There isn’t some miracle or amount of expenses you’ve had one year that result in a refund. Calculating a tax refund comes down to knowing what credits and deductions apply to you and consistently completing your tax return accordingly, then consistently making financial decisions that lower your taxable income.It’s nothing special about Canadians that get refunds consistently; they’re in the know.
This guide walks through the most effective strategies for maximizing your refund on a T1 personal tax return. Whether you’re employed, self-employed, or somewhere in between, there are almost certainly opportunities here that apply to your situation. A tax accountant in Toronto can provide personalized analysis, but the strategies below represent the foundation of smart personal tax planning in Canada.
RRSP Contributions: Your Most Direct Tool
For the average Canadian, their Registered Retirement Savings Plan is still the best thing we have for bringing your adjusted net income down. For every dollar they put into an RRSP (conscience of the contribution limits) you bring your Adjusted net income down one dollar which cuts down your taxes in turn (in person’s 43% marginal tax bracket this is equal to 4,300 dollars).
Contribution room accumulates at 18% of earned income from the previous year, up to an annual maximum. Unused room carries forward indefinitely. Many Canadians underutilize their RRSP room for years, then contribute a larger amount when income peaks — a strategy that works well if the contribution is made before the March 1 deadline each year.
The refund generated by RRSP contributions is especially valuable if you reinvest it rather than spending it. Reinvesting the refund each year creates a compounding effect that significantly accelerates wealth accumulation over a career.
Claim Every Medical Expense
Medical expenses are eligible for a non-refundable tax credit, and the list of items that qualify is quite extensive, to say the least. In addition to prescriptions, dental work, eye glasses, hearing aids, physiotherapy, fertility-related services, medical travels, some renovation of homes for disability, and some dietary products for certain medical conditions may all be eligible.
The problem is, you’re not going to get the credit if it’s less than 3% of your net income (or a certain amount, whichever is less.) Again, for the average taxpayer, most health costs will not lead to a credit but for a family with continuous health expenses or a large, but infrequent charge, this can be a valuable provision.
It may be worthwhile to claim all qualifying medical expenses on a 12-month period which isn’t necessarily a calendar year – pick 12 months ending at the end of the current tax year. This may help increase the amount over the three-percent floor.
Charitable Donations
Federal definition of donations to registered Canadian charities: two-tier credit system 15% on first $200. On anything over $200, 29% (or higher for high income taxpayers) credits. Provincial credits are added on. For example, a taxpayer making $2000 in donations could see a combined federal and provincial credit exceeding 40% of the dollar amount over $200.
If a married or common-law couple files jointly, they could increase their donation credit by either combining all donations on a single return (usually the higher income partner’s) or each claiming their own donations if filed separately. Starting at $200, is the combined total. Combined, the couple avoids two low-credit calculations on separate returns.
The First Home Buyer’s Tax Credit
If you bought your first house in the tax year you are eligible for the First Time Home Buyers Tax Credit- a non-refundable credit of up to $1500 federally. It is for both partners, if you are a couple, more so long as neither of you has owned a qualifying house in the last four years. It does not generate a tax refund on its own but it is free money which no-one claims because they just don’t know it exists.
Child Care Expenses
Child and dependent care credit-families with children under 16 (or any children of any age who has a disability) can deduct childcare expenses. This isn’t just a credit, it’s an actual deduction from income and so it’s much better. The deduction is taken by the lower-income spouse.
Eligible costs include daycare, nursery school, after-school programs, day camps, and certain overnight camps. Annual limits apply per child based on age. Families spending $10,000 or more on childcare in Toronto — which is not unusual — can deduct a significant portion of that directly from income.
Union Dues and Professional Memberships
Employment expenses claimed through form T777 include union dues, professional dues required for employment, and certain other costs. These are often noted on your T4 slip, but the corresponding deduction still needs to be actively claimed on your return. It’s an easy win that takes minimal effort to capture.
Capital Losses
Losses Trading in Investments: If within a given year you sell investments for a loss, that capital loss can be used to offset capital gains within that year of the same amount, thereby reducing or eliminating the taxable component of gains. Any remaining losses can be carried back three years to offset gains in prior years (and thus produce a refund of taxes paid in those prior years) or carried forward forever.
A significant number of investors are currently holding unrealized losses. What they may not be aware of is that there is often an advantage to intentionally ‘realizing’ those losses prior to year-end [this strategy is sometimes called ‘tax-loss harvesting’]. This can translate into a direct reduction in taxes payable or a carry-back refund. However, careful attention must be paid to superficial loss rules.
See also: Professional Commercial Plumbing Solutions for Businesses and Large Facilities
Disability Tax Credit
The Disability Tax Credit provides a very powerful non-refundable federal credit for anyone, or their family members, with qualifying disabilities. Factoring in provincial credits, it can save thousands of dollars per annum. Applications must be approved by doctors, though eligibility is made retroactive: paying out refunds going back several years.
When you file remember one thing: having knowledge and intention of claiming as much you are eligible for and just filing in order to complete obligation is what makes your refund average and maximum.
Conclusion
To sum up, whether you want to save the most or get the biggest refund possible in Canada, a little knowledge can go a long way. Know your facts: understand the credits and deductions available, learn about planning opportunities, and make sure to take advantage of as many as you can before you submit your return. Ideas like contributing to an RRSP, claiming your medical expenses, identifying your childcare deductions, or doing a thorough review of eligible charitable donations along with calculating your investment losses are tax saving strategies that can minimize the amount you owe (or maximize your refund). Knowing your options can be half the battle; many Canadians file their returns fast and make mistakes or miss opportunities simply by not taking into consideration important changes in their circumstances or exploring all the deductions applicable to them. Now that you have the tools, a little planning throughout the year will have a tremendous effect over and above your refund today on your overall financial wellness. Webtaxonline can help with expert tax planning, obvious to the user, behind-the-scenes strategies, advice on maximizing your refund and getting it done right.
