(Special) - The Canadian tax system has numerous benefits, credits, investment, income splitting and other means taxpayers can use to reduce the amount of tax they pay each year. The key is knowing what's available, what you qualify for and then making the claim. You won't get back what you don't claim.
Before starting this year's return, make sure that you have filed all previous year's returns and paid any money that might owe.
Assuming you are current, you might want to check the federal government's economic action plan and Canada Revenue Agency's web sites for guidelines and general information, planning and filing tips and lists of new programs for this year.
It's important to file your return on time to avoid paying a late-filing penalty. For most taxpayers the filing deadline is April 30. People with self-employed income or who have a spouse or common-law partner with self-employed income have until June 15 to file, but the payment of any taxes owing for the year still is due by April 30.
The penalty for late filing is a minimum of five per cent of the balance owing on your return plus a further penalty of one per cent of unpaid taxes times the number of months the return is not filed to a maximum of 12 months.
As well, compound daily interest will be charged on any unpaid amounts, including penalties owing until all taxes owing are paid.
For younger Canadian families in particular, the Registered Education Savings Plan (RESP) provides an opportunity to save for the children's education and get some tax and investment advantages at the same time.
Under the program, parents, guardians, grandparents, other relatives or friends can contribute up to $50,000 into the plan for each child to be enrolled in qualified educational programs such as a trade school, CEGEP, college or university. There is no annual contribution limit and the government will add a grant of up to a maximum of $7,200.
Income and capital gains can be generated within an RESP and grow tax free until the children are ready to pay for their post-secondary education. They only pay income tax on the gains earned by the plan and the grants as they are withdrawn, which usually is low because the income of most post-secondary students is very limited.
Working Canadians also should get to know the kind of pension plan their employers offer. There are fewer and fewer defined benefit programs in the workplace and most employers now are moving to defined contribution plans in which they will often match the employee's contribution, usually up to 50 per cent.
"Get aware of your employer's pension program and keep up your savings in an RRSP," says Jason Round, head of financial planning support with RBC. "A lot of people may not be aware that you can make contributions to your RRSP and carry them forward to a time when you are making a higher salary and in a higher tax bracket, thereby getting a higher tax deduction. This strategy is particularly good for people early in their careers, the self-employed, women on maternity leave, and people who are going through some lean years."
While getting a tax refund may sound like a good thing, it actually may be the result of poor tax planning. It means that too much of your employment income was withheld at source. The only reason you get a refund is that you overpaid your taxes the previous year.
Every employee signs a TD1 form which lists the most common statutory credits and deductions claimed by taxpayers, such as the basic personal, spousal and child and age credits. Added together this gives the amount the employer uses to determine how much income tax should be deducted or withheld from the employee's paycheque and remitted to the federal government on their behalf.
However, there may be credits and deductions such as RRSP contributions, child care expenses, support payments, charitable donations and medical expenses that are not included on the TD1 form that you may qualify for and wish to claim.
To get these deductions made at source you need to file form T1213, a request to reduce tax deductions at source (Quebec has its own TP-1016-V form), with the Canada Revenue Agency, which will authorize your employer to reduce the amount of tax withheld to more accurately reflect your actual tax owing for the year.
If you do get a refund, financial experts say there are multiple options available to you, including putting the money into your RRSP for next year or in a Tax Free Savings Account, topping up your non-registered investments, contributing to a Registered Education Savings Plan, paying off debt and making a lump sum payment off your mortgage.
"Claiming all deductions and credits you're entitled to and taking advantage of available programs can end up saving you a significant amount of money and reducing the amount of tax you pay," Round says.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
Copyright 2013 Talbot Boggs