Thousands of Canadians pay more income tax than they should. By not taking full advantage of deductions, you may be one of those generous Canadians without even knowing it. Are you aware of all the deductions available to you? Do you file your return on time? Do you pay tax instalments quarterly to avoid interest charges? Here is a look at some of the common missed opportunities that could be contributing to your tax bill.
Disability Tax Credit
This credit is available to a person with a severe and prolonged impairment in physical or mental function, subject to certain criteria. To qualify, Canada Revenue Agency (CRA) must approve an application signed by your doctor. Areas that may apply include the following:
- Life-sustaining therapy
- Impairment to speech
- Impairment to hearing
- Impairment to walking
- Impairment to elimination (bowel or bladder functions)
- Impairment to feeding
- Impairment to dressing
- Impairment to performing the mental functions necessary for everyday life
Once a person with a disability has applied and is deemed eligible for the disability tax credit, the following may also be available:
- Registered Disability Savings Plan
- Enhanced Children's Arts Tax Credit and Children's Fitness Tax Credit
Other credits may be available to those supporting certain family members who are dependent on them due to a physical or mental infirmity:
- Caregiver amount
- Amount for infirm dependents age 18 or older
- Family caregiver amount
- Attendant care and nursing home expenses
Attendant care and nursing home expenses
For persons who qualify for the disability amount, attendant care expenses may be claimed for:
- part time or full time attendant care in a self-contained domestic establishment (the person's home, for instance)
- full time attendant care in a nursing home
- attendant care in retirement homes, homes for seniors, or other institutions
Attendant care expenses can be claimed as medical expenses to a maximum of $10,000 per year if the disability tax credit is claimed. However there is no maximum amount if disability tax credit is not claimed.
When expenses are for full time care in a nursing home, there is no limit on the total expense that can be claimed as medical expenses, however the disability tax credit can not be claimed.
Carrying charges and deductible interest
Loans must be incurred to purchase an investment (with the intent to earn income) in order to have the interest deductible. Proper documentation of the loans will ensure that the interest is deductible. Deduction is dependent on the actual direct use of funds borrowed. Carrying charges may also include investment counsel fees, bank fees or similar charges.
Charitable donations made by you or your spouse during the year should normally be added together and claimed on the income tax return of one spouse. A higher credit is available for donations over $200, so it makes more sense to aggregate the credits. If donations total less than $200 they can be claimed on either return, either separately or jointly. The key is to keep the receipts.
Donations can also be carried forward up to five years so if you find a slip that was not previously claimed, bring it to review with your Crowe MacKay Tax advisor.
You may claim medical expenses for yourself, your spouse and dependent children. While either spouse can make the claim, as with charitable donations, medical expenses should usually be added together and claimed on the income tax return of one spouse (usually the lower income spouse). You are not restricted to claiming on a calendar year basis as you can claim medical expenses for any 12 month period that ends in the year. The most commonly missed expenses are dental bills, eyeglasses, private medical insurance (including certain travel medical insurance premiums) and certain travel costs such as travel to regional or provincial centres for treatment.
Employees using their own automobile for work (other than to and from the work place) without reimbursement by their employer can deduct the business portion of their automotive expenses. If you are reimbursed and the amount of the reimbursement is not "reasonable", you can still claim a deduction for the non-reimbursed portion. In order to claim employment expenses, your employer will have to provide you with a completed form T2200 Declaration of Conditions of Employment.
Subject to certain limitations, childcare expenses may be deducted from earned income by the lower income spouse. These expenses include day-care, babysitting, boarding school and day camps. Note that you will have to provide the Social Insurance Number of any individual you paid for childcare and supporting documentation is frequently requested by CRA.
Children's fitness and arts tax credits
If your children participate in fitness or arts activities, you may be able to claim the related cost as a tax credit. In order to be eligible, the child must be under the age of 16 at the beginning of the year (or 18 if qualifying for the disability amount). In order for the program to qualify, it must be ongoing (eight consecutive weeks or five consecutive days), supervised and suitable for children.
Program's qualifying for the arts tax credit include artistic or cultural activities, those focusing on wilderness or the natural environment, development and use of particular intellectual or interpersonal skills or those providing enrichment or tutoring in academic subjects.
Note that where a program qualifies for both the fitness and arts tax credit, the expenditure can only be claimed once. Ordinarily the receipt will indicate if it qualifies. If you are unsure whether an expenditure qualifies under one of these programs, include the receipt with your other tax documents that you send to your Crowe MacKay Tax advisor for review.
Failure to pay quarterly income tax instalments when required results in interest charges and possible penalty interest. It is possible to make catch-up payments and reduce or offset the interest charges. Contact your Crowe MacKay Tax advisor if you are unsure as to your liability to make tax instalments.
If you moved during the year to be at least 40 kilometres closer to a new job, to run a business or to attend a post-secondary educational institute full time, then you may be able to deduct certain moving expenses. The amount you can deduct is limited to the amount you earn at the new location in the year. Unused deductions can be carried forward and deducted against the related income in the subsequent year.
Some examples of allowable moving expenses are:
- Transportation and storage for household effects
- Travelling from old to new residence
- Accommodation, meals and temporary living expenses near new or old residence
- Cost of cancelling the lease for the old residence or expenses for selling your old residence such as real estate commissions and advertising
- Expenses related to purchasing new residence
- Cost to maintain your old residence (maximum of $5,000)
- Address change on legal documents, replacing your driver's license
- Utility hook-ups and disconnections, etc.
Proper documentation of your expenses, including receipts, is critical as CRA often requests support for the deductions claimed.
Filing on time
The normal deadline for filing an income return for the previous year is April 30. This filing deadline is extended to June 15 if you or your spouse are self-employed. However, income taxes payable are still due on April 30. Similarly, the filing of the information return for "Specified Foreign Property" with an aggregate cost over $100,000 CAD at any time during the year (Form T1135) is subject to penalties if not filed by these dates.
Taxpayers who do not file their tax returns on time face significant late-filing penalties: 5% of the balance due plus 1% per month to a maximum of 12 months for the first offence, plus applicable interest on the penalty. The penalty doubles where the taxpayer fails to file on time for a second time in three years or if a formal demand for filing has been issued by the Minister.
Interest and penalties are not tax deductible and add up quickly at the rates charged by Canada Revenue Agency. Even if you cannot pay the amount of taxes due, ensure that you file on time.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.