Reduce your seasonal pain
Income tax filing time is nobody’s favourite time of year. But the pain of crunching the numbers will vanish if you follow these five steps that may minimize your tax bill and result in a refund.
Keep in mind the Conservatives have said they would roll back certain tax measures introduced by the former Liberal government last fall. These changes, if implemented, could increase the value of 2005 tax credits from 15 per cent to 16 per cent, depending on timing. Numbers used in this article are based on official tax returns posted on the Canada Revenue Agency (CRA) website as of the end of January. Provincial credits are in addition to those mentioned.
1) Claim the pension credit. If you received regular payments (not lump sum amounts) from an employer pension plan in 2005, you can claim the first $1,000 as a “pension income amount” at line 314 of the return. This will result in a tax credit of 15 per cent on your federal return. The net result is that those in the lowest bracket will pay no tax on this income, while higher bracket people will pay a reduced rate.
The Conservatives promised to increasthe pension amount to $2,000 immediately and to $2,500 within five years, which would make this credit even more lucrative.
Here’s a Tip: If you are 65 or older, payments from a RRIF are eligible for this credit. Even if you don’t want to convert all your RRSP assets to a RRIF until you must do so by law in the year you turn 69, it is worthwhile setting up RRIFs for yourself and for your spouse to allow both to take advantage of this credit.
2) Claim the age credit. If you turned 65 last year, you can get an age-based tax credit at line 301 of the return. The basic federal credit for 2005 is 15 per cent of $3,979. However, if your net income is above $29,619, it will be reduced or eliminated. Use the Federal Worksheet to see if you are eligible.
3) Add up all the medical bills. It’s a fact of life that as we grow older, the medical expenses mount up. But at least you can get some tax relief for them.
Every health-related bill you pay is eligible for the medical expense credit at line 330 of the return. That includes prescriptions, glasses, hearing aids, dental work, walking aids, physiotherapy, psychotherapy and premiums for travel health insurance and provincial drug plans. If it relates to your health, claim it. All the CRA can do is say no.
The first three per cent of net income up to a maximum of $1,844 is your responsibility. You can make a claim for any amount over that.
Here’s a Tip: The lower-income spouse should claim this credit because the amount he/she will have to deduct would be less. For example, if your net income is $35,000, you will have to deduct $1,050 from the expenses you can claim (three per cent of your net income). If your spouse has net income of $20,000, the non-allowable amount will be only $600. Some computerized tax returns balk at doing this and have to be overridden manually.
There is also a refundable medical expense supplement for those who have paid medical expenses for dependants. See line 452 of the Income Tax Guide for more information.
4) Check your eligibility for the disability credit. No amount of financial compensation makes up for the loss of sight, hearing or motor functions, but there is a fairly generous tax credit for people in that situation. It’s called the disability amount and it is claimed at line 316 of the tax return. Qualification details are in the Tax Guide. You will need certification from a doctor to make the claim, which is worth 15 per cent of $6,596.
5) Transfer credits. If you or your spouse has a tax credit that cannot be claimed, it may be possible to transfer it to the other person. The age, pension and disability credits are all eligible for this treatment. You’ll find details at line 326 in the Tax Guide.
These are just a few potential tax-saving strategies. Some others include the GST credit, caregiver credit, charitable donations and political contributions. Review the list carefully before signing off on your return. The extra time spent could mean money in your pocket.
Opinions expressed are those of the writer and should not be understood as offering advice. Information is of a general nature and may not be appropriate for any single individual.