NOTE: I retired from the Tax Preparation business in late 2001 so these pages are not up-to-date
36. MARRIAGE BREAKDOWN:
If it is to your advantage, in the unhappy situation of a breakdown, the CPP benefits earned by both mates during their time together can be totaled and then split equally. This includes Common-Law relationships. For a booklet with complete details "Canada Pension Plan, Credit Splitting" call the CPP people at 1-800-277-9914. See also Tips 45 and 52.
If you have invested in some sort of business and have lost that investment, you may be able to write off that loss. This gets quite involved and you should seek professional guidance, or, at least, discuss it with CCRA.
38. MOVING: (be SURE to see tip #68 as well!!)
If you are planning to move, get the details on what you may/may not deduct before you start. Then keep good details to support your claim. Ask CCRA for form T1-M which has many details and must be filed with your tax return. The cost of the move may be deducted ONLY from income earned at the new location, so if you move late in the year, you may not have enough income to claim it all. If so, attach a statement showing the details and claim the excess next year, again, attaching details. Note that a move may not be claimed unless it brings you at least 40 kilometers closer to the new place of work.
39. PENSION AMOUNT:
If you are a pensioner, but do not receive benefits from any personal pension plan; that is, you receive, say, only CPP and OAP, but you have significant Interest Income, then you may be able to save some tax. The "Pension Amount" (tax return line 314) allows those who have "Other Pension" income (line 115) to claim a $1,000 "non-refundable credit." You could deal with a Life Insurance Company to rearrange your affairs to receive at least $1000 of "pension income" each year. If you are turning 65 during the current year, arrange to receive pension or annuity income of at least $1,000 during this year. That way you can claim the $1,000 "non-refundable" credit for this year.
40. CANADA SAVINGS BONDS:
If you are buying CSB through the Payroll Savings Plan, you will probably be paying a small interest charge. Check with the Payroll Department. If so, ask the Payroll Department to give each employee an official note with their T4 slips, indicating how much interest each paid to buy these CSB. That amount may be deducted on your tax return; report it on Schedule 4 which is carried to line 221.
41. YOUNG PERSONS:
If a young person has some income but not enough to be taxable, and has no refund coming, it may still be worthwhile to file a tax return. Only by filing will he/she be eligible to make RRSP contributions. See details in my RRSP page.
42. CPP SPLIT:
If you are receiving the Canada Pension Plan retirement benefits, and your spouse is also, and if, further, you are into the "middle" or "top" tax brackets, AND, your spouse is in the "lower" (or zero) tax bracket, it would probably save you money if your CPP benefits were split between yourself and your spouse. The spouse must be age 60 or over. This is called "Assignment" or "Pension Sharing." Call Health & Welfare Canada at their toll-free number. (1-800-277-9914) Ask for their booklet, "Canada Pension Plan - Credit Splitting."
43. AGE 65+:
If you are 65 or older, and have not yet turned your RRSP into a pension, perhaps you should do so with enough to produce at least $1000 of Pension income each year, eligible for the "Pension Amount" referred to earlier.
44. SPOUSAL TRANSFERS:
If your spouse does not need the following credits, because the spouse is not taxable, transfer them to yourself: Pension Amount, Age Amount, Disability Amount and Education & Tuition referred to earlier. Use Schedule 2 to make the transfer from one spouse to another.
45. SINGLE PARENTS:
Don't forget to claim one of your children as a "Married Equivalent" and use Schedule 5 to report the details. Claim the child which has the lowest income, if they have income. Claim the amount at line 305. You will need to know the child's "Net Income" as reported on the child's tax return at Line 236, or what that amount would have been if that child had done a tax return. Remember the change which became effective on May 1, 1997. From that date on, persons paying child support could no longer claim a tax deduction for such payments, and the recipient would no longer report it as taxable income. See "Line 128" and "Line 220" in the Guide. See also Tips 36 and 52.
