Tax Tips 2013
(Brought to you by the Institute of Chartered Accountants of Ontario)
1. Increase your TFSA contribution in 2013
When the Government of Canada introduced Tax Free Savings Accounts effectively beginning in 2009, it set the contribution limit at $5,000 per year. The plan was designed to allow for increases to the annual contribution limit to keep pace with inflation, but with a stipulation: the contribution limit would rise only in $500 increments. So indexation from several prior years had to be added together to make up $500 (when rounded) for the increase to take effect.
“This is first instance of indexation resulting in an increase in the TFSA contribution limit,” says Richard C. Weber, CPA, CA, a tax and accounting specialist in Oakville. “Starting in 2013, Canadian residents 18 years or older can contribute up to $5,500 to a TFSA. Plus, you can add in any unused contribution room from previous years, and any amounts withdrawn from a TFSA will be added to your contribution room for the following year.
“TFSA contributions are not tax-deductible. Nor is the interest expense incurred on any funds you borrow to put in one,” says Weber. “But the benefit of a TFSA—and it’s a big one—is that any income generated on the funds you contribute is tax-free. Also, since contributions made to a TFSA are not tax-deductible, amounts withdrawn aren’t taxable.”
The types of investments we can put in our TFSAs are generally the same as those in RRSPs. Cash, mutual funds, bonds, guaranteed investment certificates and securities listed on a designated stock exchange. Now, with more contribution room than ever, our opportunities to save, earn, and keep more money in a TFSA are just that much better.
2. The 2013 tax calendar
The Canada Revenue Agency can be a stickler when it comes to doing things right and on time. Fees and penalties can be prohibitive, so it’s worth making an effort to know exactly what’s due, and when.
Here, Chartered Accountant Gary Katz of Logan Katz LLP Chartered Accountants in Ottawa shares a calendar of some of the more common must-know dates and deadlines for ordinary taxpayers. This year, a couple of them fall on weekends and holidays, so we get an extra day or two to meet those deadlines. Fire up your iCal or Outlook. Plug these in, and don’t forget to set those reminders!
• February 28, Filing deadline for T4s, T4As and T5s
• March 1, Deadline for 2012 RRSP contributions
• March 15, First personal income tax instalment for 2013
• April 2, General trust return deadline, including T3 slips and summary
• April 2, NR4 filing information for amounts paid or credited to non-residents of Canada
• April 2, T5013 – Partnership information return due (where partners are individuals)
• April 15, U.S. tax filing deadline for American citizens and others residing in the U.S.
• April 30, Deadline for paying the balance of personal taxes and filing personal income tax returns, unless eligible to file by June 15
• June 17, Filing deadline for self-employed individuals and their spouses or partners
• June 17, Second personal income tax instalment for 2013
• June 17, U.S. income tax return filing deadline for citizens and residents living and working outside the U.S.
3. Leaving Canada comes with a tax bill
If you’re considering going to work or even retiring in another country, be sure to consider the tax implications of your decision before you pack your bags and boxes.
“In Canada, taxes are based on residency, which is determined by common-law principles, like where your house is located and where your children go to school,” says Chartered Accountant Jason Safar, National Private Company Services Tax Leader of PwC in Toronto.
“As long as you’re a Canadian resident—and are away for maybe just a few months—you have to pay Canadian income taxes on your worldwide income,” he explains.
But if you’re going to Australia and have no real plans to return, you may have effectively severed residence here. That can mean a hefty price tag when it comes to taxes.
“On the way out, the government says you’re deemed to have disposed of all your assets at fair market value,” says Safar. “If that translates into financial gains that you haven’t yet paid taxes on, you’ll have to pay those taxes when you leave.”
Canada has tax treaties with many other countries that set out ground rules for who gets dibs on your money and under what circumstances. In places that are “tax havens”, there are no such deals.
“Intention informs strategies,” says Safar. “Your plans to return or not; whether you’re selling your property; where your spouse and children reside—all can factor into the equation when determining whether you’re severing your residential ties to Canada.”
4. The Healthy Homes Renovation Tax Credit
This year, there’s a new tax-relief program targeting Ontario’s seniors. It’s designed to help with the cost of making their homes safer and more accessible, so certain family members who have seniors living with them may also be eligible to claim it. The best part? This is a refundable tax credit that can provide you with a tax refund when you file your tax return. It doesn’t just reduce taxes the way the more common non-refundable tax credits do.
“Similar to the home renovation tax credit offered in 2009, those who qualify can claim up to $10,000 worth of eligible home improvements on their tax returns,” advises Chartered Accountant Dan Dickinson of Wilkinson & Company LLP in Belleville, Ontario. “Calculated at 15 per cent, this makes the maximum refundable tax credit worth up to $1,500 per household. To claim it, you must 65 years of age at December 31, 2012, or live with a family member who is a senior.”
