Another is to write off your legal fees if you fought a wrongful dismissal. In some disputes, you qualify for lump sum averaging to reduce taxes.
In any case, ask the HR department to annualize the severance to average down taxes payable for the period. Best to see your tax advisor first, to ensure you keep as much as possible, after tax.
It’s Your Money. Your Life. If you have already received your tax refund, check over your tax return to make sure you haven’t missed making a lucrative claim. If you’re still filing, do claim all the deductions and credits you are entitled to. Then minimize withholding taxes by filing form T1213.