Review your prior-year return and 2009 notice of assessment, or access your records online to determine if you have any carryforward balances that may be used as deductions or credits for your 2010 return. Such carryforward amounts could include net capital losses or other losses of prior years, unused RRSP contributions, unused tuition education and textbook amounts, interest on student loans, resource pool balances and investment tax credits.
If you received pension income in 2010 that’s eligible for the pension income credit, remember that up to half of this income can be reported on your spouse’s or common-law partner’s tax return. You’ll reap the greatest benefits when one member of the couple earns significant pension income while the other has little or no income. However, benefits may also be available in other, less obvious circumstances. In some cases, transferring income from a lower-income pension recipient to a higher-income spouse can carry a tax benefit.
There are a number of filing suggestions relating to donations. The federal tax credit for donations is available in two stages ― a low-rate credit on the first $200 of donations and a high-rate credit on the remainder. To benefit from the high-rate credit and save a small amount of tax, only one spouse or partner should claim all of the family donations. If your family’s annual donation amount is not high, consider accumulating donations over a few years, and claim them all in one year to increase your benefit from the high-rate credit. The donation credit is available for donations made within the five preceding years. And finally, remember that if you donated stocks, bonds or mutual funds to a charity, none of the related accrued capital gain is included in your income.
The claim for medical expenses is limited by an income threshold. In other words, the lower your net income, the more you can claim in eligible medical expenses. Because one spouse or common-law partner can claim medical expenses on behalf of the entire family, it’s generally beneficial to claim all expenses in the lower-income spouse’s return. Remember, this is a non-refundable credit, so the individual who makes the claim should have sufficient income tax payable to absorb the entire credit. In addition, you might be able to claim the medical expenses of other dependent relatives such as elderly parents or grandparents.
Claim all your credits
Remember to take advantage of the various family-related tax credits that might apply to you. These include the following:
- Child tax credit for children under 18
- Child fitness credit
- Public transit credit (for you, your spouse/partner or minor children)
- Adoption expense credit
- Tuition and education credits transferred from a child
If you’re self-employed, there are a number of business-related expenses that you can claim. Ensure that you take advantage of all available deductions, including automobile expenses, parking, business association fees, home-office expenses (if you qualify), entertainment, convention expenses (a maximum of two per year), cell phone, depreciation on your computer and salaries paid to assistants, including family members. Remember that, in most cases, you can deduct private health-care premiums as a business expense instead of a medical expense, and one-half of Canada Pension Plan paid in respect of self-employed earnings is deductible instead of creditable.
A word of caution: if you claim home-office expenses, you’re likely better off not to claim the depreciation on the home-office portion of your home. Although this will give you a deduction in the current year, you will lose some of the capital gains protection available from the principal-residence exemption.
In gathering your information, you may stumble across older receipts that may have value in your 2010 return. Specifically, charitable donations can be carried forward and used in any of the five years after the year the gift is made. You can claim medical expenses for any 12-month period that ends in that year if they have not been claimed previously. In addition, under the fairness provisions, the Canada Revenue Agency (CRA) has the discretion to make adjustments to previously filed returns (10 years back) in relation to certain errors or omissions, on request by a taxpayer.
If you moved in 2010 to start a new job or a new business, or to go to university or college, you may be able to claim expenses relating to the move. In addition to the actual cost of moving your personal effects, you can claim travel costs, including meals and lodging while en route. Lease-cancellation costs, as well as various expenses associated with the sale of your former residence, are also deductible, including up to $5,000 in costs associated with maintaining a former residence that was not sold before the move. The expenses are only deductible to the extent of income from the new work or business location. If this income is insufficient to claim all the moving expenses in the year of the move, the remaining expenses may be carried forward and deducted in the following year.
If you acquired a home in 2010, you may qualify for a credit based on an amount of $5,000 if neither you nor your spouse owned a residence from 1 January 2006 to the date of purchase of your new home.
Alternatively, if your new home was acquired for the benefit of a family member eligible for the disability tax credit — to provide a home where that person could be more mobile or functional, or which is better suited to their personal needs or care — the credit is available regardless of your history of home ownership.
Filing returns for children/students
Although often unnecessary, in many cases there may be benefits to filing tax returns for children. If your children had part-time jobs during the year or earned some money for small jobs, such as babysitting, snow removal or lawn care, by filing a tax return they report earned income and thus establish contribution room for purposes of making RRSP contributions, which they can make in a future year.
Another advantage in filing a return for teenagers is the availability of refundable tax credits. Several provinces offer such credits to low- or no-income individuals. When there is no provincial tax to be reduced, the credit is paid to the taxpayer. There is also a GST credit available for low- or no-income individuals over age 18 that is generally only paid if an income tax return is filed.
Finally, university students should always file tax returns and report eligible tuition, education and textbook amounts. Students can use these credits, once established, in a future year.
Using software to prepare your tax return has many benefits. Return preparation is generally quicker, easier and less prone to mechanical error. Plus, the programs often allow you to optimize credit or deduction claims between spouses or common-law partners, and include helpful tax-filing hints based on the information you input.
Using software may also give you the option to file your return electronically. The processing time of electronically filed returns may be shorter than that associated with paper returns. Electronic filing options include NETFILE, EFILE and TELEFILE. In order to NETFILE, you will have to use approved tax return software. Alternatively, you can have your return filed electronically, for a fee, by an approved EFILE agent. TELEFILE is available for simple returns.
Even if you file electronically, keep your receipts. The CRA routinely asks taxpayers to provide support for various deductions or credits claimed on their tax returns.File on time
Generally, your personal income tax return has to be filed on or before 30 April. For business owners and their spouses, the return deadline is 15 June, but any taxes owning must be paid by the 30 April deadline.
For the 2010 return and final tax payments, the deadline is extended to Monday, 2 May 2011 (as 30 April is a Saturday). To be filed on time, the return or payment must be either received by the CRA or postmarked no later than 2 May 2011.
Failure to file a return on time can result in penalties and interest charges. However, since these charges are based on the amount of tax owing, many people who expect refunds may not feel compelled to meet the deadline. This is unwise for two reasons:
- If a tax liability does arise, perhaps as a result of an error in the return or a denial of certain deductions, you may suddenly be in a position where penalties and interest apply.
- If a refund is indeed expected, it is in your best interest to file as early as possible to get your refund. Although the CRA does pay interest, the interest clock does not start until the later of 30 days after the filing due date and the date the return is actually filed. Late filing could mean a loss on the potential refund interest.
For many more helpful tax-saving ideas and handy tips throughout the year, download your copy of our annual guide Managing Your Personal Taxes: a Canadian Perspective.