Some people do their own tax returns using consumer software (like TurboTax), while others opt to hire a professional to do it for them. Either way, the starting point for any tax return is pulling together all the necessary documentation.
Last year’s tax return is a good starting point, as it gives a clue as to what slips, deductions, and credits may be repeated this year. You should also review last year’s Notice of Assessment and any reassessments, as these will include information about carryforwards—amounts from a previous year that you can claim this year, or in future. These include Registered Retirement Savings Plan (RRSP) room, unused RRSP contributions (which you made in a previous year, but have not yet claimed), tuition and capital loss carryforwards, and other potentially useful information.
If you are doing research online about tax changes since last year, be sure to use reliable sources like the Canada Revenue Agency, Department of Finance Canada, Canadian accounting firms and Canadian news outlets. Online searches can be a risky source of information about tax planning, as people often come across U.S. sources, advice that does not apply directly to them, or just outright incorrect advice.
Some of the changes that apply for average taxpayers for their 2019 tax returns do not require you, the tax filer, to take any action. For example, tax brackets and certain tax credits were adjusted for inflation, and tax software will automatically take this into account. Likewise, Canada Pension Plan (CPP) and Employment Insurance (EI) contribution increases would have been accounted for by employers for their employees, and will be calculated automatically by tax software for those who are self-employed.
Medical cannabis is now an eligible medical expense tax credit, including amounts paid for cannabis, cannabis oil, cannabis plant seeds or cannabis products. Medical expenses are commonly overlooked by taxpayers, especially insurance premiums paid for a health plan, which are eligible to claim on your tax return, as well as your out-of-pocket expenses not reimbursed by an insurance plan. Here is a good list of eligible medical expenses.
One thing that taxpayers will notice when preparing their 2019 tax returns is that the Canada Revenue Agency has redesigned the format to increase the T1 section from four pages to eight, mainly due to adding the calculation of federal tax previously done on Schedule 1 to the tax return itself. Furthermore, line numbers have changed from previous years, so they may be tougher to match up to past tax returns.
If you are preparing your tax return yourself using consumer tax software, most of them will provide a decent questionnaire to ensure you are claiming your income and eligible deductions and credits correctly. Software is imperfect, so there can still be little nuances that get missed. That said, the same can apply to using a professional.
Many taxpayers use an accountant because the thought of doing their own taxes gives them anxiety. One thing to remember is many accounting firms are so overwhelmed with work during the busy personal tax season that they hire temporary staff or students to help with the volume. As such, it may be a good idea to do some of your own preparation and research and be sure to ask questions if you are uncertain about what you can or cannot claim, or about a number that is on your tax return.
If you are preparing a tax return for a family member like a spouse, be sure to consider who should claim which deductions or credits. Child care expenses must be claimed by the lower-income spouse, for example, but other expenses like medical expenses or donations can be allocated between spouses. Medical expenses may be more beneficial to claim for a lower-income spouse, since the expenses must total a minimum of 3% of net income before you can claim them. Donations often save more tax for the higher income spouse due to tax savings on reduced federal and provincial surtaxes.
People who are living together should be aware that they are considered common-law spouses after 12 months of cohabitation and should file their tax returns accordingly.
Retirees should look for opportunities to split eligible pension income like Registered Retirement Income Fund (RRIF) withdrawals and defined benefit (DB) pension income to equalize their incomes and reduce combined tax payable.
If you are preparing a tax return for an ageing parent or other elderly family member, there may be tax credits like the disability tax credit, the amount for an eligible dependent, the Canada caregiver amount, home accessibility expenses, the disability supports deduction, or attendant care and care in a facility that can be claimed.
Here is a good resource for disability-related information for 2019 that often applies to elderly family members.
The 2019 personal tax returns are due by Thursday, April 30, 2020, unless you or your spouse is self-employed (sole proprietorship or partnership income). Self-employed tax filers and their spouses get until June 15, 2020, to file their 2019 personal tax returns, although tax owing is still due by April 30.
Being prepared can help you file your 2019 tax return with greater ease, but more importantly, planning ahead for 2020 can help you save tax and be even more organized next year.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
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