Tax tips are like opinions—everyone has one. But the key is to listen to the ones you can trust. That’s why we rounded up our favourite expert tax advice. Regardless of whether you are doing your taxes yourself, or you have someone do them for you, you will find most of these helpful to your tax situation. Here are 15 of our best tax tips for Canadians.
Claims for COVID-related work expenses
Have you spent money to keep working because of COVID-19? You will need a T2200 if you want to make any claims for work-related expenses. Even with this form, you can’t claim just anything, even if you think it is a necessity.
“That fabulous Canadian-made mask that shows your love of the Raptors, or your ‘commitment to sparkle motion’ is not deductible—unless you’re working in a field that requires it.”
Find out what you need receipts for: 2020 Income Tax: What you can’t—and can—claim for your work-from-home office during the COVID-19 pandemic
Self-employed: How much to set aside for personal income tax
Usually the employer would remove income tax from your paycheque. But when you’re self-employed, that duty falls onto you.
“As a general rule, you should always set aside 25% of your income for taxes. You’re taxed only on your net income which is your total income minus all your expenses. Look for line 104 on your tax return where it says ‘employment income not on a T4 slip.’ This is where you report your business income.”
Learn all about filing taxes when you work for yourself: How to file taxes when you’re self-employed
Should you act now to avoid a rise in capital gains taxes?
The costs COVID to the government (thanks to things like CERB, unemployment rates and ore) has made many concerned about rising taxes to help with a budget deficit. And many suspect that capital gains taxes could change for 2020 income taxes, with a higher inclusion rate. Right now it’s 50%. But you might want to hold off.
“The thing with capital gains is that they are only taxable once realized and after a capital asset is sold. So, if someone speculated an inclusion rate increase was coming, and sold proactively to avoid a speculated tax increase, they may not only pay tax now that they do not need to pay, but if they are wrong about locking in a lower rate now, they may pay it for no reason at all.”
For more on what’s likely to come: Potential tax changes due to COVID-19
The best investment for your taxes
TFSA or RRSP? That is the question. And it’s a common one too, which is why we listed this as one of our best tax tips for Canadians.
“The ‘best’ investment is going to depend on your individual financial situation and goals. Remember: With a TFSA, you pay tax on money you’ve earned before you make a contribution; and with an RRSP you get a tax refund now on money you contribute, but will have to pay tax later, on money you withdraw from the plan. This difference, along with your income, your investment timeline, and other factors will all contribute to making the right decision for your investment dollars. You may find that you can use both vehicles simultaneously.”
Learn more on the differences with these investments here: TFSA vs RRSP: How to decide between the two
Dividing investment assets because of a divorce
Splitting up can be expensive. But will it cost you in taxes when dividing your investment income as a newly separated couple? Short answer, no.
“Normally, when assets are transferred between spouses, a capital gain resulting from a subsequent sale would be attributed back to the original spouse on sale. This is called spousal attribution. Attribution does not apply if the asset was transferred as a result of a separation or divorce, whether you are common-law or legally married.”
More on breaking up and breaking up investments: Separation and divorce: How do we split up our investments?
Can you claim child support?
Payments for child support can’t be claimed by the person paying; but what is the tax treatment for the person receiving support?
“Child support payments cannot be deducted on the tax return of the person paying them. This is the case for all agreements or court orders negotiated after May 1997. The good news for the recipient, however, is that child support is not taxable (in other words, the parent who receives child support does not have to pay tax on that money). Further, any support payments stipulated in an agreement or court order are deemed to be child support if they are not specifically identified as spousal support.”
More tips for those divorced with kids: Tax basics for newly separated parents
What if you need to play catch-up with your tax returns
Missed the deadline for filing your personal income tax return? Sometimes this is unavoidable and contacting the Canada Revenue Agency (CRA) as soon as possible is the first step. It is possible for the CRA to waive interest charges. And if it doesn’t:
“If you owe money to the CRA, you will endure a late filing penalty of 5% of your unpaid taxes, plus 1% a month for 12 months from the filing due date. That’s just for the first strike. If you fail to file on time again within a three-year period, that penalty goes up to 10% of unpaid taxes plus 2% per month for a maximum of 20 months.”
