As the temperatures drop and the snow begins to fly, we find ourselves creeping inevitably closer to that magical time of year; tax filing season! Of course, first there is the holiday season with the food, the drink and the spending. And while 2016 is nearing its end it isn’t too late to make some tax decisions now that will save you money come April and help pay off that holiday shopping spree.
The first tip is to be organized! In order to maximize deductions and credits, you need to be able to support the amounts you are claiming. That means having all of your receipts for things like medical expenses, charitable donations or childcare costs. Without knowing where you spent your money it is likely that tax credits will be missed and you will pay more to Canada Revenue than you otherwise need to.
If you are a teacher or early childhood educator and you purchase consumable supplies for use in your employment, there is a new tax credit in 2016. You may claim up to $1,000 of eligible expenses and receive a refundable 15% tax credit. If you have not spent up to $1,000 in 2016 but you know you will need to replenish supplies in the New Year, go ahead and buy them in 2016 in order to get the tax credit sooner.
Similarly, if you are self-employed or able to deduct employment related expenses consider purchasing supplies in 2016 instead of waiting until 2017. This could include large items that need to be capitalized and depreciated over time. Did you know that you get the same tax deduction in the year whether you buy that new car or computer on January 1 or December 31? So if planning a major purchase for business purposes early in the New Year anyway, why not consider making it in December instead!
Have you realized any capital gains during the year by selling non-registered investments that had gone up in value or maybe a secondary property? If you have other investments that aren’t doing so well near the end of the year consider selling them to generate capital losses which can be used to offset the capital gains. The one caveat is that you cannot repurchase the same or similar investments within 30 days of selling the loss investments or the loss is not allowed.
If you have investments outside of an RRSP or pension have you maximized your Tax Free Savings Account contributions? If not than look into this as soon as possible as any income earned inside the TFSA is not taxable.
Finally, remember that RRSP contributions made in the first 60 days of 2017 can be deducted on your 2016 personal income tax return.
These are just a few ideas that can be used to reduce your annual income tax bill, and this is not an exhaustive list by any means. If you wish to discuss your particular circumstances please get in touch and we’ll be happy to chat.
This tax tip is a publication of DSK on developments in the area of taxation. The material is general in nature, is current as of published date, and should not be relied upon to replace the requirement for specific professional guidance. These posts should not be considered advice to be acted upon without further professional consultation, as each reader’s personal financial situation is unique.