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Canadian Tax Tips
Useful Tax Tips
- Income deferral – Try to defer the receipt of certain employment income if your personal tax rate will be lower in next year than in current year.
- Job-related courses – Ask your employer to pay for job-related courses directly rather than paying you additional remuneration. If you pay for postsecondary courses related to your current employment, you can claim the Education Tax Credit..
- Canada Employment Credit – there will be a nonrefundable credit to help alleviate the cost of certain employment related expenses. Please check CRA web site for current year' s maximum amount eligible for this credit.
- Employee loans -Ensure that any interest you intend to pay relating to employee loans for 2009 is paid on or before January 30, 2010. This will reduce any taxable interest benefit you may face in 2009..
- Home office – If you work out of your home try to arrange your employment terms so that you can deduct expenses related to your home office. Your employer must sign form T2200 as evidence of this requirement.
- GST rebate – If you work out of your home try to arrange your employment terms so that you can deduct expenses related to your home office. Your employer must sign form T2200 as evidence of this requirement.
- Employee home purchase loans – Consider taking out or negotiating an employee home purchase loan to take advantage of the low prescribed rate.
- Deductible expenses – If you are remunerated at least in part by commission, consider leasing rather than purchasing your cellular phone, computer or fax machine. You are not entitled to claim capital cost allowances on these items.
- Company car – If you have a company car, you may be able to reduce your operating cost benefit and/or your standby charge benefit. You may reduce your operating cost benefit on a company car such as Reimburse your employer for some or all of the operating costs, Reimburse your employer for 100% of the personal use portion of the actual operating costs or Minimize your personal driving. The same way you may reduce your standby charge benefit by the way of Reduce the number of days the car is available to you or have your employer sell the automobile and repurchase it or lease it back or you should keep automobile records to identify personal and business kilometers
Canadian Tax Tips:
- BE WELL ORGANIZED AT TAX TIME
The most difficult part of preparing tax returns has little to do with your math or computer skills. It’s all about organization – and retrieval, if you should be chosen for later audit! It usually takes longer to sort receipts than it does to enter the data onto the tax return itself.
It’s true: the better you are at bringing order to your documentation, the wealthier you will be at tax-filing time. And you’ll spend less time preparing the return, too. So do yourself a favor and beat the taxman with an organized approach to your tax preparation.
The best time to do this is before year end. You’ll clue into additional tax deductions you may be able to reserve to increase your after-tax cash flow in the new year… like making tax-deductible charitable donations, arranging for medical expenses, claiming more employment or business expenses, new asset purchases or even tax-efficient investments.
- MAKE MEDICAL EXPENSES CLAIMS COUNT
Want to be a hit at your next Christmas party? Everyone has a tax question, it seems, so those with expertise are never short of conversation pieces!
For example, tax filers are always interested in knowing more about medical expenses. Everyone seems to have receipts for them, and some claims can be quite lucrative. But are they deductible?
It is possible to claim a variety of prescriptions, glasses and dental work, medical travel insurance protection plans – even home and car modifications to accommodate the disabled – as well as a host of medical devices. Even the incremental costs of buying gluten-free bread by those with celiac disease may be claimed.
You may even be able to write off your dog – if he qualifies, that is. The costs of the use of support animals are deductible if needed by taxpayers who are blind or hearing impaired, have severe autism or epilepsy or a marked restriction to the use of their arms or legs. However, please take note that after March 4, 2010, your cosmetic procedures – like Botox, for example – will no longer be deductible.
- BUILD RRSP AND TFSA ROOM BY FILING A TAX RETURN
Now is a good time to do a little investment planning, by catching up on filing missed tax returns. You have a ten-year window to do so and that’s crucial, because it will help delinquent tax filers build important “contribution room” for Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs).
The RRSP can help those with the required “earned income” create tax savings and increased refundable and non-refundable tax credits in the future by reducing net income on the tax return. In addition, investment income earned in the RRSP accrues tax-free until withdrawal. The plan can be leveraged as well under the Home Buyer’s Plan and the Lifelong Learning Plan, both of which allow for tax-free withdrawals from the RRSP over limited time periods.
The TFSA, on the other hand, is true to its name: it earns tax-free income in a savings plan funded with after-tax dollars. You have to file a return to build the savings “room” and the account must be opened for a resident adult.