46. CPP DEDUCTION:
Check to make sure that your employer deducted enough CPP from your wages. If not, you will not have to make it up, but your pension at retirement will be that much lower. Plus, if the employer has not deducted enough, that employer could be caught and face penalties. (For 1997 there was a "catch-up" amount to pay due to the rate increase during the year; you would think the politicians would have enough brains to make such changes effective on January 1!)
47. CHILD TAX BENEFITS:
If you are receiving these monthly (Tax-Free) payments, consider investing that money in the name of the child(ren) involved. Interest earned on the account will then be the child's income, not yours, and thus you will not be paying tax on that interest.
48. CASHING IN AN RRSP:
If you are planning to do so, reconsider. If your budget is stretched to the limit, and you have lost your job, it may seem like a quick solution. True, there may be no option to you. Think, though, would it be better to wait until the new year, when my income is likely to be much lower than this year, with the result that next year I would pay much less tax on it? And note this also: when you cash in an RRSP, some tax will likely be deducted; the rate depends on how much you with draw. BUT, at the end of the year, when you prepare your tax return, the total amount you withdrew (before deducting tax) is included in your income. You are taxed on it at your marginal rate (explained above) and that may be far more than what has already been deducted. You could get a nasty surprise.
49. UNION/PROFESSIONAL DUES:
If you paid such dues and receive a
receipt, you may claim the amounts on your tax returns. If,
instead, the amount was deducted from your wages and shows up on
your T4 slip, don't forget to claim it.
50. LUMP-SUM PAYMENTS FROM THE CANADA PENSION PLAN:
If you received such a payment, and
part or all of it was for a previous year, if it is to your
benefit, such amounts may be applied to previous years. It should
be automatic, but if you feel safer, call 1-800-277-9914 to
51. ADDITIONAL READING:
Perhaps the best book for beginners
would be "The Wealthy Barber" by David Chilton. When I
first read it, I wrote a letter to the Minister of Education for
Alberta and suggested that this book be required reading in all
schools. This book is written in a style that anyone can read.
52. SEPARATED FROM SPOUSE:
Note the new benefit as indicated
under "Line 305" in the 1997 Guide: "For 1997 and
later years, if you were separated but reconciled during the
year, you can claim the equivalent-to-spouse amount if you
otherwise qualify for it and do not claim the spousal amount
(line 303) for the year. To see whether or not you would
"otherwise qualify for it", see the detailed notes for
"Line 305" and Schedule 5. See also Tips 36 and 45.
53. POLITICAL CONTRIBUTIONS:
Pay careful attention to "Lines
409 and 410" in the Guide. If you and your spouse are in the
habit of donating, say, $200 per year to your favourite political
party, it might be best if *each* of you gave $100, rather than
one giving $200. On the first $100 that you donate, you can claim
75% and the next $100 is worth only 50%. This assumes, of course,
that both spouses are taxable and can use the claim.
54. YOUR TAX-PREPARER:
There are several great, programs out there, but sometimes a professional is the best route. Should you get a tax professional to do your tax returns for you (and I know that is to your advantage), you want two things from that accountant: (1) to reduce your tax to the lowest possible legal amount, and (2) to charge you the lowest fee possible.
You can have a significant impact in achieving these results. Here is a list of what you can (and should) do, if you want these two objectives. YES, they apply to YOU. You are unique, but so is everyone else. Most points are no more than common sense but you wouldn't believe how many people don't seem to have any.
1. Go through last year's tax return
and use it as a guide to what you need to bring.
