Tax-planning should be a year-round activity. There are strategies each of us can employ to make sure we pay no more tax than we need to. Below are the top ten tax filing tips.
1. Report all your income - Don't let a missing tax slip or receipt prevent you from filing on time. The CRA states that if you're unable to provide a slip by the due date, simply attach a note to your return stating the name and address of the payer, type of income involved and what you're doing to get the slip to help avoid any penalties.
2. Pool your donations - Last year's goodwill may result in both federal and provincial donation tax credits. While all donations under $200 are credited at 15% federally plus between 4% to 11% provincially, donations over the $200 threshold are eligible for a 29% federal credit plus 11% to 21% provincially (ignoring additional provincial surtax savings, where applicable). So pool your donations with your spouse or partner when filing a return to receive the higher donation credit.
3. Split that pension - Pension splitting is a tax planning technique that you can only take advantage of come tax filing time and allows Canadians who received eligible pension income to split up to half of that income with their spouse or common-law partner. Aside from benefiting from a spouse or partner's lower rate of taxation, you may also be able to preserve some or all of the age credit and avoid or minimize the Old Age Security benefits claw back.
4. Write off your kids - While you can't actually "deduct" your children for tax purposes, you may be eligible to claim the "child amount" - $2,089 per child - entitling you to a 15% credit against taxes payable. If your minor child worked part time during the year, consider filing a tax return on their behalf which will start to establish RRSP contribution room for use in future years. Be sure to explore the many opportunities for tax savings available to post-secondary students and children with lower incomes.
5. Claim those renovations - As the dust settles on home renovations completed before February 1, 2010, now is your one and only chance to collect your Home Renovation Tax Credit (HRTC), a 15% non-refundable tax credit for eligible renovation expenditures made to your home or vacation property. The credit applies to any eligible expenses over $1,000, up to a maximum of $10,000, producing a maximum credit of $1,350. If you own a condominium, common expenses may be eligible for this tax credit as well.
6. Claim legal fees - If you lost your job in 2009, you may be able to make a claim for legal fees that you paid last year. The Income Tax Act permits employees to deduct legal expenses "to collect or to establish a right to salary or wages owed by an employer or former employer." You can also deduct legal expenses paid to collect or establish a right to a pension benefit or retiring allowance. The term "retiring allowance" is broad enough to include damages or settlements for wrongful dismissal.
7. Defer stock option benefits - If you exercised employee stock options to acquire shares of your publicly traded employer's stock in 2009, this may be your last chance to defer paying any tax liability on the stock option benefit until the year of sale. A stock option benefit deduction equal to 50 per cent is available to tax the stock option at capital gains-type rates, even though it's still classified as taxable employment income. Note that the ability to defer paying tax on future stock option exercises is restricted after March 4, 2010, as a result of the recent 2010 Federal Budget.
8. Report any offshore property investments - If you owned any foreign property investments, outside of a registered plan, totaling more than $100,000 in 2009, be sure to complete the T1135 or the "Foreign Income Verification Statement" as the penalties for failing to disclose are severe: $25 per day, to a maximum of $2,500. While historically the CRA used to waive these harsh penalties for first time, non-filing offences, in recent years it has been assessing them on first time offences.
9. Don't be late! - Those owing tax must pay remaining balances by midnight on Friday, April 30th to avoid a 5% penalty on unpaid balances and an additional 1% each month thereafter to a maximum of 12%. While the majority of Canadians must file by the April 30th deadline, self-employed individuals and their spouses or partners have until June 15th, 2010 to file a return, but any balance owing is still due by April 30th.
10. Avoid that refund! - Last, but not least, if you've already filed your 2009 tax return, chances are it's because you're expecting a refund. To help pay less tax all year round, complete a Form T1213 from the CRA which, once approved, will enable your employer to reduce the amount of tax withheld at source.
Adapted from advisor.ca