Let’s Get Ready for Taxes!

It’s hard to believe that another tax season will soon be upon us. Wouldn’t it be great if you were ready to do your taxes before the deadline of April 30^th? I’m sure your tax preparer would be delighted to get everything ready and organized before then. Now is the time to be thinking about your income, deductions, and whether or not you’ll be owing come April 30^th.

Income

What is your income this year? Just from T4s then you probably won’t be owing. However, add in other income from things such as interest, investments, rental or small business and you will probably end up owing. The amount and types of income will determine your tax owing. Most ones mentioned before are taxed at 100%; however, capital gains and dividends are taxed differently (capital gains are 50% of the gain and dividends you get a tax credit).

The amount of income you earn will determine which tax bracket you fit, and then how much tax you pay. It’s best to figure out what your income is early enough so you can estimate your tax bill and be ready to pay it by the deadline of April 30^th. For small businesses, even though your return is due June 15^th, the tax is due April 30^th.

You can find a complete list here of all income that should be included on tax return along with the line number on the tax return.

You do not have to report certain amounts in your income, including the following:

• any GST/HST credit, Canada child benefit, or Canada child tax benefit payments, including those from related provincial and territorial programs;
• child assistance payments and the supplement for handicapped children paid by the province of Quebec;
• compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident;
• most lottery winnings (Income earned on any of the above amounts, such as interest you earn when you invest lottery winnings is taxable);
• most gifts and inheritances;
• amounts paid by Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service;
• most amounts received from a life insurance policy following someone's death;
• most payments of the type commonly referred to as strike pay you received from your union, even if you perform picketing duties as a requirement of membership;

• Elementary and secondary school scholarships and bursaries;

• Post-secondary school scholarships, fellowships, and bursaries are not taxable if you received them in 2016 for
  your enrollment in a program that entitles you to claim the full-time education amount in 2015 or 2016, or if you
  will be considered a full-time qualifying student for 2017; and

• most amounts received from a tax-free savings account (TFSA).

Deductions

The amount and type of deductions will also determine your balance owing. The more deductions you can come up with, legitimate ones of course, the lower your amount owing will be. The first one most people think about is RRSPs as that’s a straight deduction off your income as is support payments, union dues, company pension contributions, employment expenses, childcare expenses, moving expenses, and more. The more of these kinds of deductions the lower your taxable income. The other kind of deductions are actually tax credits and include, working income tax benefit, medical expenses, donations, political contributions, CPP and EI premiums, disability tax credit, and others.

The more deductions the better off you are tax wise, however, make sure you have all your receipts for anything you’re claiming. Canada Revenue Agency (CRA) is checking a lot of these deductions now, especially if they are large amounts. Keep your receipts by deduction and year, and you should have no issue when it comes to a review of said deduction.

There are also various provincial deductions you can claim. British Columbia has the home renovation tax credit, sales tax credit (PST), training tax credit. Ontario has the children’s activity credit, co-operative education tax credit, healthy homes renovation tax credit, to name just a few. Check with the CRA website here for a complete list of provincial credits.

What your tax bill will be come April 30^th, can be somewhat estimated earlier based on your income and deductions, and isn’t it better to be prepared for that than find out on the 29^th what you actually owe.