Review your prior-year return and 2010 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 2011 return. Such carryforward amounts could include net capital losses or other losses from 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 2011 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. If you’ve overlooked this opportunity in a previous year, you should be aware that the Canada Revenue Agency (CRA) is generally willing to accept a request to file a late election up to three years after the assessment date of the returns in question.
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 remember that if you donated stocks, bonds or mutual funds to a charity, none of the related accrued capital gain is generally included in your income, although a recent change subjects some gains on flow-through shares to taxation.
The claim for medical expenses is limited by an income threshold. In other words, the lower your net income, the more you can claim.
As a result, it’s generally beneficial to claim all family medical expenses in the lower-income spouse’s/partner’s return. Remember, though, this is a non-refundable credit, so the individual who makes the claim should have sufficient income tax payable — both federal and provincial — to absorb the entire credit.
Family medical expenses include those for you, your spouse/partner and your minor children. Expenses for other family members who are dependent on you for support, including adult children, parents, grandparents, siblings, aunts, uncles, nieces and nephews, can also be claimed, subject to reductions based on their income. In the past, such claims were limited to $10,000 per family member, but that limitation has been eliminated starting in 2011.
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
- Children’s fitness credit and the new children’s arts credit (see page 5, “Arts tax credit: piano lessons pay off in more ways than one”)
- Public transit credit (for you, your spouse/partner or minor children)
- Adoption expense credit
- Tuition and education credits transferred from a child
- New in 2011, costs of exams for accreditation as a professional or tradesperson
- Also new in 2011, a credit for individuals performing at least 200 hours of volunteer firefighting services
If you’re self-employed (that is, you carry on an unincorporated business, the income from which is reported directly on your personal tax return), there are a number of business-related expenses 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 many 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 2011 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 you haven’t claimed them previously.
In addition, under the taxpayer relief provisions, the CRA has the discretion to make adjustments to previously filed returns (10 years back) in relation to certain errors or omissions, on the taxpayer’s request.
If you moved in 2011 to start a new job or a new business, you may be able to claim expenses relating to the move.
In addition to the actual cost of moving your furniture, appliances, dishes, clothes and so on, 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, you can carry forward the remaining expenses and deduct them in a later year.
See our case commentary on page 9, “You may be able to claim the moving expense deduction — without even moving to a new workplace.”
If you acquired a home in 2011, you may qualify for a credit worth $750 of federal taxes if neither you nor your spouse/partner owned a residence from 1 January 2007 to the date you purchased your new home.
However, if you bought your new home for the benefit of a family member eligible for the disability tax credit so they could be more mobile or functional in an environment that’s better suited to their personal needs or care, the credit is available regardless of your history of home ownership.
Filing returns for children/students
In many cases, there may be benefits to filing tax returns for children even when it’s not required.
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- and 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- and no-income individuals over age 18 that is generally only paid if an income tax return is filed.
The 2011 return will determine credits for July 2012 to April 2013, so anyone who will turn 19 prior to April 2013 should file their 2011 return. Individuals age 18 and older also generate room to contribute to a tax-free savings account, but must file returns to have this reflected in the CRA’s records.
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 offers 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 the self-employed and their spouses/partners, the return deadline is 15 June, but any taxes owning must be paid by the 30 April deadline. Note that, if all of your business operations are undertaken through a corporation, the CRA does not consider you personally “self-employed,” so the usual 30 April deadline applies.
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 three 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 you expect a refund, it’s 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 30 days after the later of the 30 April due date (even for the self-employed) and the date the return is actually filed. Late filing could mean a loss on the potential refund interest.
- In the worst case, delaying too long can result in the refund being lost. Filing more than three years after the end of the year (later than 31 December 2014 for a 2011 return) means the refund is not payable, although the CRA has discretion to issue the refund provided the return is filed within 10 years (by 31 December 2021 for the 2011 return).
Speak to your Ernst & Young advisor for additional advice or assistance regarding claims available on your personal tax return or its preparation.
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.