Canadians either love or dread tax season. Taxes are typically due in April; however, the 2019 tax filing deadline has been extended to June 1, 2020, for individuals and certain trusts. The extension may give taxpayers more time to review their returns, carefully scanning for benefits and ensuring potential deductions are not missed.
While taxes tend to be more complicated for those who are self-employed like freelancers, or small business owners, tax relief may come in the form of business cost deductions. For those finding themselves working from home during the COVID-19 pandemic, similar deductions may be possible next tax season.
Here are six ways you may be able to save money on your taxes.
1. The Canada Employment Amount
The Canada employment amount — once known as the employment tax credit — is designed to help offset a small portion of work-related expenses incurred by employees. For example, home computers, uniforms and supplies may fall under this category. For the 2019 tax year, the amount is calculated as the lesser of $1,222 or the amount of income you made during the year.
Self-employed individuals aren’t eligible to claim this amount as it falls under business expenses.
Sure, your reimbursement may not add up to much — as a non-refundable tax credit, you save 15% on your federal tax payable, but it’s undoubtedly an excellent place to start. The amount you save is equal to the price of a pair of decent concert tickets or maybe a monthly public transit pass ($1,222 x 15% = $183.30 in federal tax).
2. Reduce Your Tax Deductions at Source
While it’s certainly a pleasant surprise, getting a large tax refund simply means you’ve remitted too much tax to the Canada Revenue Agency (CRA) throughout the year, essentially giving the government an interest-free loan.
If you expect to claim any deductions or non-refundable tax credits that will reduce your tax bill – RRSP contributions, rental losses, childcare expenses, support payments, medical expenses or charitable donations – consider using Form T1213. Review this form first, so you know what deductions or credits are eligible. Next, ask your employer to reduce the taxes withheld from your pay throughout the year. Then use that money wisely, such as in low-risk alternatives like GICs.
3. Get Recognition at Work
You’re entitled to receive up to $500 annually in non-cash gifts or awards from your employer, tax-free, providing that they’re not performance-related awards (for example, an award for meeting a sales target). It’s a bit tricky because the CRA makes a distinction between gifts, awards, and rewards. The agency also notes that although technically these items are all taxable as income, the CRA policy exempts some non-cash gifts or awards.
So, if you received something special at your workplace, have a look at the CRA’s examples to see whether you’re free to omit it from your taxes.
4. Join the Gym
On-site workplace wellness programs are all the rage now. But your company may not have space or means to put more than just a few yoga mats in a meeting room.
The good news, if your employer offers fitness memberships to an outside facility, this isn’t considered to be a taxable benefit – even if the employer has negotiated special rates for this service. The CRA has agreed that such membership fees won’t be taxable if the employer pays an external organization to provide the fitness facility to all employees. Again, there are specific details around this. If the employer is paying for this membership offsite, and it’s available to all employees, it’s not a taxable benefit.
5. Get Some Payroll Premiums Back
Typically, your employer has to take Canadian Pension Plan (CPP) premiums off each of your paycheques. However, job-hopping employees can end up paying too much over the year. Each employer is obligated to withhold CPP without regard to what other companies may have done, often resulting in overpayments.
If you contributed more than you were required (usually $2,668.05 in 2019, but depends on your situation), the CRA should refund the excess contributions to you, provided you’re on top of things and make a note of it on your return.
The same goes if you paid too much in Employment Insurance (EI) premiums ($860.22 in 2019).
If you paid more than you were required, but did not surpass the maximum contribution, the CRA will automatically calculate any overpayment and refund it to you.
*It should be noted that the maximum contributions and tax regulations differ in Quebec.
6. Tally All Your Union and Professional Dues
Employees often miss deducting the costs associated with belonging to a union or to a professional body, as well as the cost of carrying professional or malpractice insurance.
However, annual union dues don’t generally include initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs. So, these cannot be deducted.
Additionally, if your employer pays the fees for your professional memberships or insurance, they get to take the tax deduction, even if the receipt is in your name. You can claim these on line 21200 and find the amount in box 44 on your T4 slip.
Filing your tax return can be a daunting task for those who are not well-versed. That’s why it’s best to seek help if you’re having any trouble. Let your account or tax professional know if you feel like there are areas where you could receive a deduction and bring all your paperwork. If you are filing taxes as a student, that could mean bringing proof of education and textbook expenses. If you are a caregiver, you may also be able to claim specific costs.