It’s that time of year again! TAX TIME! If you didn’t get a chance to implement any of my 16 Tax Tips for Year End, don’t fret, my friend, there’s still time to get more money back from your tax return! Check out our Wealthsimple Review for the quickest and easiest way to setup an RRSP and supercharge your tax refund.
I started filing my own taxes last year. Before that, I hired an accountant to do my taxes (my taxes were really simple) and paid about $125 for his services. He gave me a few good tips which I carried on to use for the next year, when I learned to do it myself. I decided to do my own taxes because:
1) I didn’t want to pay someone else $125 when I could do it myself
2) I didn’t have my own business so I couldn’t deduct my accountant expenses
3) No one cares about your money more than you do.
4) I wanted the challenge and to actually understand the system.
5) If you click here you can use Simple Tax for free!
I would recommend you NEVER walk into a chain tax preparation place such as H&R Block.
They can charge exorbitant fees if your tax return is complicated and often the people doing your tax returns are not accountants. I’m sure there are good and decent people that work at H&R Block, but my guess is that they work primarily with high net worth clients. The folks that deal with the average walk in customer likely took a basic course and simply ask the questions that get shown to them on their screen (much the same method that tax preparation programs use to allow you to simply do your own taxes).
I still harbor a special place of disgust in my heart for H&R Block due to a post-secondary student promotion they ran with great success back when I was attending school. They would advertise something like “FREE Piazza” and “Walk in and get your cheque TODAY for $0”. What the price really was however was 10% of your tax return. Since students often have relatively low incomes and lots of tax credits, they tend to generate fairly large tax returns. I know several of my friends and I walked in, answered basic questions for 20 minutes (as read to us by someone who clearly had just started in the tax world and wasn’t really proficient in the English language), and were charged $200-$300 (10% of our return, which we didn’t really understand at all). We did get our tax return money a few weeks early though – and for a bunch of broke students who really wanted to celebrate the end of classes and exams – that was the main consideration. The more perspective I gain on life and the financial world, the more distasteful and unethical this experience becomes in hindsight.
Doing Your Own Canadian Tax Return
Doing taxes by yourself is actually kind of fun (yes, I know I sound lame… but maybe I was an accountant in my past life) but I would only say it is “fun” if you use a tax preparation software program and you have a fairly mainstream return to prepare (i.e. you work for one or two places that provide you with a basic T4 every year). Calculating everything by hand with a calculator and a pencil and eraser would likely drive anyone batty.
If you have your own business, do a lot of freelance work, have a lot of investments outside of an RRSP and TFSA (you’re way ahead of the game if this is the case) or have rental property, it can be helpful to hire an accountant because there is simply a lot more to take into consideration. That’s a challenge I’m just not ready for you yet – but if you are, then all the power to you!
Alright my friends, so here are some ways to Get More Money Back from Your Tax Return:
- The first thing that you might want to consider to get more money back from your tax return, is to try and give LESS of it away to the government. And one way to ensure that happens is to make sure you don’t (needlessly!) pay interest on outstanding amounts owed to CRA from last year. Those fees could vary from 1% to 5%, depending on what it is that you owe the government (CPP, GST, etc.)
- One key thing to remember is that you really need to KNOW what you can deduct IN ADVANCE, or else you won’t be aware to collect them for your deduction!! (i.e. receipts, transit passes, etc.) So you kind of have to embody the accountant mindset throughout the year in order to reap the full rewards.
- Claim applicable Canada child benefit (CCB) payments: If you have children under 18 years of age, to ensure you receive this benefit, you must file a tax return every year – even if you have NO INCOME during the year. Introduced in 2016, the non-taxable, income-tested CCB is an amalgam of three previous child-care benefit programs, including Universal Child Care Benefit, Canada Child Tax Benefit, and the National Child Benefit Supplement, that promise to enhance the level of tax-relief offered to lower-income families with eligible-aged children.
- For the current (2017) tax year, the un-indexed maximum benefit for each child under the age of 6 is capped at $6,400. However, it is widely expected that the Fall Economic Update (due February 27th, 2018) is expected to add indexing to the CCB. This could raise the CCB benefit for children under 6 years of age to $6,496 in 2018-19, and to $6,626 for the 2019-20 tax year. Learn more about this powerful benefit here
- Claim your GST/HST Credit: If, for some reason, you have not filed your tax returns for the past several years, you may be missing out on the opportunity to collect the GST/HST Credit owed to you. By filing a tax return this year, your eligibility for this credit will automatically be determined.
