Last Minute Tax Tips

Income tax preparation Gordon Pape Evelyn Jacks tips

Online tax software, as seen here Wednesday, April 3, 2013 in Montreal, is becoming the method of choice for more than a third of Canadians. Fear of making mistakes and missing deductions can trip up Canadians who are doing their own income taxes, say tax experts. THE CANADIAN PRESS/Ryan Remiorz

If you haven’t started work on your income tax return, now is the time. The filing deadline is April 30 which means there isn’t much time left.

I strongly recommend doing your own return unless it is unusually complex. There are two reasons for this. First, the better you understand the tax system, the more you will be able to organize your affairs to reduce the amount you have to pay governments. Second, no one cares about your money as much as you do. Professional tax preparers are swamped at this time of year; even the best of them may miss a credit or deduction because they can only devote so much time to each return.

An approved tax software package is a must if you do it yourself. In fact, the Canada Revenue Agency is trying to encourage everyone to file electronically by no longer mailing out a paper return. If you want to file the old-fashioned way, you have to download a return from their website or trek to a post office to pick up the forms.

Since the CRA is so determined to get us all filing online, it would be nice if they would offer a free government-approved software program that everyone can use. Instead, we have to purchase a package from one of the many commercial suppliers. I use Intuit’s best-selling TurboTax which is okay but has some long-standing flaws which the company has been loathe to fix. For instance there is no easy copy/paste function, which would come in handy when completing the medical claims form.

If you need a book to guide you through the intricacies of the tax return, I suggest buying a copy of Evelyn Jacks’ Essential Tax Facts, 2013 Edition. It’s packed with valuable information, including chapters on how to maximize family tax deductions and credits, pension income splitting, tax-effective investing, and much more. It retails for $19.95 but you can buy it through our online book store for only $14.40 plus tax.

Ms. Jacks’ book runs to 248 pages. Obviously, I can’t cover anything like that much ground in this column but here are a few tips that you may find to be useful.

Disability tax credit. As people age, some will reach a point where they qualify for the disability tax credit. But it may happen so gradually, they don’t realize it. For example, if a person with macular degeneration reaches the stage where she is deemed to be legally blind, she is entitled to claim the disability amount of $7,546 for 2012. That is worth $1,131.90 off federal taxes due plus the appropriate provincial/territorial amount. Others that qualify include people on kidney dialysis, those with severe physical impairments, people with mental problems like Alzheimer’s, etc. If you think someone in your family may be eligible, review the form (pdf). The credit may be transferred from a dependant if the disabled person can’t use it himself. Note: if the disabled person has a paid caregiver, you can only claim up to $10,000 in attendant care expenses and the disability credit. If the amount claimed is higher, the disability credit cannot be used.

Medical expenses. The range of allowable medical expenses is much greater than most people realize. The list includes everything from incontinence products to (believe it or not) medical marijuana. You can scroll through the whole list at the Canada Revenue Agency. It is usually advantageous for the lower income spouse to make this claim.

Carrying charges. Many expenses associated with investing can be deducted under this category. They include interest paid on investment loans, investment counsel advice for non-registered accounts, accounting fees relating to the preparation of tax schedules for reporting investment income, payroll deduction costs for buying Canada Savings Bonds, mortgage interest paid on your behalf by real estate limited partnerships, and more. Enter these on schedule 4.

Pension tax credit. You can claim an amount of up to $2,000 on line 314 of schedule 1 if you have employer pension income (CPP and OAS do not count). You can also make the claim if you are 65 or older and have income from a RRIF or LIF. That’s why it’s a good idea for people with no pension to set up a small RRIF at 65 and withdraw enough each year to utilize the credit. You don’t have to convert your entire RRSP to do this; partial conversions are allowed.

Pension income splitting. This was introduced by the Conservative government a few years ago. Couples can save hundreds or even thousands of dollars in taxes if they use it correctly. Eligible income includes employer pensions, annuities, RRIFs, LIFs, and LRIFs, but not CPP or OAS. Don’t try to do the calculation yourself, it’s virtually impossible. Use a software program with a pension income splitting optimizer or consult a professional.

Foreign tax credit. If you paid taxes to the U.S. or another foreign government, you may – and I stress the word “may” – be able to obtain some Canadian tax relief through the foreign tax credit. But the forms are complex so you may need the assistance of a professional in this case.

Make use of all the tools. Some software packages have several tools available to ensure that a couple minimizes their combined tax bill. For example, apart from pension income splitting, TurboTax Home and Business includes optimizers for charitable donations, medical expenses, CPP, and RRSPs. Check all that apply in your case.

That’s it. For more ideas, get a copy of the Evelyn Jacks guide. Happy refunds.

Gordon Pape’s new books, Tax-Free Savings Accounts and Money Savvy Kids, are now available for purchase at 28% off the suggested retail price. For information on a three-month trial subscription to Gordon Pape’s Income Investor newsletter go here.