Not all renovations qualify, however. It applies to work or upgrades completed between October 1, 2011 and December 31, 2012 that make a home more accessible or safer for a senior, like installing grab bars or walk-in bath tubs; widening doors; adding ramps, lifts or automatic garage door openers; and many, many more.
“Seniors, or people with seniors in their home, should review the types of expenses that qualify or consult their accountants if they are unsure,” says Dickinson. “Individuals who are eligible for a Disability Tax Credit Certificate may also be able to treat some of the eligible expenditures as medical expenses. This is especially true if the upgrades aren’t expected to increase the value of the home, and were incurred to enable a family member to gain access to the home, or to be mobile or more functional in it.”
To claim the credit, complete Schedule ON(S12) of your tax return and enter the amount spent on eligible renovations next to box 6311 on form ON479. You don’t have to submit your receipts with your tax return, but hold on to them in case Canada Revenue Agency asks to verify your claim.
For a more complete list of eligible expenses, Dickinson recommends you review the list the Ontario Ministry of Finance has posted at http://www.ontario.ca/taxes-and-benefits/what-expenses-qualify-healthy-homes-renovation-tax-credit.
5. Tax credits can help pay your transit fees
Do you regularly use public transit to get to work or school? If yes, consider buying your transit passes on a weekly or monthly basis and be sure to get receipts. Then get ready to save on your income taxes.
“If you commute to work or school on buses, streetcars, subways, commuter trains or even ferries, you can claim the non-refundable federal tax credit for eligible public transit costs,” advises Chartered Accountant Edward J. Barker in Owen Sound. “You can also claim the costs incurred by your spouse, common-law partner or children.”
The credit applies to monthly passes, but weekly ones count too, as long as four consecutive “weeklies” are purchased. Certain electronic payment cards, like the PRESTOTM system in use in the Greater Toronto Area and now being tested in Ottawa, also qualify for the credit. But the passes must be used regularly and consistently—at least 20 out of 28 days—or be the kind that gives you unlimited travel for an uninterrupted period of at least five days.
“You’ll get a federal tax credit of about 26 per cent of what you paid for transit,” says Barker. “So if you paid $1,200 over the year, you’ll have over $300 to offset any income taxes that you owe. Remember that it’s non- refundable, so if you haven’t paid any taxes you won’t be able to claim any money
back. And be sure to keep your receipts and old passes to back up your claim.”
6. Medical and dental expenses are often tax-deductible
For people without supplemental healthcare, or those who have plans that offer limited coverage, the treatments, medicines and care they sometimes need can be a major expense. But where the provincial healthcare system and private plans leave off, the federal and Ontario governments offer a little help in the form of tax relief.
“For 2012, you can claim eligible expenses to the extent that the total exceeds the lesser of $2,109 or 3 per cent of your net income,” explains Chartered Accountant Joseph A. Truscott in Hamilton, Ontario. For the Ontario credit, the threshold is the lesser of $2,128 and 3 per cent of net income.
“Your claim can apply to any 12-month period that works in your favour as long as it ends in the tax year in question and you have not claimed the expense in a prior year.”
The Canada Revenue Agency’s website contains an extensive list of expenses that can be claimed. Generally, they must be prescribed by a doctor to be eligible.
“If you had to travel 40 kilometres or more to receive treatment, you can also include travel expenses,” Truscott adds. “In certain cases, you can claim the costs of travel and accommodation outside the country, providing the care or treatment is not available here and your doctor says you need it.”
You can claim expenses for yourself, your spouse or common-law partner and eligible dependent children. Enclose your receipts with your tax return. But don’t add in the costs of birth control, organic foods or health programs. They won’t be accepted.
7. Need a hand preparing your tax return?
For those of us who are numbers-challenged or intimidated by anything resembling a tax form, getting help to prepare our return from a knowledgeable and reputable tax professional can be the answer to our prayers.
Both the Canada Revenue Agency (CRA) and the Institute of Chartered Accountants of Ontario (ICAO) work with community service groups to offer tax preparation clinics.
“Many communities work with the CRA to hold tax preparation clinics, mainly between February and April. Accounting students, professionals and other trained tax-preparers volunteer their time and help,” says Chartered Accountant Edward J. Barker in Owen Sound, Ontario. “The CRA recommends the service be offered to people with low incomes, students, seniors, newcomers to Canada and those receiving social assistance. But the community groups that organize the clinics can determine who qualifies.”
Local groups recruit volunteers and arrange the time and place, usually in a convenient location, like a church or community building. The CRA supplies materials, training for the preparers and software for filing tax returns.
For more information about how to find a tax preparation clinic in your community, go to the Canada Revenue Agency website at www.cra-arc.gc.ca.
To find out about any ICAO clinics in your area, go to the ICAO’s website at www.icao.on.ca.
8. When can you expect your refund?
The Canada Revenue Agency, which received over 25 million tax returns last year, has been streamlining and speeding up its processing with electronic tools—and it encourages tax filers to do the same.
