Given that the personal tax deadline has just passed, it may seem odd to see an article regarding personal tax planning; however, there is no better time than now to plan for next year.
In today’s fast-paced world, we are all busy; however, it is important that you take time during the year to consider items that may be claimed as deductions or credits on your tax return to ensure you have the proper receipts and documentation in place for when tax time comes again. Failing to be proactive can cause you to pay more tax than you should. Accountants charge fees based on their time, so you will pay your accountant more if they have to contact you to request additional information that you have omitted such as additional receipts or tax slips. Finding additional information after your accountant has filed your return may result in your accountant needing to spend additional time file a T1 adjustment.
Tax planning has to be done consistently throughout the year, not just in December before the end of the year and certainly not in March and April after the year has passed. Some of the most simple, yet best recommendations we can make are noted here for you.
Tips for Families and Seniors
Child care and camps
Keep receipts during the year for all amounts paid for eligible childcare which may include camps your children attend during the spring and summer breaks. However, fees for ancillary items such as clothing or equipment are not eligible.
You can obtain an annual summary of all payments for prescription drugs from your pharmacy and dentist for all family members. However, you may be missing amounts paid to other practitioners that are eligible medical expenses. The CRA has a complete listing available on their website that will tell you if amounts you pay to other practitioners such as a chiropractor, dietician, or psychologist can also be claimed based on your province of residence. The listing can be found at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330-331/ampp-eng.html or by searching for “Authorized medical practitioners for the purposes of the medical expense tax credit” on CRA’s website.
Disability Tax Credit
If you or a family member suffers from a severe and prolonged medical condition, you can file an application for the disability tax credit using Form T2201 which requires a physician to certify the form. This form can be submitted to the CRA at any time during the year, and the CRA must approve the form in advance to be eligible to claim the credit on your tax return. In addition to the credit amount, approval by CRA may permit additional medical expenses to be claimed such as attendant care for the patient.
Home Accessibility Tax Credit
Seniors or those approved for the disability tax credit with mobility issues may be able to claim this new credit which was introduced in 2016 for costs of up to $10,000 related to making their home more accessible. Therefore, ensure to retain all receipts for renovations or modifications to the home if they are eligible for this credit. Some expenses that qualify for this credit may be eligible to be claimed a second time as a medical expense.
Sale of your home
Announced by the CRA in 2016, new rules require that the sale of your principal residence be disclosed on your tax return, even though the sale may not be taxable. Ensure your tax accountant is advised of any sales to ensure he/she discloses the sale and that your tax exemption on your principal residence is allowed.
Purchase of a new home
If you purchase a new home during the year and have not been a homeowner in the previous four years, you may be eligible for a first time home buyers credit of $5,000. Ensure you keep documents to provide to your accountant which will verify your new home purchase.
Tuition and education
If you or a child attends a qualifying post-secondary institution in Canada, Form T2202A is required when determining the number of eligible credits. For universities outside of Canada, Form TL11A must be completed by the foreign university. It may take time for the foreign university to provide the information, so keep this in mind to ensure you have received it in time to complete your tax return by the filing deadline. Also, ensure to note the currency of payment on the form.
CPP pension sharing
Eligible retirees may make an election on their tax return to split up to 50% of eligible pension income with their spouse; however many do not realize that this does not extend to CPP benefits received during the year. In order to split CPP benefits, a joint application must be made to Service Canada for pension sharing so that the payments are split between the couple during the year. This may provide an additional income-splitting opportunity which may lower the overall tax for the couple.
Tips for Investors
Gains and losses
If you have investments outside of a registered retirement or education savings plan or a tax-free savings account, you need to report any gains and losses on these investments on your tax return. Depending on whether you are using a self-directed investment account or using an investment advisor, the information available in the form of an annual year-end reporting package may differ. As such, the information required to prepare your return, such as the amount you originally paid for your investments, may not be easily determined. Even if you suffer losses on some investments, the silver lining is that these amounts may be used to offset tax on other gains. Keep all documentation related to your investment transactions to ensure your accountant has all the information they require to properly report these transactions on your tax return in the year they occur.
Amounts you contribute to your RRSP must be supported by official receipts to be eligible to claim a deduction on your return. Delivery of receipts are during the months of January to March, so it is important that you ensure you receive all of them and provide them to your accountant to make certain that the full deduction you are entitled to is claimed. Contributions made in the first 60 days of the year can be deducted on last year’s return and should be reported on that tax return (i.e., Claim a contribution made in January 2017 on the 2016 tax return that you just filed).
Turning 71 during the year
If you are turning age 71 before the end of the calendar year, ensure you speak with your financial institution which holds your RRSP accounts as these must be rolled into an annuity or RRIF prior to December 31st otherwise the value of the plan will be deemed to be taxable income in your hands on that date.
CRA Communication Need to Know
Notice of Assessment
After your tax return has been filed and you receive your Notice of Assessment, do not file it away with your tax return. If the assessment differs from what was filed, you need to speak with your accountant as a processing error could have been made and your time to object to the assessment is limited. If everything is fine, keep this assessment and place it with your information for next year so that your accountant can review it as it may contain other important information. Also, now would be a great time to provide your current year RRSP room to your financial advisor so they are aware of how much you can contribute to your plan this year. Waiting until February of the following calendar year to make your RRSP contributions to ensure you have a deduction to claim on your return is not prudent from an investment standpoint; you should make your contributions as early in the year as possible to maximize your investment earnings.
CRA “My Account”
By signing up for the CRA’s “My Account” service, you will have access to a lot of information including assessments for your last ten years of tax filings, your RRSP and TFSA contribution room, as well as all payments including any installments you make during the year. You should review this regularly and ensure all payments are reflected properly. If payments are not reflected in the appropriate installment year, you may have to contact CRA in advance of filing your taxes to ensure this is corrected. Also, if you need copies of your Notice of Assessment at any time during the year for your bank or other lenders, you can easily obtain them through this service.
While this information may seem fairly simple, being organized and proactive is the best way to ensure you pay the least amount of tax possible. It also ensures that your accountant has all the required information and you are not paying them to organize and collect your financial data. Our team strives to provide you with advice and strategies that lower your overall tax burden and having your complete financial picture is the first step in that process.
Questions? Talk to one of our advisors