2014 tax season: 12 tips to get the biggest refund
1. Claim medical expenses
This is my personal favorite, only because everyone has a question about their medical expenses. People miss claiming common expenses like Blue Cross, and fees paid to medical practitioners like speech-language pathologists, occupational therapists and acupuncturists. Ambulance fees are expensive and claimable; so is the cost of tutoring services for the learning disabled. You can also claim the lesser of $5,000 and 20 per cent of the costs of a van adapted to transport the wheelchair bound and moving expenses incurred to a more suitable dwelling to a maximum of $2,000. When in doubt, check it out.
2. Moving expenses
If you have moved at least 40 kilometers closer to a new work location, you can claim the costs of selling your home, including real estate commissions and penalties for paying off a mortgage. Even the costs of a vacant old residence, to a maximum of $5,000 is allowed. The costs of moving to the new location and temporary living accommodations for up to 15 days can be claimed too. But, as this is often a five-figure number, expect to be audited.
3. Maximize babysitting deductions
Claiming the child-care deduction can be complicated. Should it be the higher or lower earner who claims it? It depends, actually. Usually it’s the lower earner, but if there is a separation during the year, or the lower earner is going to school, or hospitalized, it’s possible the higher earner may make the claim. The maximum dollar amounts claimable have not changed this year, still $4,000, $7,000 or $10,000, which depend on the child’s age and health. Claim the lesser of what was actually spent, your earned income (sorry, EI benefits won’t qualify) and the weekly and monthly dollar limits specific to higher earners and students. Keep receipts handy, too, in case of audit.
4. 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 GST/HST 370 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.
5. Your principal residence is tax exempt
The increase in value of a property designated as a principal residence is tax exempt. It’s easy to qualify your properties if you own more than one —just live in each for a couple of days each year. You can have more than one residence that qualifies, but only one can be designated as your principal residence for any given year. The choice of which is made on t2091 when you dispose of a residence. But if you’ve been flipping residences for profit, you could be assessed as being in the business of buying and selling homes. Be ready to defend this by showing your intention in acquiring the properties and the circumstances around the reasons for the dispositions.
6. Disabled? Use your RRSP Home Buyer’s Plan
The Home Buyers’ Plan is an RRSP feature that allows first time home buyers to withdraw up to $25,000 from their RRSP tax-free, for the purpose of buying or building a home. Note that you qualify as a first time home owner if you move to accommodate a disabled person. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals throughout the year as long as the total does not exceed the $25,000 maximum.
7. 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 room. 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. Better yet, ask the HR department to annualize the bonus 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.
8. Control credit crunches: write off interest
Is your investment portfolio still in the red zone? You can still write off the interest on your full investment loan, even if your portfolio has diminished in value, providing there was a reasonable expectation of income from property: interest and dividends for example. Also, be sure to take advantage of capital losses to reduce capital gains of the current year. Unabsorbed losses may be carried back or forward to offset capital gains in the carry-over year. Don’t cash in RRSPs if you can help it—this will cause a tax problem next year.
9. Optimize pension income splitting
If you received a pension from your company plan or started periodic withdrawals from your RRSP or RRIF this year, you may elect to transfer up to 50 per cent of your pension benefits to your spouse. This can be very lucrative. Those receiving periodic pension benefits from employer-sponsored plans can take advantage of pension income splitting at any age; if periodic income comes from RRSPs, RRIFs or other annuities, you’ll have to wait to age 65 to income split.
10. Reduce tax installment payments
Take control of the first dollar you earn—keep more by paying only the correct amount of tax throughout the year. If you pay income taxes by making quarterly payments, review your payment requirements. If your income has dropped since you last filed a tax return, you can reduce your payments. Simply write a letter to let CRA know you will estimate installments payable on current year. This is a much better way to manage your cash flow and stay invested during market turmoil.
11. Claim the new tax credits for children’s activities
There are new amounts to be claimed on the tax return for enrolling your children in the arts or sports activities. You can claim public transit charges for them to get there too. Because the Children’s Arts Amount is new, you’ll need to remind yourself to dig out the receipts.
12. Adult artists and writers can claim deductions, too.
Employed artists and musicians can claim expenses for composing dramas, musicals or literary works, performing and creating works of art. Expenses can include things like ballet shows, art supplies, computer supplies and home office costs. The maximum claim is 20 per cent of net income or $1,000. Musicians can also make claims for the maintenance, rental, insurance and capital cost allowance for musical instruments.