By RANGA RAJAH
Special to SAF
It’s time of the year again— to pay taxes, which includes filing returns and then waiting for refund.
The question that can bother us is, how and where to start? The first obvious step is planning taxes. And this can be done with a bit of advice from tax professionals, Canada Revenue Agency website, which by the way has helpful guidelines.
The personal tax return deadline is April 30 and especially if you owe taxes, the amounts should be paid by April 30 to avoid penalty for non-filing and interest on taxes owing. In short, filing returns will reflect tax liabilities and this means it is better to send the cheque along. The good news is if you have paid more than your share, you will receive a refund.
Tax professional or individuals themselves can file the returns.
Irfan Siddiqui, Director Accounting and Taxation of Hawks Management Group, Mississauga, said: “Go to the right tax professional because there are many fly-by-night operators. One slip and you might end up paying thousands in penalties. It is very important to keep a clean record too.”
To ensure you have the right consultant, Siddiqui says research and checking testimonials is a must. “If a consultant has been around in the same place doing business for over five to seven years, I can say, he or she might be a good one to take a chance with.”
Let us see how to get government cheque into your mail box.
Bala Pudukkotai, CA, CMA, Partner CQK Chartered Accountants LLP, Mississauga, suggests few plans and useful tips on planning taxes, strategies and how to minimize taxes.
According to him, the main strategy is to reduce the income earned (by investing in RRSPs, TFSAs etc.) so that tax is paid at a lower rate. Lower the income and lower taxes payable. For self-employed tax payers, expenses incurred to earn the revenue is deductible which lowers the income and the taxes payable. Apt example would be claim credit for gas bills, entertainment, furniture, vehicles, eating out, etc. incurred for business. It also helps if they pay taxes in advance.
“Business people have more opportunities to claim tax credits,” says Siddiqui.
Planning taxes comprises a series of steps and it helps organize an individual’s finances in a manner that will minimize liabilities. Bala and Irfan recommend RRSPs and TFSAs savings.
RRSPs or Registered Retirement Savings Plan is a tool that aids savings for retirement. There are different types of plans — individual, spousal, group and pooled RRSPs.
The contribution limit for 2013 is a little over $23,000. One can invest more than the set limit but there will be penalties. In case of an emergency, this contribution can be withdrawn at any age by the account holder, but the taxes will be deducted. However, Mar. 1 was the deadline to make this contribution.
TFSA or Tax Free Savings Account
Eighteen years and older adults can contribute $5,500 per year and unlike RRSPs account, there is no penalty for early withdrawals. This is so because if RRSP is for retirement then TFSA is for every other need in life.
The good thing about this contribution is that there is no deadline and one can walk to a nearest financial institution/bank to deposit money.
Charity donations made to organizations, contributions to federal political parties can receive tax credits as well. Also, it may be more beneficial to carry forward and claim them on your returns for any of the next five years.
Bear in mind that you cannot claim tax credits for cosmetic surgeries, over the counter drugs, visit to dentists for fillings, cleanings etc. However, you can claim credits for cosmetic surgery if it is for medical or reconstructive purposes.
You can claim credit for big ones like cancer treatment in and outside Canada provided by a medical practitioner. Air-conditioners, attendant care, medical marijuana, wigs, therapy, reading services, water purifiers, hospital services and gluten-free bread are items in the long list on the Canada Revenue Agency’s website that are eligible for tax credits if they have been recommended by a medical practitioner.
Bernadette Saraswati, an international student at Sheridan College, Oakville, says: “The Canadian tax system allows me to earn tax credits for my tuition. Though it may not be a lot, it makes me feel I haven’t been overlooked by the government.
Bernadette files her own taxes with the help of the free services available at school.
T2202A is a form the educational institute gives to students to claim their tuition fees tax credits.
If you are an international student you can receive tax credits for the rent you pay.
For textbooks credit: You have to qualify for the education amount. Your T2202A form will indicate the number of months you are eligible to claim the education amount, and this is also the same number of months you can claim the textbook tax credit.
Full-time students can claim $65 for each month they were in school during the calendar year, and part-time students can claim $20. This credit is a flat rate based on full or part-time status.
Bus and transit fare tax credit: Riders who purchase public transit passes or electronic payment cards like PRESTO may be able to claim a deduction on their federal taxes for 2012. Transit pass holders must keep their passes in order to claim the credit.
These passes must permit unlimited travel within Canada on local buses, streetcars, subways, commuter trains and local ferries.
Your transit pass must display all of information to support your claim, such as duration of the pass, validity, name of the transit authority or the organization issuing the pass, amount, and identity of the rider.
Keeping receipts, credit card statements, along with your pass/passes as a backup helps to support your claim. If a bank statement clearly indicates the purpose of the debit, it will be accepted as a support for the claim as well.
According to Bala, newcomers to Canada should file their income tax returns even if they do not have any income. The Canadian taxes apply on worldwide income not only on the portion earned in Canada. The return should be filed even if there is no income because the tax return is required to get money from the other government programs like HST credit, child tax payments etc.
“Minimize taxes through tax planning and not by evading. Also remember, the key thing is filing taxes on time, especially businesses,” said Bala.
What is new this year?
“For the 2012-13 tax year, Ontario Trillium Benefit will be paid to both the couples. So far it was being paid to only one parent per household. But this has changed starting this yea,” said Siddiqui.
The Pooled Registered Pension Plan (PRPP) is a new income plan designed to provide retirement income for employees and self-employed individuals who do not have access to a workplace pension.
Investment options in a PRPP are similar to those available in a registered pension plan.
Children’s fitness tax credit: If your child has participated in an eligible program of physical activity like hockey, soccer, golf lessons, sailing, bowling, horseback riding, you may be able to claim up to $500 for the fees paid in 2012. You could save up to $75 on your tax bill this year.
Your child must be under 16 years (or under 18 if eligible for the disability amount) at the beginning of the year in which the eligible fitness expenses were paid.
To sum it up, the H & R television advertisement says it all, ‘walk in with your taxes and walk out with your money’. Filing your taxes is as simple as that.
Instalment payments for 2013 are due on Mar 15, June 15, Sept 15, and Dec 15;
Dec 31 is deadline for medical expenses, child and spousal support, charitable gifts etc.;
Dec 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP;
Jan 30 is for interest owed on intra-family loans;
February 14 is for reimbursements of personal car expenses to employers;
March 1 is RRSP deadline;
Balance owning due/payment is April 30; and
Self-employed people can file their returns by June 15. However they should make the tax payments by April 30 to avoid penalties.
How to claim the cost of shorter duration passes and Electronic Payment Cards