With the top federal income tax rate at 33% as of 2016, up from the previous 29%, it is becoming more important to ensure that you make the most of available tax deductions and credits when doing your tax return. Though some deductions or credits may seem obvious – such as RRSP deductions, for which the maximum contribution is $25,370 for 2016 and $26,010 for 2017 – there are certain nuances with other deductions with which most of us are not aware.
Take, for example, the tax credit for charitable donations, which has a couple of added wrinkles this year. Donors who are taxed at the new 33% top rate and who donate more than $200 annually, will benefit from a 33% tax credit on their donations. This will take some of the bite out of the highest top tax rate. There is also a First Time Donor’s Super Credit on up to $1,000 of donations, which has been in existence since 2013, but which will be coming to an end for the 2017 taxation year. The super credit provides an additional 25% federal tax credit for donations up to $1,000, provided that neither the taxpayer nor the taxpayer’s spouse has claimed a donation tax credit since 2007.
When we think of medical expenses, we often think of everyday items such as prescription drugs or dental work. But the Canada Revenue Agency has an extensive list of eligible medical expenses on its website, which should be consulted if you have questions about whether an expense qualifies. For example, not only do hearing aids qualify as a medical expense, so do their batteries. For a person with gluten intolerance, the incremental cost of gluten-free products qualifies as a medical expense. Renovation and construction costs also may qualify, as long as they are related to providing a person better access to their home when that person has a severe and prolonged mobility impairment. This could include the cost of access ramps, both indoor and outdoor, if the person cannot use the stairs, enlarging halls and doorways to give a person access to the rooms of his or her home, and lowering kitchen and bathroom cabinets so that a person can use them.
For individuals with a severe and prolonged physical or mental impairment, a disability tax credit is available, subject to approval by Canada Revenue Agency (and Revenu Quebec, if applicable). The rules can be quite complex as there are different types of expenses that can be claimed, such as attendant care, which are subject to annual limits if the disability amount is being claimed. The disability tax credit and attendant care expenses may not be applicable to you, but a parent or grandparent maybe eligible. If an individual has had a medical condition that qualifies as a disability, a physician could certify that the condition started to exist in a prior year, in which case, adjustments can be requested for previous years’ tax returns to claim the disability credit. Adjustments can be requested retroactively for up to 10 years.
There are also a number of other tax deductions and credits that may be available to you this year:
• Interest expense and carrying charges. This deduction encompasses investment management fees for non-registered accounts, interest paid on investment loans, and custodial fees. Often missed is the accrued interest paid when one purchases a bond between its interest-payment dates.
• The Home Buyer’s amount for first time home buyers. This is a $5,000 federal credit, resulting in a tax savings of $750. To be eligible, you must have purchased a home and have not lived in a home owned by you or your partner in any of the four preceding years.
• A credit for public transit. This includes monthly passes, or those of shorter duration if they entitle you to unlimited travel for a five-day period and you purchase enough of these passes such that you are entitled to unlimited travel for at least 20 days in any 28-day period. Also eligible is an electronic-payment card when used to make at least 32 one-way trips during a 31-day period. The credit could be equivalent to getting almost two months of public transit for free.
• A credit for interest paid on student loans. This credit applies provided the loan was granted under the Canada Student Loans Act, Canada Student Financial Assistance Act or the Apprentice Loans Act or equivalent provincial programs. This credit can be carried forward for up to five years, if the student has insufficient income to benefit from it.
Your tax specialist would be in the best position to find out if you qualify for any of these deductions or credits — advice worth paying for.