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 of the deductions that are available to you? Do you file your return on time? Do you pay tax installments quarterly to avoid interest charges?
Here is a look at some of the common missed opportunities that could be contributing to your larger than necessary tax bill.
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 the disability tax credit is not claimed.
When the 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
Borrowed funds must generally be used for the purpose of earning income (e.g. investing) in order for the related interest to be deductible. Maintaining proper documentation of loans and interest payments will help support claims for interest deductions. Deductible carrying charges may 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 combine the donations and claim them on one return. If your total donations are less than $200 there is no advantage to claiming them on one return. The key to supporting your claim is to keep the official tax receipts.
Donations can also be carried forward up to five years so if you find a slip that was not previously claimed, bring it in to review with your Crowe MacKay tax advisor.
Subject to certain limitations, childcare expenses may be deducted from 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 child participates 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 he/she qualifies 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.
Programs 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 for a tax credit. If you are unsure if an expenditure qualifies under one of these programs, include the receipt with the tax documents that you send to your Crowe MacKay tax advisor for review.
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, 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 preforming the mental functions necessary for everyday life
Once a person with a disability has applied for and is deemed eligible for the disability tax credit, the following may also be available:
- Enhanced children's arts tax credit and children's fitness tax credit
- Registered disability savings plan
Other credits may be available to those supporting certain family members who are dependent on them due to a physical or mental infirmity:
- Amount for infirm dependents age 18 or older
- Attendant care and nursing home expenses
- Caregiver amount
- Family caregiver amount
Employees who are required to use their own automobile for work (other than for travelling to and from their work place) without reimbursement from 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.
Filing on time
The normal deadline for filing an income tax return for the previous year is April 30th. This filing deadline is extended to June 15th if you or your spouse are self-employed. However, income taxes payable are still due on April 30th. Similarly, the information return for "Specified Foreign Property" having an aggregate cost over $100,000 CAD at any time during the year (Form T1135) must be filed by the individual's filing deadline.
Taxpayers who do not file their income 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 can more than double where the taxpayer fails to file on time for a second time in three years and 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 CRA. Even if you cannot pay the amount of taxes due, ensure that you file on time.
Home buyers amount
If you are a first time home buyer, you may be eligible to claim a tax credit of $5,000. Generally speaking, you may be considered a first time home buyer if neither you nor your spouse or common-law partner owned and lived in another home anywhere in Canada in the calendar year of the purchase or in any of the four preceding calendar years.
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, eye glasses, private medical insurance (including certain travel medical insurance premiums) and certain travel costs such as travel to regional or provincial centres for treatment.
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 a subsequent year.
Some examples of allowable moving expenses are:
- Accommodation, meals and temporary living expenses near your new or old residence
- Address change on legal documents, replacing your driver's license
- Cost of cancelling the lease for your old residence or expenses for selling your old residence such as real estate commissions and advertising
- Cost to maintain your old residence (maximum of $5,000)
- Certain expenses related to purchasing your new residence
- Transportation and storage for household effects
- Travelling from your old residence to your new residence
- Utility hook-ups and disconnections, etc
Proper documentation of your expenses, including receipts, is critical as the CRA generally requests support for moving expenses.
Penalties for failing to report income
If you have income from several sources, make sure that you do not miss reporting any of it. By failing to report income on your return in the current year and in any of the three preceding years, you could be subject to federal and provincial/territorial penalties of up to 20% of the amount that you fail to report in the current year. Proposed federal tax legislation has indicated that this penalty may be reduced going forward, and the provincial/territorial legislation may also be revised in a similar manner.
However, we recommend that you ensure that you have information on all of your income when having your return prepared.
Student loan interest
Interest paid on student loans obtained under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a similar provincial or territorial government for post-secondary education can be claimed as a tax credit. If you do not use the credit for the year in which the interest is paid, the unused amount can be carried-forward for up to five years.
Failure to pay quarterly income tax instalments when required may result in interest charges. 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 if you are required to make tax instalments.
Amounts paid for monthly transit passes and for certain weekly passes for you, your spouse or common-law partner and children may qualify for a tax credit.
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.