This week I was walking through the downtown of a community just west of Toronto. I noticed a sign in a window: "Ask about our free investment and tax advice." I was curious, so I walked in and asked, "What's your free investment advice?" The man looked at me and said, "Buy low and sell high." "That's it?" I replied. He then elaborated, "We have other ideas, but we charge a fee for them." I then asked him about his free tax advice. "Get your employer to pay you under the table," he suggested. Not exactly helpful.
If you're looking for help this tax season, consider these tax filings tips that could save you thousands. Last week I shared ideas for families and seniors. This week, some ideas for employees, investors and others.
1. Deduct vehicle expenses. If you received an allowance for using your car for work and that allowance was based on kilometres driven, it'll generally be tax-free. If, however, the business portion of your actual car expenses is more than your allowance, you can choose to include the allowance in your income and then deduct your actual expenses. You'll save tax this way. Have your employer sign Form T2200, and file Form T777 with your tax return. See my article from Mar. 3, 2016 for more.
2. Apply to reduce your source deductions. Are you expecting a refund for 2016? If so, it's likely due to certain tax deductions or credits. Consider filing Form T1213 to request a reduction in your taxes deducted from your pay at work if you expect to have the same deductions or credits in 2017. You'll enjoy an increase in your take-home pay throughout the balance of this year (and a lower tax refund next year).
3. Claim the GST/HST rebate. If you claim employment expenses on Form T777, don't forget to also file Form GST370 where applicable. This will provide you a rebate for the GST/HST you paid on those employment expenses. If you receive a rebate this year, it's taxable on next year's tax return.
4. Claim the Eligible Educator School Supply Tax Credit. Eligible teachers and early childhood educators can, for the first time in 2016, claim up to $1,000 for eligible teaching supplies costs. You'll save 15 per cent, or up to $150 federally, if you claim the maximum allowable.
5. Carry losses back. Did you have capital losses in excess of your capital gains in 2016? If so, you're able to carry those excess losses back up to three years, or forward indefinitely. Use Form T1A to carry your losses back. It generally makes sense to carry the losses back as far as possible (that is, 2013 for 2016 capital losses) before using them in a later year.
6. Claim an ABIL. If you have lent money to, or subscribed for shares in, a small business corporation that is now insolvent or bankrupt, you may be able to claim an allowable business investment loss (ABIL). Half of your ABIL will be deductible, and can generally be claimed against any kind of income.
7. Use the best exchange rate. The taxman will generally allow you to use the average exchange rate for the year if you have to convert income from foreign currency into Canadian dollars. But you may be better off using the actual exchange rate on the date of a particular transaction. Do the math both ways and pick the rate that gives you the best result.
8. Compare your return to last year. Comparing this year's tax return with last year will often highlight errors made, either this year or last. If you made an error last year, you can correct it by filing Form T1-ADJ, T1 Adjustment Request. It could result in a recovery of excess taxes paid last year.
9. Don't bring your income too low. Ensure your deductions save you the most tax possible. You'll waste deductions if you claim enough of them to bring your taxable income below $11,474 in 2016 since you won't pay tax on income below that amount anyway, thanks to the basic personal credit. You may also want to avoid bringing taxable income below $45,282 in 2016 (the top of the first federal tax bracket) since you'll save more tax by applying deductions against income over this amount. Discretionary deductions include registered retirement savings plan deductions, capital cost allowance and Canadian exploration and development expenses.
10. Sign up for My Account. Visit the "My Account" area of CRA's website at cra.gc.ca. By signing up, you can view the status of your tax return and get copies of your Notice of Assessment and other correspondence with the taxman. Very convenient.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and founder of WaterStreet Family Offices.