Fisherman Financial
8 FACTORS TO CONSIDER WHEN DOING YOUR OWN TAXES IN CANADA
Updated: Nov 17, 2021
Taxes can be a tough puzzle to solve, but once you’ve figured out the pieces and can do it on your own, it puts the power back into your hands to maximize your deductions and make the most of your earnings. Keep reading for eight key considerations to ensure you aren’t missing any opportunities to optimize your taxes:
1. Tuition Tax Credits If you are a student or have taken a professional course, tuition tax credits that allow you to deduct tuition costs against your taxable income can help you reduce your taxes or generate a refund. Make sure to obtain your T2202A form provided by your educational institution which documents the term and tuition costs for the year.
2. Rental Properties
Claiming rental income accurately is important and missing anything can prevent you from obtaining a mortgage for any additional properties. When you’re working through your tax return, rental income can be claimed on form 776, make sure to account for any applicable deductions such as mortgage interest, utilities, internet, repairs etc. If you own rental property with a partner, pro-rate the deductions by your portion of ownership. The same concept applies if you are renting out a portion of your personal home such as your basement, make sure to pro-rate by the percentage of square footage being rented.
3. Personal Business
If you own your own business but are not incorporated, claim your income for the year on form 2125 of your tax return. Enter your revenue as well as any applicable deductions for the year. The net income will be added to your taxable income. It’s in your best interest to claim the income if you need to apply for loans and mortgages in the future.
4. Disability Tax Credits If you are taking care of a family member that has a diagnosed physical or mental disability you or that family member may be able to claim the disability tax credit. This tax credit requires a completion of a medical form by a physician.
5. COVID Work From Home Deduction The CRA recognizes employees had to work from home due to COVID in 2020 and 2021 and allows you to deduct home office expenses. There are two methods to claim this deduction, the simple method and the manual method. The simple method provides you with a $400 credit and the manual method depends on the extent of your expenses during that tax year. If you own a large property with a small home office, there may not be much of a variance between the two methods since you cannot deduct mortgage interest, however, you can deduct rent, utilities, internet, supplies and other costs. If you rent a condo or a smaller property and your office space takes up a significant portion of your total unit, the manual method may provide a substantially larger deduction. Your employer is required to fill out a T2200s form to use the manual method, it is simple and easy to fill in, so don’t let this become a hurdle in claiming more. Unfortunately, a lot of employers have encouraged employees to use the simple method to avoid the added administration of issuing this form, let them know it is essentially just a signature that confirms you worked from home during that year and will not take much out of their day to complete. Keep this form for your records in case of a CRA audit, it does not need to be submitted until requested. To claim the COVID tax credits, enter your home office expenses in the employment expenses form within your tax return, pro-rated by square footage used and time spent.
6. Common deductions Keep in mind, you can get a tax credit for any donations and political contributions that you have made for the year, review your bank and credit card statements to ensure you have not missed anything. You should receive a receipt for each amount from the organizations you are supporting, keep these for your records. You may also deduct any medical expenses and professional fees that you have paid in the year. Review the portion of medical costs that were not covered by your insurer. Tax credits are also available for property tax, rent paid and transit costs.
7. RRSP Contributions Making a contribution to your RRSP can lower your taxable income, becoming one of the most effective ways to manage your taxes. It’s good to plan ahead near the end of the year and determine if you will have any taxes payable, you can then make an RRSP contribution to offset the taxes payable, this way you can retain your cash in an accessible account. Although the funds will be taxed one day at withdrawal, you can use the money now for investments and to generate further income putting your money to work. The primary benefit of an RRSP account is that you can lower your effective tax rate over time. Furthermore, you may use the home buyers plan to withdraw funds from your RRSP tax free for your first property purchase allowing you to effectively save for a down payment significantly faster since it’s pre-tax dollars. The RRSP slips are provided from the institutions in which you have your accounts and should be entered on the relevant RRSP forms on your tax return.
8. Tax Slips Your tax slips for the year, such as your T4s, T4As, T5s etc. will be available for you on your CRA account and the information must be entered into your tax return. Retain the paper copies provided by the organizations and make sure to double-check all information prior to submission. This is where a tax software can be useful to auto-fill all the relevant information to make this process much simpler.
There is no one more interested in maximizing your deductions than you, it is in your best interest to learn more about how to capitalize on the areas of deductions listed above to gain more for years to come. After you have reached a point of near completion in your tax return, it’s a good idea to seek a professional review of your documents to ensure you have completed all the required fields before submittal. Our Canadian CPA’s can assist with any personal tax return reviews, and moving forward you will have the confidence and knowledge to maximize your deductions, on your own. If you are interested in getting personalized advice, sign up with Fisherman Financial today for a free consultation.