“The way you file your return is one of the most important considerations in determining how quickly you get your refund,” says Chartered Accountant Geoff Fisher, Partner, KPMG LLP in Sudbury.
Last year, more than 66 per cent of tax returns were submitted electronically. The CRA says that many Canadians who filed online, either by themselves or with the help of a professional, received their refund in as little as seven days. This year the CRA is encouraging all Canadians to submit their returns electronically by not mailing out tax packages unless they are specifically requested. Paper tax packages can also be picked up at your local post office or Service Canada office. However, if you have your taxes completed by a tax preparation service, they are required to file electronically.
“Tax software packages that accommodate electronic or NETFILE-ing do the calculations accurately and prompt you to check for deductions and tax credits you might miss otherwise,” Fisher explains. “The CRA doesn’t have to key-in information for us. Our returns have fewer errors and can be processed more quickly.”
Of course, more complicated returns may still need some finessing to prepare and they may also have to be reviewed manually by the CRA. But for individual returns especially, those are the exceptions, Fisher says.
“Take advantage of the My Account feature on the CRA website (www.cra-arc.gc.ca),” he suggests. “You’ll have access to your own up-to-date tax information; you can track your refund, view your benefit and credit payments, your own RRSP information, and be able set up automatic payments if you need to.”
9. Don’t be late making your tax instalments
Doing the right things at the right time is critical to staying out of trouble with the Canada Revenue Agency.
“People who are self-employed, retirees and others who don’t have income tax deducted automatically from their pay cheques may be required to pay taxes in instalments,” says Chartered Accountant Geoff Fisher, Partner, KPMG LLP in Sudbury. “Failing to make those instalments on time can result in significant interest and even penalties.”
In 2013, you have to pay income tax by instalments if your net tax owing is more than $3,000 this year, and was more than $3,000 in either 2012 or 2011.
“The CRA mails instalment reminders to those taxpayers it expects should have to pay them. This year, the due dates are March 15, June 17, September 16 and December 16,” Fisher continues. “If you don’t receive notification of your instalment amounts, you may not have to make the payments, even if your tax liability has exceeded that $3,000 threshold in those years.”
Remember that the CRA bases its request for instalments and the amounts you’re supposed to pay on your history from previous years. If you’re confident that this year’s earnings will be substantially less—or more—than previously, you may want to adjust your payment amounts accordingly.
10. Legal fees sometimes reduce your tax bill
It’s rare to go through life without ever needing the services of a lawyer. Buying or selling property; marriage, divorce or adoption; wills and estates are all common and complex transactions that call for expert legal advice or handling.
“With certain exceptions, if the fees you pay a lawyer relate to personal issues or matters, like a will or a divorce, they usually are not tax-deductible,” says Chartered Accountant Gary Katz of Logan Katz LLP in Ottawa. “But if, for instance, you qualify for a moving expense deduction because you’re relocating for work and you sold your old home, the legal fees you paid to buy the new one can often count as part of that deduction.”
If you have legal bills that are really business expenses, or that you incurred to get help with an issue that has to do with earning income, it’s altogether different. “In that case, the fees usually are deductible,” Katz says, “even if they relate to advice or action your lawyer took to help you recover wages or pension that you’re owed.”
Fees for handling criminal matters? No. But depending on the circumstances, you may be able to deduct legal fees related to determining alimony or child support, as well as legal fees paid to enforce the remittance of taxable support payments.
Every situation is different, and context is critical in determining whether your legal fees are tax-deductible. Consult a Chartered Accountant in your community for advice that applies to you personally.
11. File a tax return, even if you don’t pay income taxes
Think it’s a waste of time and energy to file a tax return because you didn’t earn enough to pay taxes last year? Don’t you believe it!
“Many credits, benefits and qualifiers depend on it. So most people of working age and those who have retired, too, should complete a tax return and file it with the Canada Revenue Agency each year,” says Chartered Accountant Geoff Fisher, Partner, KPMG LLP in Sudbury. “Things like the HST credit, Ontario tax credits, and the child tax benefit are just a few examples of things that can help put literally hundreds of dollars back in your pocket.”
Students may have other reasons to file their tax returns, even if they didn’t owe taxes in a particular year.
“Tax credits for tuition fees, education amounts and textbooks are offered as non-refundable credits,” Fisher explains. “The amounts can be significant. Eligible tuition fees can create a combined federal and Ontario non-refundable tax credit of just over 20 per cent. Education and textbook amounts are calculated monthly and are eligible for a combined tax credit of more than 20 per cent, too.
“If the student doesn’t use these tax credits in a year when their income is too low to be taxable, they may be able to transfer some of the amounts to their parents, or carry the unused amounts forward to future years when they will have enough taxable income to justify claiming them.”
Another reason for young people to file tax returns? “It’s never too early to start accumulating RRSP-contribution room,” says Fisher. “This may not seem compelling when you’re still in school or just starting to work, but you’ll thank yourself later when you’re earning more and able to take better advantage of tax-deferred savings.”