Remember, it’s your legal right to prepare your return to your family’s best tax benefit by digging for every tax deduction and credit you are entitled to. This includes filing missed prior returns or adjusting for errors or omissions on prior filed returns, which can bring additional tax refunds to your door. And that would be an excellent Christmas present to yourself, don’t you think?
- REDUCE QUARTERLY INSTALMENTS
Some taxpayers have to prepay income taxes by making quarterly instalment payments. This includes those who report income from self-employment, investments, or other sums from which tax is not withheld at the source. Farmers or fishers with taxable incomes may be required to make one instalment, on December 31 of the tax year.
When you fall into an instalment payment profile, you will start receiving a regular billing notice from the estimated income Canada Revenue Agency reminding you to pay on time. Trouble is, if your income has dropped since you last filed a tax return – and that’s quite possible given recent financial turmoil – CRA will not know whether or not you need to reduce your payments.
But here’s some good news: reducing your quarterly instalments is easy! Simply write a letter to request a revised billing based on your estimated income for the current year. This is a much better way to manage your cash flow and stay invested during market turmoil.
Year end is a particularly good time to do so. You might find that the December instalment payments are not required… and that would be a lovely Christmas surprise!
- PENSION INCOME SPLITTING IS LUCRATIVE
Did you receive a pension from an employer-sponsored pension plan or start taking periodic withdrawals from your RRSP or RRIF this year? Then, you should explore whether you and your spouse qualify for pension income splitting. This could result in lucrative tax savings, and year end is a good time to prepare an optimization exercise. This could result in reduced taxes and possibly reduced quarterly instalment payments too.
Here’s how it works: you may be able to transfer up to 50% of your pension benefits, but there is a catch – an age limit for some. Those with benefits from employer-sponsored plans can take advantage of pension income splitting at any age. Others with periodic income from RRSPs, RRIFs or other annuities, generally have to wait until age 65 to split their income.
If you took early retirement in any year since 2008, check out opportunities to split income with your spouse in retrospect – it can put thousands of dollars back into your pockets. CRA will allow adjustments to prior filed returns if you missed this provision or wish to adjust it.
- LATE FILERS, BE PROACTIVE WITH CRA BEFORE YEAR END
It’s truly surprising how many people are behind in their tax-filing obligations – for multiple years in some cases, it seems. This could turn out to be particularly costly, unless they know about and take advantage of Taxpayer Relief provisions. The tax year 2000 is the one to watch for now, as December 31, 2010 is the last day allowed for adjustments to that return.
Yes, that’s right. It is possible to reach back to recover errors and omissions on federal tax returns for up to ten prior years. Such a proactive stance could obviously help taxpayers recover many thousands of dollars in missed tax overpayments and refundable and non-refundable tax credits, too.
Filing a tax return can also ensure that capital losses from non-registered accounts are reported. This can offset capital gains in the future. In addition, filing a return will ensure that other carry over provisions – for example, charitable donations, tuition and education amounts or student loan costs – are available for future use. These are your rights, they are lucrative, and can pay some extra bills before year end too .
Important Tax Dealines
Personal returns are due on or before April 30th of every year. Balance owing is due on or before April 30th of every year. Late filing penalty of 5% + 1% per month will apply to all outstanding balances owing. Repeated failure to file, a penalty of 10% + 2% per month will apply. Interest on all outstanding balances owing will be computed at the prescribed rate from the day on which the amount was required to be paid to the day payment was received by CRA
Tax returns for sole proprietorships, partnerships and limited partnerships are due on or before June 15th of every year. Balance owing is due on or before April 30th of every year. Late filing penalty of 5% + 1% per month will apply to all outstanding balances owing. Repeated failure to file, a penalty of 10% + 2% per month will apply. Interest on all outstanding balances owing will be computed at the prescribed rate from the day on which the amount was required to be paid to the day payment was received by CRA.
Corporate tax returns are due 6 months after year end. Balance owing is due 3 months for CCPC and 2 months for other companies after its year end. Late filing penalty of 5% + 1% per month per month will apply to all outstanding balances owing. Repeated failure to file, a penalty of 10% + 2% per month will apply. Interest on all outstanding balances owing will be computed at the prescribed rate from the day on which the amount was required to be paid to the day payment was received by CRA.
T4 payroll summary must be filed by February 28th of every year. Monthly remittances are due at the 15th of every month. Late filing and late payments will attract penalty on outstanding balances owing. Interest on all outstanding balances owing will be computed at the prescribed rate from the day on which the amount was required to be paid to the day payment was received by CRA.