Tax season is hardly anyone’s favourite time of year. What can make it even worse is seeing a negative balance on your tax account and having to pay extra income tax to the CRA. Simply being aware of a few tax planning strategies can help ensure that you don’t get hit hard when tax season rolls around.
RRSP Contributions
Contributions to an RRSP are deductible against your income tax, which can result in either a deduction in your taxes or even a refund. RRSP contributions are reported on line 20800 of your T1 General Tax Return. The financial institution that holds your investment will issue your tax receipts. Contributions from March-December 2023 will be taxed on your 2023 return, but any contributions made between Jan 1, 2024- Mar 2, 2024, can be taxed on either your 2023 or 2024 return. Taxpayers can contribute up to 18% of their income every year to their RRSP (minus pension adjustment), to a maximum of $30,780 for their 2023 return.
Capital Gains/Losses
Many people are aware that any capital gains on their investments must be reported on their tax return; however, you can also report your capital losses. Capital losses can offset capital gains on your tax return, therefore lowering your tax bill. While there are a few exceptions, capital losses can generally be carried forward indefinitely and carried back three years.
Carrying Charges
If you earned investment income last year, the CRA would allow you to claim carrying charges against certain types of income. These types of charges can include:
- Investment fees and fees for looking after your investments.
- You may be able to claim fees involved with obtaining financial advice.
- Fees paid to an accountant.
- Any interest paid for a policy loan that was used to earn income.
- Legal fees involved in getting support payments that your current or ex-spouse will have to pay to you.
There can be some gray areas with carrying charges, and it is always best to check with a tax professional regarding what can and cannot be claimed.
Changing Tax Rules & Credits
Lastly, the best way to make the most of your taxes is to keep up with the ever-changing tax rules. New deductions and credits are being added all the time, though they may not be widely advertised. In addition, with an aging population, I’m seeing more people than ever who should be claiming some of the following credits. They may not all be new, but they are commonly overlooked.
Eligible Medical Expenses Tax Credit - Eligible medical deductions in Canada are healthcare expenses you can subtract from your taxable income, including costs like doctor's visits and medications. To claim, expenses must surpass a minimum threshold. These deductions can apply to you, your spouse, or dependents, and require keeping receipts for proof.
Multigenerational Home Renovation Tax Credit introduced in Budget 2022 also took effect January 1, 2023. It provides a 15 per cent tax refund on expenses of up to $50,000 to a maximum credit of $7,500 for expenses related to building a secondary suite for a family member who is a senior or an adult with a disability.
Home accessibility tax credit (HATC) - It's worth a federal credit that can reduce your tax bill by up to $3,000 per calendar year. Although more than one individual may claim the credit, no more than $3,000 can be claimed for any, one dwelling.
To claim this credit, your renovation must be made to help a senior or a disabled person who’s already approved for the DTC, or who turns age 65 or older during the year.
Canada Caregiver Credit (CCC) if you have an infirm dependent. It can be your partner, child, grandchild, parent, sibling or other close relative, so long as:
- they’re dependent on you as a caregiver, and
- you regularly and consistently provide them with some or all of the basic necessities of life.
Digital News Subscription Tax Credit - Effective 2020, a new, non-refundable credit called the Digital News Subscription Tax Credit will be available if you paid for a digital news subscription between 2020 and 2024.
School teacher deduction -max $1,000 for supplies paid personally.
First Time Home Savings Accounts If you’re at least 18 (and no less than the age of majority in your province), have a Social Insurance Number (SIN) and have not owned a home where you lived this year or at any time in the preceding four calendar years, you may be eligible to open an FHSA. You may contribute up to $8000/year and the contributions are tax deductible.
Bottom Line
Doing a little research and talking to your advisor about any new or existing rules that may affect you during this process, can help reduce taxes owing or increase refunds.
