It's that time of year that we all dread - TAX TIME! As much as we hate it and grumble about it most of us still have to pay our taxes, but there are ways to reduce the amount of tax that you pay and even to earn you a refund.
The Canadian government is always updating the tax system, so it is important that you are up to date on the credits and deductions that could apply to you. Once you have that information you will know what receipts and documentation you need to keep to claim those expenses on your return. Here are some deductions and credits that you may be able to use to minimize your tax bill and maximize your refund.
- Childcare expenses and family benefits can be used to lower your taxable income. These benefits include daycares, summer camps, overnight boarding schools and nannies. You can claim up to $8000 for children under 7 and $5000 for children 7 to 16. You have to file your taxes every year in order to continue to receive family benefits like the GST credit and the Canada Child Benefit (CCB). The CCB is a tax free monthly benefit that helps with the costs of raising children under the age of 18 and is currently up to $563.75 per month for each child under 6 and up to $475.66 per month for children aged 6 to 17. The payments depend on the number of children that you have and your adjusted family income.
- Vehicle expenses are something that you can claim if you are self-employed and you use your car to earn business income. You can claim expenses such as gas, insurance, licensing and registration fees, maintenance and repairs, leasing costs, and interest on money borrowed to purchase a car. If you use your car for both business and pleasure you may only write off the portion used for business and it is important that you keep a log book to document all your business mileage along with the date and purpose of your trip. You also need to keep all car expense receipts so you can produce them if you are audited. Salaried employees may also qualify for vehicle expense deductions for more information click here.
- Union and professional dues along with other employment expenses can reduce your taxable income. Employment expenses may include cell phone bills and office supplies as long as your employment contract requires you to purchase these items and you did not receive an allowance from your employer. For more information regarding the expenses you can claim click here.
- RRSP Contributions are a great way to lower your tax bill and get a larger refund. Your contribution limit is 18% of your income for 2020 up to a maximum of $27,230 plus any unused amounts from previous years. You can find your RRSP contribution limit in your CRA MyAccount and on your last notice of assessment. It is recommended that the more you earn the more you should contribute to your RRSP (or spousal RRSP) to reduce your tax bill.
- Medical expenses are another way to reduce your tax bill. You can claim expenses for dental checkups and treatment, laser eye surgery, orthopaedic shoes, and private insurance premiums. You need to keep all your receipts in case the CRA needs to see them. For more information on eligible medical expenses click here.
- Many people worked from home in 2020 due to the pandemic and the government is allowing you to claim $2 per day for each day you worked from home up to a limit of $400. If you worked from home fo reasons related to Covid-19 or your employer required you to work from home, or you worked from home for more than 50% of the time for at least four consecutive weeks in 2020, and your expenses were used for work related reasons you will be eligible to claim. With this simplified method you will not need to calculate the size of your workspace or keep supporting documents or submit a form T2000s signed by your employer, as is required if you use the detailed system to calculate your expenses.
- Interest paid on student loans can be claimed with a few restrictions. You can only claim interest payments on loans under the Canada Student Financial Assistance Act, the Canada Student Loans Act or the equivalent in your province or territory. You cannot claim interest on personal loans, lines of credit or student loans from foreign banks. Your interest claim is a non-refundable tax credit so it can only used to lower your tax bill not to receive a tax refund. You can carry forward student loan interest for up to five years so it might be more beneficial to save your claim for a year when your tax bill is higher.