2. Leave your children at home.
3. Get organized BEFORE you go to the accountant.
4. Remove all papers from envelopes; there is nothing sacred about envelopes.
5. Put all the scrap into the recycle bin; don't take it to the accountant.
6. Don't sit at the accountant's desk unfolding bits of crumpled paper and sorting them; do that at home.
7. Flatten all papers and sort them into piles; one for each person who is filing a tax return.
8. Hire a babysitter before you go to the accountant.
9. Avoid idle chatter; stick to business. If you want to "visit", suggest you get together *after* tax-time.
10. Don't make an appointment until you have all your documentation.
11. Remove carbon papers from all "T" slips; your accountant already has a garbage can full of it.
12. Be on time for your appointment; not late, but not early either.
13. For child care expenses, get the babysitter's Social Insurance Numbers also.
14. Bring the mailing labels that CCRA sent to you.
15. For the Northern Residents' Deduction, agree with the others in your home who claims what.
16. Bring your last year's tax return copy AND the "Notice of Assessment" which CCRA sent you.
17. Don't ask if you can pay at a later date; pay when you pick up your tax return.
18. DON'T bring your kids with you to the accountant.
19. Add up all your donations and all your medical bills, also your RRSP receipts.
20. If you have lots of T5 slips, provide a total.
21. If you have a business, enter all amounts on a T2124 and total it.
22. If you are starting a business, visit your accountant first, and get started on the right foot.
These are common sense. Trust me; if
you want the lowest possible fee and the best job on your tax
return, READ and HEED all these points. I know; your kids
are terrific. Yes, all of them are. I love them all, but not
during tax-preparation time. Tax time is serious time.
The federal budget brought down in
February 1998 made Registered Educational Savings Plans far more
attractive than they had ever been before. I urge you to look
into that method of preparing for the huge financial burden of
providing for post-secondary education for your children.
Generally, you may contribute up to $4,000 per year into an RESP
for a child aged up to 18, and the federal government will add
20% on the first $2,000 of your contribution. So, if you
contribute $4,000, the grant will be $400 which is the maximum
annual grant. If you cannot contribute enough in a given year to
take advantage of the full $400, the "grant contribution
room" can be carried forward to future years, up to an
annual contribution of $4,000 per child. Your contributions will
NOT be tax-deductible as RRSP contributions are. The lifetime
contribution limit per child is $42,000. If the child does not
pursue education, the grants must be returned to the government,
but not the income earned on the plan. If the specified child
does not pursue education, the plan may be used by another
beneficiary. Principal amounts contributed to an RESP may be
withdrawn tax-free, as these amounts were never tax-deductible in
the first place. If the beneficiary does not pursue education,
the income earned in the plan may be transferred to the
planholder's RRSP if (s)he has deduction room. This is allowed if
the plan has been in existence for at least 10 years, and if the
beneficiary is at least 21 years of age and not attending
post-secondary school, or has died. If the contributor takes the
income earned by the plan and does not transfer it to
his/her RRSP, it will be taxable PLUS there will be an additional
20% penalty tax. This is to discourage using the RESP as a
personal tax-deferral plan. Apparently, if this income is
transferred to a contributor's RRSP, the contributor will NOT be
able to claim a tax-deduction for it. IMPORTANT NOTE: On April
15, I noted on TV a commercial which offered an RESP information
package including a free RESP videotape. The toll-free number (to
Texas!) is 1-800-723-7171. I called for a copy but have not seen
it yet, of course. You should also call CCRA at their toll-free
number and request "RC409(E): Registered Education Savings
Plans." Another warning: watch those FEES. The fine print may hide
important info about what you'll be charged. Don't say I did not warn you!
56. GOOD ACCOUNTANT : BAD ACCOUNTANT??
Sometimes people tell me that they
went to Accountant A and wound up with a tax refund of, say,
$500. Next year they went to Accountant B and had a tax refund
of, say, $800. Thus, they assume, ignorantly, that Accountant B
did a better job for them. PLEASE don't use that type of
ILL-logic!! Tax refunds are the net result of many things: income
level, deductions which change from year to year, the amount of
tax deducted at source, etc. etc.
