The Learning Centre:
The deadline is June 1st: here are some tax time tips to maximize your return
According to various income tax services and the CRA, 45% of Canadians have yet to file their tax return ahead of the extended deadline of June 1st.
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Since this hasn’t exactly been your typical tax-filing year, it’s completely understandable if you haven’t yet filed your return. Just make sure to leave yourself plenty of time—because you’ll want to make sure you’ve captured all of your eligible tax credits and deductions.
First, let’s start with the tax credits and deductions that are unique to you as an education member.
Eligible educator school-supply tax credit:
Eligible teachers and early childhood educators can claim 15% of up to $1,000 in eligible school supply expenses—up to a maximum tax credit of $150 a year.
Just a heads up that if you plan on claiming this credit, the Canada Revenue Agency (CRA) might ask you to provide certification that validates your eligible supply expenses.
So it’s a good idea to request certification before completing/submitting your return. This certification is typically a form that can be obtained by either the school you’re employed with or your district representative. Keep in mind that with schools currently operating remotely due to the pandemic, your administration may require a longer period of time to get back to you with the necessary forms. Which is why it’s always best to gather any necessary documentation, well ahead of the tax-filing deadline.
In order to be eligible for this credit:
- You must be a teacher or early childhood educator employed at an elementary/secondary school/a regulated child-care facility, and have a teacher’s certificate that is valid in the province or territory where you are employed (or must have a certificate or diploma in early childhood education that is recognized in the province or territory where you are employed)
- Supplies must be purchased within the taxation year(s) you are claiming and used in a school or in a regulated child care facility for teaching or helping students learn—and must not already be reimbursable by your school/board and not subject to an allowance or other form of assistance (unless the reimbursement, allowance, or assistance is included in your income and not deductible)
Pension buybacks (OTPP):
If you bought back pension credits (due to a leave) during the same tax year in which you began collecting a pension, only payments made from your personal funds (i.e. by cheque or online banking) are tax deductible. Just be aware that you cannot carry forward non-deducted amounts to the following tax year; payments can only be deducted in the tax year in which they were made.
Receiving OTPP benefits? Click here for more educator-specific tips when it comes to filing your taxes in retirement.
Pension income splitting:
Your pension is one of the greatest benefits of choosing a career in education—and pension income splitting is one of the best ways to keep more of that pension income in retirement.
How pension income-splitting works:
- If you are the higher pension-earning spouse (collecting from OTPP for example), you can transfer up to half of your eligible pension income to your lower-earning spouse (not literally, but for tax purposes)—this ensures that both of you are kept within the overall lowest possible tax bracket
- If you and/or your spouse are receiving Registered Retirement Income Fund (RRIF) payments, pension income splitting could also potentially reduce the impact of Old Age Security (OAS) clawbacks
- Keep in mind that neither Canadian Pension Plan (CPP) nor OAS payments qualify for pension income splitting
To ensure that pension income splitting is right for you, be sure to consult with a tax professional.
Next, here are the latest updates and changes to tax rates and limits for 2020:
- Federal and provincial income tax brackets are increasing to keep up with inflation
- Employment Insurance (EI) Premiums are decreasing from 1.62% in 2019 to 1.58% in 2020
- Maximum pensionable earnings (the amount used by the government to calculate CPP contributions for the year) are increasing to $58,700 in 2020—up from $57,400 in 2019
- The employee and employer CPP contribution rates for 2020 will be increasing to 5.25% in 2020 (up from 5.1% in 2019)
- The Canada Child Benefit (CCB) will continue to be indexed to inflation in 2020—the maximum a parent can now receive is $6,639 for children under the 6 years of age (up from $6,496 in 2019); and $5,602 for children ages 6 to 17 (up from $5,481 in 2019)
Here are a few other credits and deductions to have on your tax filing radar:
Canada Training Credit Limit (CTC): This is a new refundable tax credit that will cover up to 50% of the eligible tuition and fees associated with taking a course or training program. As of January 1, 2019, eligible individuals will be able to accumulate $250 per year—up to a maximum lifetime credit of $5,000.
Climate Action Incentive (CAI): First introduced in 2019, this credit is meant to offset the cost of the carbon tax in provinces that haven’t established a carbon price of their own. Canadians living in Saskatchewan, Manitoba, Ontario, and New Brunswick are eligible for this tax credit. In Ontario, a single adult (or the first adult in a couple) can expect to up to $224; while the baseline amount for a family of four is up to $448.
