Mar
3
By Fin MacDonald, Fin Tax Service
With the 2013 Tax Return season fully upon us, I'd like to review some common and not so common but worthwhile deductions - as always through my lens of Helping You to Keep More of YOUR Money.
First, a clarification on Prescription Receipts from the February column. I wrote: "You can ask your pharmacy for a printout of your prescription costs. The printout MUST show the date, medicine name, patient name and the amount. A summary just showing the total for the year is NOT acceptable by the CRA." When filing electronically, as most people now do, all that is needed is the amount of the medical expense. If the Canada Revenue Agency decides to review your medical expenses, THEN the full printout would be required. I'd like to apologize for the confusion that I caused some of my readers, and the local Pharmacies.
Common Deductions
RRSP contributions are one of the most common deductions from income. The deadline this year is March 3rd. RRSP deductions lower the amount of income that is subject to tax; the higher the income bracket, the higher the tax savings. It is always good to save for retirement, but for people with lower incomes now but good prospects of higher incomes in the future, it may make more sense to defer the deduction until their income is higher. The contributions will still grow tax free and no Canadian government would dare to eliminate the deduction, so saving it for a future year may make sense.
If you are approaching retirement age, a Tax Free Savings Account (TFSA) may make more sense that an RRSP contribution. If your retirement income is going to be modest and include income tested benefits such as the Guaranteed Income Supplement, the TFSA would be the way to go. The TFSA does not provide a deduction but it does allow tax free growth AND no tax is payable when you withdraw from it. RRSPs, on the other hand, are taxable when the income is withdrawn. Starting at age 72, there are minimum taxable amounts that must be withdrawn each year from the RIF (to which your RRSP has been transferred).
Carrying Charges are fees that you pay for safety deposit boxes, accounting services, advice and management of your investments, and interest paid on loans to purchase investments. Interest on loans for RRSPs or TFSAs is not deductible.
Child Care Expenses are another common deduction. However, because of the rules requiring the lower income spouse to take the deduction, this is often not as beneficial as it might have been.
Support payments made to a former spouse are deductible; however child support payments are not deductible unless they are made pursuant to a court order dated before May 1997.
For seniors the most common deduction from income is the Split Pension Amount. Pension splitting has been very beneficial, especially for couples where one spouse worked very little outside of the home.
Less Common but Worthwhile Deductions
Moving Expenses may be claimed from employment income at the new location if you have moved more than 40km to start a new job or open a business. Eligible moving expenses include the cost of selling your old residence, Property Transfer Tax on purchase of a new residence, fees paid to the moving company, meal and accommodation expenses on the move. Also eligible are up to 15 days accommodation at the new location as well as gas and ferry fares. If you do not have enough income at the new location in the year of the move to use up all the expenses, the balance may be carried forward to the next year.
Employment Expenses are caused when your employer requires you to furnish some of the things needed to perform your job. Common examples are automobiles, cell phones, home offices. The employer must complete a form T2200 Declaration of Conditions of Employment; this shows what expenses you were required to pay.
Legal fees paid to establish or collect unpaid wages or salary may also be deducted.
There are also a variety of expenses related to Exploration and Development, Business Investment Losses, and Capital and Non-Capital Losses of Other Years that may be claimable. For more information talk to your tax advisor or call CRA General Enquiries @ 800-959-8281.
Deductions are also available for certain Northern and Isolated areas; Fort MacMurray no longer qualifies for this.
The Canada Revenue Agency will often require you to produce the receipts for the deductions. Often they will do this before issuing the refund caused by the deductions. So, it is always wise to keep and have your receipts in good order.
In the April issue of the Beacon I'll look at Non-Refundable Tax Credits - everything from Age and Spousal Amounts, to Disability Tax Credit to Charitable Donations and a special emphasis on Medical Expenses. Non-Refundable Tax Credits are Federal or Provincial amounts that reduce the tax you have payable. If you or your spouse does not have tax payable, these credits are of limited use.