More tax tips on filing your return late: What to do if you haven’t filed an income tax return
Big tax tip: Don’t lie on your taxes
That goes double if your public social media profile suggests you’re making more money than is listed on your return. It’s pretty common right now for the CRA to check social media accounts.
“From the CRA’s point of view this is a legitimate practice on their part because posts on social media really aren’t private. How does this work? Say you just bought a new $85,000 sail boat and are boasting about it by posting a photo of it on Facebook. The CRA could see this and then check it against what you declared as income last year.”
Other ways the CRA can catch tax lies: 7 ways the tax man is watching you
Regularly reporting earnings on shared investments
Splitting the earnings on investments with your partner, based on how much you each invest, is a fairly common financial strategy for couples. But if you’re finding that the ratio of how you each invest fluctuates from year to year, you may want to rethink your investment strategy.
“Frequent changing of ratios will cause alarms to go off for the CRA and cause unnecessary audits. If your proportionate income deposits are changing, then the reporting ratio should change and CRA will accept this—with the relevant proof, of course.”
How to report shared earnings properly: The right way to report shared investment income on a tax return
A return feels good, but this is better
It’s always nice to get money back instead of paying when you file your income tax return. But your goal should really be to keep more money in your pocket, rather than claiming it back from the government at tax time.
“Look at how much income tax is being withheld from your paycheques. If it’s more than necessary, you can arrange for your employer to deduct less.”
You can find more detail on those and several others here: 8 year-long tax strategies to build wealth faster
Stop paying for CPP if you’re retired and still working
If you enjoy working or want the extra money on top of your Canada Pension Plan (CPP), you can definitely work without it affecting the CPP benefits you’re receiving. But did you know you can opt out from paying into the CPP if you’re still working?
“If you’re 65 or older, and plan to continue working, you can choose not to contribute to CPP by completing Form CPT30 Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election.”
For more on collecting CPP while working: Can Canadian seniors collect government benefits while still working?
Claim your children’s charitable donations
If you have teens who work, receive T4s and make charitable donations, you can claim those donations for your own tax return.
“File together as a family, as this will allow you to claim all the family credits you are eligible for—and so that, yes, you can claim your children’s charitable donations as a family on the return which will provide the best tax result. That means more possible savings for your family as a whole.”
Advice for families with working kids: Do teenagers need to file a tax return if they work part-time?
Your time as a landlord is not deductible
If you’re a landlord and are handy with maintenance and repairs, you might think you’d be able to claim your time and services as if you hired someone. But that’s not the case.
“CRA views this as a personal contribution to the overall value of the building, which you, as the owner, will ultimately reap when you sell the property, and therefore it is not deductible.”
Other things to know about landlord deductions: Little-known tax deductions landlords should consider
Timing is key for making any cottage expense claims
If you have a cottage that you own and rent out, keep your receipts. And make the claims in the right year.
“Allowable expenses are usually deducted on a cash basis—that is, in the calendar year in which you incur them—as long as you match them to the revenue earned in the same period. These can range from the advertising of the cottage all the out to landscaping costs and common things such as maintenance and repairs.”
Here are some other things to claim: Renting out the cottage? Don’t miss out on these 11 tax-deductible expenses
Keep your tax return documents, even after you file
Sometimes an audit is triggered by a standout item in your tax return. And sometimes it’s the random. Either way, you need to have your papers ready should the CRA reach out to you. And you will want to keep that on hand for six years (or longer, if you have business property).
“The more organized you can be with receipts and other documentation relating to your return, the better off you’ll be if you are selected for an audit. Be prepared to produce them quickly when CRA asks to see them, and keep in mind that members of your family may be asked to offer up their own documentation as well.”
More tax tips for being ready for an audit: 6 ways to make your tax return audit-proof