15 Tips for Year-End Tax Planning

Year-end is approaching, and shortly most Canadians will be heading to file their tax returns. Before going to your accountant for tax filing, it is better to do some homework. However, keep in mind that tax planning is an ongoing exercise, not a one-time affair. 

Is your tax plan ready? No?? Don’t worry. In this article, we will discuss important deductions, credits, and ideas that can help individuals reduce their taxes or increase the refund.

1. Timing of Income

If you can defer some income, for example, a bonus, it is worth considering if you want to receive the bonus this year or defer it till next year (if you are expecting less income next year). Similarly, planning can be done for capital gain.  

2. Childcare expense

Childcare expenses are amounts you or another person (typically a spouse or common-law partner) paid to have someone look after an eligible child so that you or the other person could earn income or attend school. The child must have lived with you or with the other person when the expense was incurred for the expense to qualify.

You can claim up to $8,000 for kids under age 7 and up to $5,000 for children aged 7 to 16 for Childcare expenses. The child must have been under 16 years of age at some time in the year. However, the age limit does not apply if the child had an impairment in physical or mental function and was dependent on you or your spouse or common-law partner.

3. Income Splitting

Some income, for example, pension income, is eligible for splitting. If your spouse is in a lower tax bracket, consider an income-splitting plan. 

4. Canada Pension Plan (CPP)

You can split CPP payments with your spouse by requesting to share the payments. 

If you haven’t started to receive CPP payments determine when you want to start receiving payments. The standard age to start the pension is 65. However, you can start receiving it as early as age 60 or as late as age 70. If you delay payments, the payments are increased.

5. Moving Expenses

If you moved to a new home because for work, business, or post-secondary education, your moving expenses may be deductible. Keep all relevant receipts and backup as the CRA reviews moving expenses in most instances. 

6. Union/professional charges: 

Claim a deduction for membership dues of a trade union or professional board. It also includes professional, or malpractice liability insurance premiums or professional membership dues required to keep a professional status recognized by law.

7. Employment expense 

You can deduct certain expenses (including any GST/HST) you paid to earn employment income. However, you can do this only if

1. Your employment contract required you to pay the expenses and 
2. You did not receive an allowance for them, or the allowance you received is included in your income.

Employees earning commission income can claim some additional expenses, not allowed for salaried employees, such as advertising and promotion expenses, food, and entertainment expenses, etc.

8. Home office deduction 

You can deduct expenses for the business use of a workspace in your home, as long as you meet one of the following conditions:

1. It is your principal place of business
2. You use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients.

You can deduct only the portion of the home office expenses directly related to business use, and you cannot use the home office expense to create or increase business losses.

9. Automobile expenses

If you have used a vehicle, you can claim expenses related to it, such as fuel, insurance, maintenance, etc. But again, if you have used the vehicle for both personal and business uses, you can only deduct the portion of the expenses directly related to using your vehicle for earning income. 

10. Medical expenses 

Claim eligible medical expenses that you or your spouse (or common-law partner) paid for yourself, your spouse, or your or your spouse’s children under 18. 

In addition, you can also claim eligible medical expenses that you or your spouse paid for your or your spouse’s children or grandchildren over 18, parents, grandparents, brothers, sisters, aunts, uncles, nieces, or nephews who were residents of Canada at any time in the year. 

Normally, the medical expenses should be claimed by a partner with a lower income. 

11. Interests paid on student loans

A non-refundable tax credit can be claimed for the Interests paid on student loans. However, interests can only be claimed for the loans received under the Canada Student Financial Assistance Act, the Canada Student Loans Act, and equivalent provincial or territorial programs.

The interests on a loan with a bank or financial institution or included in an arrangement to consolidate your loans do not qualify for this tax credit.

A student loan interest claim is a non-refundable tax credit. It can only be used to lower your tax bill but cannot be used to receive a tax refund. Therefore, if you have no tax payable for the year the interest is paid, it is to your advantage not to claim it on your return. You can carry the interest forward and apply it on your return for any of the next five years.

12. Transfer of unused tuition fee to parents 

In the case where your child is pursuing post-secondary education, you may be able to claim a tuition fees credit in your tax return. It happens when your child does not have enough income to claim full tuition credit for the current tax year. In this case, the child may either carry forward the tuition fee for the next year or may decide to transfer it to you to help reduce your taxes. 

Your child must first reduce his tax payable to zero then the child can elect to transfer balance leftover up to $5000 to the parent. 

13. Registered Retirement Savings Plan and Tax Free Saving Accounts

Registered Retirement Saving Plan (RRSP) and Tax-Free Saving Accounts (TFSA) are the main components of any tax and retirement planning strategy. RRSP provides a tax deduction for the contribution made while the amount grows tax-free until it remains in the account. However, when you withdraw money from the RRSP, it is taxed.

The contribution to an RRSP qualifies for deduction from taxable income, and tax-saving is based on your marginal tax rate. But it is not a must to deduct the RRSP contribution in the same year you invest in an RRSP account. It may be beneficial to contribute now but claim a deduction in the future when you might be in a higher tax bracket. 

On the contrary, the contribution in the TFSA is not tax-deductible, but the good news is that the earnings in the account are not subject to tax when withdrawn. So, for example, if you have a long horizon and expect large growth in the value, it is appropriate to prefer TFSA over RRSP, because then the gains will not be subject to any tax.

14. Charitable Donations

Donations made to registered Canadian charities (and to US Charities with some restrictions) can be claimed as non-refundable tax credits on the tax return. Make sure to obtain a receipt when you donate. 

15. Unused and Unclaimed Tax Credits

Check your prior-year return to see if you have any unused and unclaimed tax credits or deductions that can be used in the current year. You can also log in to CRA online account information to get important information. 

Conclusion: 

The above is not an exhaustive list of options and does not apply to all individuals, as each tax filer’s situation is different. But make sure to use all tax saving and planning opportunities allowed by the law. Even small items can add up to a sizeable saving. 

It is also important to discuss your situation with your accountant before tax filing time, so you are well-prepared at the time of tax filing. The professionals at Source Accounting Professional Corporation, Mississauga are always available to discuss your situation to help you benefit from better tax planning. 

 

If you have any questions or any other tax and accounting issues, please feel free to reach out to Source Accounting Professional Corporation (CPA). Source Accounting is a full-service accounting firm in Mississauga, dedicated to individuals, small and medium-sized businesses, providing tax preparation, corporate tax filing, accounting, bookkeeping services, payroll solutions, etc. We serve clients from Mississauga, Toronto, Brampton, Milton, Hamilton, Oakville, Etobicoke, Scarborough, and across GTA. And if you find this post helpful, please let us know in your comments.

Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.