57. GETTING HELP FROM CCRA:
CCRA has toll-free phone numbers which we can use to get help. Unfortunately, not all agents are as fully trained as we would like them to be. Understandable with a system as complicated as Canada's tax system. We all have heard this common complaint: "I called CCRA with a question and got an answer. Next day I called and spoke to a different agent and got a completely different answer." Yes, this has happened to me also. Sometimes this is probably due to poor communication and the agent not clearly understanding the question. But, note this example to show how a trained tax person can do a far better job than "my brother-in-law" who does some tax returns:
I called CCRA to get a second opinion
on what I was planning to do on a client's return. The main
reason for calling was to assure the client, who was at my desk,
that my plans were not too "exotic." The agent told me
that I could NOT do what I was planning to do. In discussing the
matter further with her, I realized that her thinking was 'way
out of whack' and I had to straighten out her thinking, using my
experience. Then she reluctantly agreed that what I was planning
to do was kosher. The client was happy that by using some
slight-of-hand I was able to legally shave some $700 off his tax
Get Social Insurance Numbers for your children; even the new-borns. Then take the monthly Child Tax Benefit payments, and deposit each child's share into a bank account for that child. The interest earned on the account will be considered to be the child's interest, and you will not have to pay tax on it. See also point 9 above. You will need a S.I.N. for a child if you are going to invest in an RESP anyway, so you might as well get it. To get it, contact your local HRDC (Human Resources Development Canada) office; find their number in the blue pages of your phone book
59. INCOME SPLITTING:
If one spouse, say the husband, has high income and the wife does not, consider this tactic. He pays all the bills, including the mortgage, utilities, food and clothing etc. Any money they can manage to put into savings, would come from *her* earnings. This way, all the earnings from those savings would be taxed in *her* hands, not in his. Assuming that he is in a higher tax bracket, these earnings would be taxed at a lower rate. To prove that this is being done, it would be best to have separate bank accounts. If you have small children and also one or more over the age of 18, you can pay Child Care to the "over 18" child for looking after the younger child(ren).
60. HEALTH CARE
If you are self-employed, you may be able to deduct, beginning in 1998, premiums paid for health care insurance. For details, get CCRA's guide "Business and Professional Income" for 1998, page 20 and look for the section with the red margin around it, entitled "Private health services plan (PHSP)
61. GETTING YOUR REFUND
See also point 15 above. I strongly recommend that you ask CCRA to "direct-deposit" your tax refund into your bank account. You get your refund faster and it will save the system a few dollars. You will still get your Notice of Assessment by snail-mail. The way to set up your "direct-deposit" is to fill in the block on page 4 of your T1 return, just above your signature, by entering your bank account number etc. If you have problems with that, simply take a blank cheque, mark it "VOID" and attach it to the return, over top of that block. An additional advantage to doing this is that if you move from one address to another, the cheque won't get lost. (assuming you don't close that bank account, of course)
If you are investing you need to keep good records. When you dispose of an investment, you may make a gain or loss and if you cannot determine the amount of such gain or loss, you will have difficulty filing your tax return.
If you have a business of your own, either as your only occupation or as a "sideline" keep in mind the Capital Cost Allowance rules. If you are planning to buy any assets for the business, it might be better to buy them shortly before the end of the year, rather than right after the end of the year. The reason is, of course, that you can claim C.C.A. (like "depreciation") on the asset (as long as you actually started using it) in the year in which you buy it. In that (first) year of use, you can claim half the normal rate of CCA and the full rate may be used from then on. You might benefit from checking out my page for those who are planning to start their own business by clicking HERE.
Tax planning should be a "year-round activity" but when the end of the calendar year comes near, it might be wise to be sure that you pay these items before the end of December: medical expenses, investment counsel fees, interest and other expenses, alimony and maintenance payments, child care expenses, moving expenses, political contributions, deductible legal fees, tuition fees for yourself and charitable donations.
If you are paid at least in part by commissions, and need to use a computer or cellphone in your work, you might RENT such items rather than purchasing them. If you buy them, you may NOT claim Capital Cost Allowance ("Depreciation") on them, but you may claim the cost of renting such items.
If you have a rental property you can, normally, claim Capital Cost Allowance ("Depreciation") on the buildings you rent out. If you do, though, and you sell the property, there may be a high probability that you will sell it for more than the "book value" which is the "undepreciated balance" left over after taking CCA for x years. The difference between what you sell it for and the book value, may have a high "recapture of CCA" which will all be taxable in the year of sale. Part may be a capital gain. For example, you have a house which cost you $100,000 some years ago. You have claimed CCA of $30,000 since then, to reduce your taxes. Now you sell it for $120,000. Of this, $20,000 would be a Capital Gain (3/4 taxable) and $30,000 would be added to your income in the year of sale as "recaptured CCA." If you have other income, you could be hit with a very high amount of tax.
