Last Minute Tax Tips for your 2006 return from Tim Cestnick seen over at the GlobeInvestor site
Families
File a tax return for your kids. If a child earned any income at all in 2006,
it makes sense to file a tax return, even if no taxes are owing. The reason?
Earned income will create RRSP contribution room, which will save your child
taxes when he or she contributes to a plan later in life.
Transfer certain tax credits to your spouse. If your spouse is not able to
use certain tax credits because his or her income is not high enough, you may be
able to claim them yourself. Specifically, tuition, education, textbook,
pension, disability and age credits can be transferred.
Report certain amounts on one tax return. You'll save more tax if you claim
all medical expenses on the tax return of the lower-income spouse, provided he
or she has sufficient income to absorb the credits. Similarly, claiming all
donations on one spouse's return (doesn't matter which spouse) will save tax
since the tax relief is greater once donations exceed $200 (and you'll maximize
the donations over this threshold by claiming them all on one tax return).
Claim moving expenses where possible. You may be entitled to claim moving
expenses if you moved in 2006 to start a new job or business, or to go to
university or college. There are certain distance tests you must meet, and you
had to have earned income in your new location.
Deductible costs include the cost of moving personal effects, travel costs
(including meals and lodging while en route), lease cancellation costs, and
expenses related to the sale of your former residence, including up to $5,000 in
costs associated with maintaining your former residence if it wasn't sold before
the move.
Students
Claim the new textbook tax credit. Students will be entitled to a textbook
tax credit for the first time in 2006, calculated on a base of $65 a month of
full-time enrolment, and $20 a month of part-time enrolment.
Remember that certain awards are now tax free. The 2006 federal budget
announced that, starting in 2006, scholarships, fellowships, and bursary income
will now be exempt from tax. Keep this in mind when preparing your return for
2006.
Transfer unused credits to others. If you don't have sufficient income to
absorb your tuition, education and textbook tax credits, you have the option of
transferring up to $5,000 of those amounts to a parent, grandparent, or spouse.
You also have the option of carrying forward those credits indefinitely until
you're able to use the credits in a future year.
Employees
Consider deducting auto expenses. If you received an allowance for using your
car in your work and the allowance was based on kilometres driven, it will
generally be tax free. But if the business portion of your actual car expenses
is more than this allowance, you can choose to include the allowance in your
income and then deduct your actual expenses -- which will leave you better off.
Your employer will have to sign Form T2200, and you'll need to file Form T777
with your tax return.
Claim a GST/HST rebate. If you incurred expenses as an employee (as reported
on Form T777) or partner, be sure to file Form GST 370 where it applies.
This will provide you with a rebate for the GST/HST you paid on those
expenses. Any rebate you receive will be taxable on next year's return.
Claim the new tradesperson tool deduction. Be sure to claim a deduction for
eligible new tools purchased on or after May 2, 2006. You can deduct tools costs
in excess of $1,000. The maximum deduction is $500.
Investors
Carry capital losses back up to three years. If you're reporting net capital
losses on your tax return this year, you can carry those losses forward
indefinitely, but you may be entitled to recover taxes paid on capital gains in
the past three years if you carry your losses back to one of the previous three
years. File Form T1A by the filing deadline to carry losses back.
Claim an allowable business investment loss. If you've lent money to, or
subscribed for shares of, a small business corporation that is now bankrupt or
insolvent, you may be able to deduct one-half of the amount you've lost as a
"business investment loss." This type of loss can be offset against any type of
income -- not just capital gains.
Don't forget to deduct certain interest costs. Don't forget to check all of
your brokerage statements for interest that you might have paid related to your
investments -- it's easy to miss these amounts. Likewise, other interest
incurred for the purpose of earning investment income, perhaps on a loan or line
of credit, may also be deductible.
Retirees
Claim the pension tax credit. If you're 65 or older and received pension
income (excluding Canada Pension Plan benefits), you'll be entitled to claim the
pension credit that will fully or mostly eliminate the tax on the first $2,000
(formerly $1,000) of that pension income. If you're under 65, this credit is
available in fewer situations.
Claim the age credit. Those who are 65 or older may be entitled to claim the
age credit, which could save you more than $1,000 in tax for 2006 (varies by
province). The credit is clawed back if your income is more than $30,270 in
2006, and is completely gone at an income level of $64,043 in 2006.
Understand how split income affects your tax filings. Much talk has been made
about the announcement on Oct. 31, 2006, that introduced pension income
splitting for certain pensioners. This proposal will not affect your 2006 tax
return since it is to apply to 2007 and later years only. But perhaps you've
been splitting your CPP benefits with your spouse, which may entitle the two of
you to each report an equal amount of CPP income on your tax returns in 2006. If
you haven't set up this CPP splitting with the government, call 1-800-277-9914
for more information about applying to split these benefits for 2007 and future
years.
Self-employed
Claim items as business expenses. If you operated a business in 2006, you may
be entitled to claim a deduction for any costs incurred for the purpose of
earning income, including home-office expenses, vehicle costs, meals and
entertainment, tax preparation fees, reference materials, subscriptions,
software costs, private health care premiums, one-half of CPP contributions, and
more. These things may be deductible even if you had little or no revenue in
2006, as long as you have a reasonable expectation of profit down the road.
Defer capital cost allowance where appropriate. Where you are reporting
losses from your business, you may be wise to defer claiming capital cost
allowance (CCA) in 2006 since claiming CCA will only make your losses bigger,
and those losses will eventually expire. You can always claim the CCA in any
future year when you may need it more.
Beware of reporting losses yet again. Business losses can be applied against
all other types of income you may be reporting. It's often expected that you
might incur losses in the first couple of years of business, but be careful if
you are consistently reporting losses year after year. Your losses may be denied
if it's evident you don't have a reasonable expectation of profit.
Everyone
Claim old receipts not yet filed. Charitable donations can be claimed in the
year of the gift or in any of the five subsequent years. If you have unused
donation receipts from prior years, you may be able to claim them on your 2006
return.
As for medical expenses, you can claim them for any 12-month period that
ended in 2006 if they have not been claimed previously. And for other missed
expenses, the Canada Revenue Agency has the discretion to make adjustments to
your tax returns for the previous 10 years for any errors or omissions -- so
don't be afraid to ask.
Claim the new public transit tax credit. You may be entitled to claim a tax
credit for monthly or longer public transit passes purchased by you, your
spouse, common-law partner, or a dependent child less than 19 years of age. The
credit is available for costs incurred on or after July 1, 2006.
File Form T1213 if you're getting a refund. If you're getting a refund this
year and expect the same next year at this time, consider filing Form T1213 as
soon as possible to request a reduction to the income tax withheld at source
from your pay in 2007. This way, you may avoid a large refund next year and keep
more of your own money throughout 2007.
Don't bring your income below certain amounts. Your tax deductions will save
you more tax when you apply those deductions against higher income. If you bring
your income down to $8,839, you won't save any more tax by claiming additional
deductions beyond that point since your basic personal amount will eliminate the
tax on the first $8,839 of income federally. You'd be better off, if possible,
to hold on to certain discretionary deductions for future use (your RRSP
deduction, capital cost allowance, and Canadian exploration and development
expenses come to mind.)
Tim Cestnick is managing director at WaterStreet Group Inc. and author of
101 Tax Secrets for Canadians, among other titles.
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