Filing taxes in Canada can be tricky but with the right strategies, you can maximize your refund and minimize what you owe. Tax accountant from a reputable accounting firm says taking the time to understand the credits, deductions and best practices can save you a lot. Here are expert tips to optimize your tax return in Canada.
Maximize Your RRSP Contributions
One of the best ways to reduce taxable income is to contribute to a Registered Retirement Savings Plan (RRSP). Contributions to an RRSP are tax deductible, which means the amount you contribute is subtracted from your taxable income. The more you contribute (up to your annual limit) the less tax you will owe. Plus, the income earned in your RRSP is tax deferred until withdrawal, so your investments can grow tax free until retirement. Make sure to contribute before the RRSP deadline (usually in early March of the following year) to apply it to your current tax year.
Claim All Tax Credits
Tax credits reduce what you owe. They are divided into refundable and non-refundable credits. Refundable credits will give you a refund even if you have no tax payable, non-refundable credits will reduce your tax to zero but won’t give you a refund.
Key tax credits to claim:
- Basic Personal Amount: This is a non-refundable tax credit most Canadians are eligible for which reduces your taxable income.
- Canada Workers Benefit: This is a refundable tax credit for low income workers, to provide additional income support.
- Tuition and Education Credits: If you’re a student or supporting one, unused tuition credits can be transferred or carried forward to reduce your taxes.
- Home Accessibility Expenses: If you made renovations to make your home more accessible for a disabled or elderly person in your home you can claim a tax credit on those expenses.
The list above is not exhaustive. Consult with a tax accountant Toronto to see what other tax credits are available to you.
Use the Tax-Free Savings Account (TFSA)
A Tax-Free Savings Account (TFSA) allows your investments to grow tax free. While contributions to a TFSA are not tax deductible like RRSP contributions, any income earned in a TFSA (interest, dividends, capital gains) is not taxable. It’s a great way to save for short term and long term goals without worrying about future tax implications. Note that withdrawals from a TFSA are also tax free, unlike RRSP withdrawals which are taxed as income.
Deduct Work-From-Home Expenses
With the rise of remote work, many Canadians can claim home office expenses. The CRA introduced a detailed method that allows you to deduct a portion of your utilities, rent and other expenses if you have a home office space. To use the detailed method, your employer must complete and sign Form T2200.
Income Splitting Opportunities
Income splitting is shifting income from a high income earner to a lower income family member, which reduces the family tax burden. While the CRA limits many forms of income splitting, there are still some strategies available. For example, you can split eligible pension income with a spouse or transfer unused tax credits to a partner. Families with children can also split childcare costs or transfer tuition credits.
Keep Accurate and Organized Records
The key to claiming all the deductions and credits is proper documentation. Keep detailed records of medical expenses, charitable donations, receipts for home office expenses and investment income. If you are ever audited by the Canada Revenue Agency (CRA), having organized records will make the process smooth and prevent delays in getting your tax refund.
Use Tax Software or Consult a Professional
Tax software will help you find deductions and credits you missed. But if your tax situation is more complex, consider consulting a tax professional. A Chartered Professional Accountant can give you personalized advice to help you optimize your return, especially if you have multiple income streams, are self employed or own a business.
Conclusion
By following these tips, Canadians can save thousands of dollars. RRSP contributions, claiming all the credits and deductions, and keeping accurate records are key. If in doubt, consult a tax accountant to make sure you’re maximizing your savings and minimizing your tax liability.
