How to Get the Best Tax Refund in Canada
As spring approaches each year, Canadians look forward to the warm months ahead but dread the looming tax season. Knowing what you are entitled to early on will make it easier to keep track of the documentation you need to claim expenses later. The deadline to file your return in Canada each year is April 30. The Canada Revenue Agency (CRA) is constantly updating its tax rules, so don’t procrastinate and scramble at the last minute to educate yourself on getting the most out of your tax refund. Let the tax accountants at Blackspark help.
Contribute to Your RRSP
Contributing to your RRSP is one of the best ways to maximize your tax refund each year and get a larger return. The deadline to contribute for each tax year is March 1. Your contribution limit is 18% of your earned income from the last tax year (up to a maximum of $29,210 for 2022) plus any unused amounts from previous years. You can find your RRSP contribution limit in your CRA account.
The more you make annually, the more your RRSP contributions can generate tax savings. However, you must also consider if it makes more sense to contribute to a Tax-Free Savings Account (TFSA), as the long-term tax savings from that choice could be significantly greater than prioritizing the immediate tax benefit of RRSP deductions. The tax accountants at Blackspark can help you optimize that.
Claim Interest on Student Loans
You cannot claim interest on personal loans, lines of credit, or student loans from foreign banks. However, you can claim interest on student loans received under the Canada Student Financial Assistance Act, the Canada Student Loans Act, and equivalent provincial or territorial programs. The student loan interest claim is a non-refundable tax credit, which can only be used to lower your tax, but any excess credit beyond that will not increase your tax refund. You can carry forward student loan interest for up to five years, so it might be wise to save your claim for a year when you owe more taxes.
Deduct Childcare Expenses
If you have children, you probably already receive family benefits like the GST/HST Credit and the Canada Child Benefit (CCB). However, you can also claim eligible childcare expenses to lower your taxable income. These include:
Childcare services from caregivers
Daycare services
Childcare services from educational institutions
Day camps and day sports schools
Boarding schools and overnight camps
Support payments sent to a former spouse and/or children can also impact your tax bill, depending on the type of support you provide.
Write Off Work and Moving Expenses
There are several eligible work-related expenses that you can deduct from your taxes. This list includes things like cell phone bills and office supplies if your employment contract requires you to purchase these items and you did not receive an allowance for them. If you work from home, you can claim expenses for your home office, such as internet bills, stationery, computers, rental payments, and other related services. This can be tricky, so ask your tax accountant for professional guidance here.
You can also deduct expenses related to moving if you meet the following criteria:
You moved to work, run a business, or attend an educational institution
You moved at least 40 kilometres closer to your new job or school
Moving expenses that are eligible for deduction include vehicle expenses, accommodation costs for utility hookups and disconnection, and title transfer costs.
Buy a House
The CRA offers tax credits for new homebuyers to help offset the costs of buying a house. The Home Buyers’ Amount allows you to claim a $10,000 tax credit if you purchased your first home and did not live in another home owned by you or your partner in the past four years. You may also qualify for the GST/HST New Housing Rebate if you did substantial renovations or purchased or built a new home. There is a similar provision for landlords under certain conditions.
Donate to Charity
Canada’s tax system is generous for those who donate to charity. The Charitable Donations tax credit can be up to 33 percent of the amount you donated. You may also be entitled to an additional amount reaching up to 24 percent of your donation, depending on your province of residence. Donations and gifts are a non-refundable tax credit, which can only be used to lower your tax bill and not to receive a refund. Like student loan interest, you can carry forward unused donations for up to five years.
Taxes can be complicated to complete, depending on your employment, loans, and other factors. Not every available credit or deduction applies to every circumstance, and you don’t want to err on either side. Eliminate the intimidation by working with a tax accountant, who will ensure you get all the tax deductions and credits you are due each year.
This blog post is intended to provide general information only and should not be construed as tax advice or opinions. Always consult a professional accountant for specific advice related to your situation. Thank you.
