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Tax time: Get free money from the government

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The following excerpt is from 78 Tax Tips For Canadians For Dummies by Christie Henderson, Brian Quinlan and Suzanne Schultz

Even though you may not be required to file a tax return this year, consider doing so anyway. You can gain a lot of benefits from filing - including free money! - that far outweigh the time and frustration spent preparing your return. (Did we mention "free money"?)

Claiming GST Credits

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You might be entitled to a tax-free quarterly cheque from the government for the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST). That's right; some of these dreaded sales taxes may actually be refunded to you via a tax credit. Not everyone is eligible for the GST/HST credit, but if you are eligible you can receive it only if you apply for it each year.

Applying is easy: When you file a tax return, tick the box that says you want to apply. The CRA will do the calculations and let you know if you qualify based on information such as your net income, the net income of your spouse, and the number of children under the age of 18 who live with you.

Even if you have no income, you need to file a tax return to apply for the GST/HST credit.

You're entitled to the GST/HST credit when you turn 19, so you'll need to file a tax return for at least the year prior to your 19th birthday to ensure you get your payments. If your birthday is in January, February, or March, file for the two years prior to your 19th birthday. If you forgot, you can always file after the fact.

Benefiting from Provincial Tax Credits

Many provinces and territories in Canada offer special tax credits to their residents. However, these credits do not come to you automatically. You must apply for them on your personal tax return. The tax credits vary by province/territory and some are very generous. They include credits such as sales tax credits and property tax credits.

Receiving Child Benefits

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If you're responsible for the care of a child who is under age 18, you might be eligible to claim the Canada Child Tax Benefit (CCTB) for that child.

To apply for the CCTB, the first step is to complete Form RC66, Canada Child Benefits Ap-plication. However, because the benefits are based on net family income, you must file a tax return to substantiate your income. Even if your income is nil, file a tax return to ensure you don't miss out on these benefits.

Obtaining Refunds for CPP or EI Overpayments

Canada Pension Plan (CPP) and Employment Insurance (EI) premiums are deducted from your pay and reported on your personal tax return. If you've worked at only one job in the year, it's unlikely that your CPP or EI premiums were drastically wrong. However, if you have more than one employer in a year, each employer is required to deduct CPP and EI based on your earnings at that job alone. In this case it's very common that your total CPP and EI paid was too much. (By the way, this often has nothing to do with your employer's payroll skills; it's because of the way the calculation is done.)

You're entitled to receive a refund of CPP and EI overpayments in the year. The way to do this is to file an income tax return.

Knowing What to Do If You've Paid Too Much Tax

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If you've earned employment income in the year, you should receive a T4 slip from your employer. Box 22 of that slip will note whether taxes were deducted from your pay. If you earn other types of income, such as investment income, you might be required to pay quarterly income tax instalments to the government. Either way, these taxes were based on a lot of assumptions, which may or may not reflect your tax reality at the end of the year. Depending on your personal circumstances, these taxes may be too high, which means you're entitled to a tax refund. And you guessed it - the only way to claim a tax refund is to file a tax return.

Anytime you've paid taxes in the year, file a tax return just in case you're entitled to a refund.

Claiming Other Benefits

Even if you don't owe tax or have free money to claim, there still may be reasons to file a tax return, including:

  • You want to maximize your RRSP contribution room for future years. You're allowed to make RRSP contributions each year based on your RRSP contribution room, which is calculated using your earned income from prior years. In years when you have little income you may not need to file a return; however, even a little income may still be considered earned income, giving rise to RRSP room. Unused RRSP contribution room never expires, so you could use it to claim RRSP deductions - and save taxes - down the road.
  • You have deductions or credits to carry forward to future years. You may have incurred some costs that would normally be a tax deduction or credit, which are of no use to you because of your income level. Certain of these amounts can be carried forward to help your tax situation in future years, including tuition, education, and textbook amounts, RRSP contributions, and moving expenses.
  • You received Working Income Tax Benefit (WITB) advance payments and you want to apply for WITB advance payments for the upcoming year.
  • You have a non-capital loss, such as a loss on your unincorporated business, that you want to be able to apply in other years. Although that loss is not going to attract tax this year, you might be able to benefit from it in other years. And the only way to document the loss is by filing a tax return. Non-capital losses can be carried forward for 20 years. However, consider carrying your losses back (up to three years), if possible, to receive a tax benefit from the loss sooner rather than later.
  • You want to continue to receive the Guaranteed Income Supplement or Allowance benefits under the Old Age Security Program. You can usually renew your benefit simply by filing your return by April 30. If you choose not to file a return, you will have to complete a renewal application form. This form is available from a Service Canada office or from the agency's Web site.

Excerpted from 78 Tax Tips For Canadians For Dummies. Copyright (c) 2010 by John Wiley & Sons Canada, Ltd. Excerpted with permission of the publisher John Wiley & Sons Canada, Ltd.

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