67. THOSE TAX-BACK
The government has tried to warn taxpayers to stay far away from these "offers." They are also called "Instant Refund" or "discounting" your tax return. BEWARE! If you enjoy getting ripped off, OK, but if you like your $$$, DON'T fall for it!
68. COST OF TRAVELING:
If you have to travel for Medical purposes (see #8 above) or use a vehicle for Moving, or if you are claiming travel as part of the Northern Residents' Deduction, you may claim xx cents per kilometer instead of just claiming the cost of gasoline. This might be a much larger claim. The "xx" cents differs, depending on where your trip begins. Here are the rates:
34.5 cents per kilometer for Saskatchewan
35.0 cents per kilometer for Alberta
36.0 cents per kilometer for Prince Edward Island
36.5 cents per kilometer for Nova Scotia
37.0 cents per kilometer for Manitoba and New Brunswick
37.5 cents per kilometer for British Columbia
38.0 cents per kilometer for Ontario
38.5 cents per kilometer for Newfoundland
41.0 cents per kilometer for Quebec
42.5 cents per kilometer for Northwest Territories, Yukon and Nunavut
For meals you may claim $33 per day per person, and you do NOT have to keep receipts NOR take half of the final total as other meal costs have to be halved, e.g. Transport Employees, using form TL-2.
69. DOING YOUR FAMILY'S
If you really *must* do them yourself, start with the tax returns of the youngsters; the ones with the lowest income. Do the return of the family member with the highest income last. This way, if there are amounts which may be transferred from the low-income members, you can "accumulate" those and use them on the returns of the high-income members. Typically, these transfers would include Tuition Fees and the Education Amount. Disability Amounts are often transferred also. I strongly advise using the "T1 General" form for each, rather than the so-called "easier versions" of that form. Some of the forms do not have all the lines on them and using them could result in missing deductions or credits.
Some money which you receive will not have to be reported on your tax return. Included in this category are Lottery Winnings, inheritances, Life Insurance proceeds, compensation from a provincial government as a victim of a motor vehicle accident or criminal act. Be careful about lottery winnings; if you receive the benefits in instalments, you may be taxable on them. Call CCRA and ask for "Interpretation Bulletin IT-213R" (latest issue).
Imagine this situation: *last* year, on your income tax return, you reported some Capital Gains and paid the relevant tax on them. THIS year you notice that some of your investments are "down" and if you sold them, you would suffer a Net Capital Loss. It might be a good idea to sell them, sustaining the loss, then wait 30 days and, assuming that you feel those investments will gain in value, buy them back. Then you would, on *this* year's income tax return, claim the loss and carry it back to *last* year's income and get a refund on last year's taxes. Of course, if the investments rise in value during the 30-day waiting period, then you would pay more to get them back than you got for them. See the "Capital Gains" guide from CCRA and look under "Superficial Losses."
72. Carrying Charges:
Here is one situation where I will bet dollar against donuts that thousands of Canadians are overpaying their taxes year after year and never have any clue that they are doing so. If you think that using one of those cheap computer programs is the answer, this is one good example to prove you wrong. Here is my own situation: I bought an "interest-paying" investment like a bond in 2002, through a well-know, national securities dealer. To buy the investment, a $25,000 "note" which paid interest twice per year. At the date it was bought, $425 of interest had been "accrued" so I had to PAY for that interest. On the next interest date, I got the normal semi-annual payment which, of course, INCLUDED the interest that I had to PAY for. At the end of the year, I got a T5 slip showing the interest which the note had paid to me but, of course, I got nothing to show that I had in fact, PAID for some of that interest. I asked the dealer (even though I knew the answer) if I could DEDUCT that $425 as "Carrying Charges" expense on Schedule 4, but was told I could not. This, of course was incorrect. I can deduct it. Think of how many taxpayers will assume the dealer correct, or even think to ASK in the first place. No doubt 95% would never even have any idea that the interest paid in such a situation is fully deductable.