- Claim your eligible provincial benefits: While many of us focus on federally provided benefits (like the CCB discussed earlier), make sure you look for other applicable provincial benefits that you are entitled to. For instance depending on where you reside, in addition to CCB, you may be eligible to claim Alberta Family Employment Credit (AFETC), Ontario Child Benefit (OCB), Nova Scotia child benefit (NSCB). In most of these cases, you MUST file a tax return (even with zero income) to claim these benefits
- Contribute to your RRSP before March 1: The RRSP deadline is March 1, 2018. You can find how much you’re allowed to contribute on your Notice of Assessment (you know, that form the government sent with your tax refund cheque last year?) When you contribute to your RRSP, you’ll be able to receive a tax refund, that you can later then contribute to your TFSA or to pay down your mortgage! (Hey, two birds with one stone– not bad, I say!) If you’re looking to set up an RRSP in a hurry to take advantage of this tax break, we recommend a robo advisor account - see our Ultimate Guide to Canada’s Robo Advisors of and special promo offer codes here.
- It is important to remember though that sometimes a TFSA is a better place for you be saving than your RRSP. Check out our comparison here for more information. Having said that, if you have enough dough to contribute to both a TFSA and your RRSP, you can contribute to your RRSP BUT hold off on using it as a tax deduction until future, more income-generating years (use Schedule 7 for this).
- Keep your Transit Passes: You can get a tax credit of 15%. If you’re a student, keep your monthly pass because you can deduct the cost you pay for it on your taxes. If you have a monthly transit pass you can claim those as well. (Don’t lose them or throw them away! They’re worth something even after the transit pass expires). The transit passes have to provide detailed information (e.g duration of use, transit authority, amount paid) and are good for a Federal Tax Credit.
- Tuition Credit: If you’re a student or recent grad (congratulations!) you can claim your tuition credits. Several provinces also have tuition-related tax benefits.
Note: If you’re one of the few that need to file an American tax return, check out this article that compares the most popular tax software in the U.S.
- Claim your Student Loan Interest: Yes, having student loans looming does have a minor silver lining- that is, you can claim the interest that you are charged on your student loan. Check out this link for more details
- Claim Educator School Supply Tax Credit: If you just started your career as a teaching professional in 2017, there may be an opportunity to claim up to 15% of your school supplies expense as a tax credit. This rule was introduced back in 2016, but it could apply to you if you qualify for it. As a refundable credit, you could actually get money back (if you have zero taxes owed to CRA) if you are eligible to claim this credit
- Claim Moving Expenses: If you have relocated (or moved on account of your pursuit of education), you are entitled to claim certain portion of your moving expenses. Learn more here.
- Claim Medical Expenses: Keep your receipts for any prescriptions and medical or dental expenses that weren’t covered by your Health Benefits Plan. If you plan to get laser eye surgery (which can be upwards of $3,000) for example, you should make sure you keep other expenses you incurred within any 12-month period (it doesn’t have to match the tax year– e.g. it can be from April 2017 to March 2018 instead of January 2017 to December 2017) as long as you hit the magic number: 3% of your net income OR about $2,268 for tax year 2017 (whichever is less).
If you live common law or are married, you can add up your expenses for both of you and claim it against the person with the smaller income (3% of a lower number is easier to become eligible for). Your pharmacist can usually give you a statement of all your prescription drug costs if you contact them.
- A note about medical expenses: While the actual expenditure must have been incurred by Dec 31, 2017, the service/goods do not always need to have been delivered by then. This enables you to prepay some medical expenses, and claim them when filing your taxes subsequently
- Claim Home Accessibility Tax Credit (HATC): If you or a family member has a disability that required making some accessibility modifications to your home or workspace in 2017, you may be entitled to claim HATC.
- Utilize Dividend Tax Credits: THIS is why Canadian corporations that pay dividends are best kept in a non-registered account. The taxes on dividends are much lower and almost favourable if you are in the lower income tax bracket.
- Claim your cell phone and internet bills: The tip my accountant gave me was that you can deduct a reasonable amount of your phone bill (e.g. 50)% if your employer regularly uses it to call you to obtain work (this works for example, if you are a ‘casual’ employee and they usually call you to see if you can come in to work). The percentage used should be traced back to your airtime. A similar rule of thumb exists for your internet use.
- Donate to charity: Charitable donations are tax deductible (as long as the charities are registered), and when both Federal and Provincial donation tax credits are combined, you could receive a tax saving of up to half (50%) of the value of your donation. This is why it makes sense to donate your old broken down car. You easily get rid of a trash heap that you’d have a difficult time selling, the charity gets something they can sell for parts/scrap, and then you also get money back on your tax return because you “donated” the equivalent value of the car.
