With April fast approaching and tax season about to start it’s a good idea to get organized so that you can reduce your taxes or increase your refund. For the millennial generation this may be the first time doing your taxes and while you may find tax time confusing, it’s important to have a general understanding of your tax situation. Whether it’s your parents helping you, a friend, an accountant or you do it yourself, if you aren’t aware of certain deductions available to you, it means money that could be hitting your account is, instead, being paid to the government.
In order to minimize your personal taxes it’s a good idea to step back and think about which credits, and deductions may be applicable to you. Avoiding commonly missed credits and deductions can be as simple as asking yourself a few questions before starting your return. Am I self-employed? Did I incur any medical expenses this year? Did I relocate for employment? Did I contribute to my RRSP? Did I have investment income? Did I donate? Did I get tuition credits? Did I buy a house this year?
Commonly overlooked tax considerations include:
1. Should I file a return? Often students and others who know they are in a refund position won’t file a return. If you don’t file, you are missing out on the ability to grow your RRSP room, which is generated based on employment income. RRSP contributions are tax deductible. Even if you don’t have enough to contribute today, it would be a shame to miss a larger deduction in the future.
2. Does your insurance company only pay for a portion of your medical expenses? If so the part that you pay out of pocket is likely tax-deductible. Examples of other commonly missed medical expenses are prescription eye glasses & contacts, prescriptions not reimbursed, and employee paid premiums to a private health services plan.
3. Home buyers amount: Did you purchase a home for the first time this year? If so, you may qualify for a $5,000 non-refundable credit. Eligibility for this amount is based on “you or your spouse purchasing a home in the current tax year, and that you did not live in another home owned by you or your spouse/ common-law partner in year you purchased your new home or the previous four.”
4. Are you taking public transit to work? In order to be eligible for the tax deduction you need to demonstrate that your transit pass allows for unlimited travel within Canada (eg TTC monthly pass) or “short term passes if each pass allows you five consecutive days of unlimited travel AND you have enough of these passes for unlimited travel for at least 20 days in a 28 day period. Electronic payment cards (eg Presto) are eligible for the deduction if card is used to make at least 32 one way trips over a maximum of 31 days. Your payment card must also have been issued by a public transit authority.”
5. Did you contribute to your RRSP? You may want to think about using the deduction in the current year or deferring it to higher income years. In using it in the current year if you direct the refund associated with it to your TFSA this could be a great form of forced savings. On the other hand, deferring the deduction to higher tax years may also be a good strategy for you.
6. Do I have support for each credit and deduction claimed? Canada has a self-assessment tax system meaning it is up to the taxpayer to pay their taxes honestly. With the shift towards e-filing Canadians are no longer required to submit their back-up with their returns. It is important to keep copies of your tax receipts in the event the CRA requests them. If you are unable to provide the back- the CRA will likely disallow the claim & reassess your return.
Filing your taxes initially can be overwhelming. By understanding what you are filing and more about your specific tax ¬¬situation you will be able to ensure that you are not leaving any additional deductions and credits on the table.