- A note about Charitable Donations: If you want to super-charge your refund and get even money back from your tax returns, then consider using charitable donations to do that. 2017 is the last year for you to use the First-Time Donor’s Super Credit (FDSC). If you/your spouse/partner haven’t claimed a donation tax credit since 2008, then you should definitely consider doing so in your 2017 tax returns
- Support your preferred politician: Governments love giving tax breaks to people who give their party money. Who would have thought? There is a bevy of tax credits available for folks that donate to political parties. If you have any questions on the matter just call your preferred party, I guarantee they’ll have someone available to discuss the details!
- Don’t give an interest-free loan to the government: Yeah, you heard me… that lovely tax refund you get in the summer? It’s basically YOUR money that the government was keeping warm for you. If you fill out a T1213 form and hand it over to your employer, they can deduct less of your income on your paycheque. This allows you to keep your money in your hands from day one instead of waiting on a big tax refund.
- Working from Home: If you work from home more than 50% of the time, there are a large number of deductions that you can account for. You can deduct your internet expenses and stationary bought provided that you use these to obtain income. If you rent, you can deduct the portion of rent and any other maintenance costs you would pay for your office space. Per the CRA’s workspace in the home expenses site:
You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating, maintenance, property taxes, and home insurance. However, you cannot deduct mortgage interest or capital cost allowance.
2017-2018 Marginal Tax Rate Considerations
Another opportunity to get money back when filing your 2017 tax returns, is to watch for changes to your marginal tax rates. For instance, BC (and the Federal government) will raise the top marginal rate to 49.8% in 2018 (from 47.7% in 2017). Changes to your Combined Marginal Tax Rate may allow you to use creative strategies to reduce your taxes for 2017 and/or 2018:
- If you expect to fall into a higher tax bracket next year, consider including income you may have realized from Capital gain-creating activity, such as sale of investments, in your 2017 tax returns
- If possible, postpone deductible expenses from 2017 to 2018 to get a bigger tax rebate bang from next year’s higher tax rates
- You may also consider holding off RRSP contributions for 2017 (the cut-off is March 1 2017) until 2018, so that you receive a bigger refund
- Conversely, if you expect your tax rate will decrease next year, you may wish to use up any unused RRSP room in 2017. You may also wish to defer income from 2017 into the next year to keep your 2017 taxable income low
Planned Changes to Income Splitting and Passive Investment Income Rules
As an entrepreneur or small business owner, here are some tips on how to get more money from your tax returns in 2017.
In October 2017 the government announced proposals to overhaul the rules for income splitting and passive income reporting. While these rules will be effective for the 2018 tax season, they may offer opportunities for how to get more money back from your 2017 tax returns:
- If you haven’t yet taken advantage of income splitting as a tax optimization strategy, then consider doing so on your 2017 tax returns, as this might be the last year that you can do so under the “old rules”
- The new rules may make it more difficult or less effective for you to take advantage of Passive Investment Income as yet another tax-reduction strategy
You should consider adjusting your salary for 2017 (and that of family members working for you), so that you could take maximum benefit of these tax-saving strategies for the 2017 tax filing season. Of course, there will likely be more clarity on these (and other proposals discussed here) rules by the time the Federal budget is announced on Feb 27th 2018.
Before filing your taxes, make sure you talk with a qualified tax professional to see what impact such changes might have, and what other opportunities they offer to get more money back when filing your 2017 tax returns.
Final Logistical Tips for Getting Your Biggest Tax Refund in 2018
Don’t give an interest-free loan to the government: Yeah, you heard me… that lovely tax refund you get in the summer? It’s basically YOUR money that the government was keeping warm for you. If you fill out a T1213 form and hand it over to your employer, they can deduct less of your income on your paycheque. This allows you to keep your money in your hands form day one instead of waiting on a big tax refund.
There’s a variety of tax return software available. Some are free. You could even use the tax return software to do all your calculations, and then input the numbers into your paper tax return (the tax return booklet).
Here are a few that are popular, FREE, and NETFILE-certified if you want to send it through NETFILE:
Studio Tax: Not the fanciest of websites, but it’s great for basic tax returns. It’s completely free (if you file less than 20 tax returns)! Free download of tax software and you don’t need a license key or registration key to get it. They even have student versions. You don’t have to pay $40 for Ufile or Quicktax. Studio Tax is highly recommended.
CANTAX: This was the program I used last year. It’s super comprehensive and it’s designed for tax professionals. It’s NOT free, but it’s good. It was free for me because my dad the accountant let me use it. =)
UFile: You can file for free with UFile if you earn less than $20,000 per year OR if you are a student (Oooh the perks of being a student). If you do not fall into that category, you can try it for free and only pay when you have to print or submit it online through NETFILE. It’s $15.95 for this.