First-Time Home Buyers’ Tax Credit (HBTC): This credit (also referred to as the Home Buyers’ Amount Tax Credit by the CRA) is a $5,000 non-refundable tax-credit that can land you a total tax rebate of $750. In order to qualify for this credit, you or your spouse/common-law partner must have acquired a qualifying home during the tax-filing year and you must not have lived in another home owned by you or your spouse/common-law partner in the year of acquisition—or in any of the four preceding years.
Home Accessibility Tax Credit (HATC): Homeowners who are over the age of 65, or are disabled and qualify for the federal disability tax credit, are eligible for this non-refundable renovation tax credit. The HATC allows a deduction of up to $10,000 in expenses associated with a renovation that is needed for the sole purpose of helping you to stay in your home. While any changes must be permanent and attached to your residence in order to qualify for the HATC, any non-permanent updates that are listed as a medical expense (such as a new tub, grab bars in a shower, or an elevated toilet seat) can also be claimed.
Medical Expense Tax Credit – Service Animals (METC): Provides tax relief to Canadians in respect to certain expenses related to having a service animal. In order for expenses to qualify, animals must be trained or provided by an accredited individual or organization to perform specific tasks that help their owners cope with a severe impairment. This includes blindness, profound deafness, severe autism, severe diabetes, severe epilepsy, or any severe and prolonged impairment that greatly restricts the use of a person’s arms or legs.
Do you have kids? Be sure to cash in on all eligible tax credits that pertain to parents.
According to a survey by tax-filing software TurboTax, 93% of Canadian parents could be missing out on thousands of dollars in tax credits. That’s because only 7% of those surveyed actually planned to take advantage of childcare-related tax credits and deductions.
Those childcare-related tax credits and deductions include:
Child Care Expenses Deduction: You can claim this if you hire caregivers or enrol your children in day/overnight camps, nursery schools and centres, educational institutions that provide childcare services, and boarding schools. The amount you can deduct annually is $8,000 for each child under the age of 7 and $5,000 for each child between 7 and 16. If you have a child who is eligible for the Disability Tax Credit, their deduction limit jumps to $11,000—regardless of the child’s age.
Canada Child Benefit (CCB): This is a tax-free monthly payment made to families/single parents who are eligible to help with the cost of raising children under the age of 18. Benefits are paid over a 12-month period from July of one year to June of the next year and are then recalculated every July based on information from your income tax and benefit return from the previous year (see above for updates on the latest amounts).
Child Disability Benefit (CDB): This benefit is for families that care for children under the age of 18 who have a severe or prolonged impairment in physical or mental function. For the period of July 2019 to June 2020, you could get up to $2,832 per year ($236.00 per month) for each child who is eligible. Eligibility requirements are as follows: you must be eligible for the Canada Child Benefit (CCB); your child must be eligible for the Disability Tax Credit (DTC).
Be sure to visit the CRA’s website for full details on any of the above tax credits.
Bonus tax tips:
- If you sold your home last year: make sure to designate it as your principal residence when you file your tax return—forgetting this step could mean the principal residence exemption gets denied and the capital gain from the sale would be taxed as income
- If you are a diabetic: be sure to file your receipts that detail how much time/money you spent on life-sustaining therapy during the last calendar year in order to get back the money that is owed to you
- If you are a caregiver: specifically if you are supporting a spouse, common-law partner, or a dependent with a physical or mental impairment, the Canada Caregiver Credit is a non-refundable tax credit that may be available to you (click here for a full description of this tax credit, including eligibility requirements and the total amount you can claim)
- If your child is attending post-secondary education: up to 15% of your child’s eligible tuition can be claimed under the federal tuition tax credit—for example, if you/your child paid $2,000 in fees, you/they would be able to claim a $300 tax credit
- If you have a balance due on your 2019 tax return: the deadline for payment has been extended to September 1st (which is 4 months later than usual)—penalties on any amount owing past the extended deadline will be calculated as 5% of your balance due, plus 1% per month for a maximum of 12 months
- If you are collecting the Canada Emergency Response Benefit (CERB): don’t forget that while no tax is currently being withheld from CERB payments, tax will most likely have to be paid when income is reported on next year’s returns—so it’s a good idea to start setting some money aside over the next 12 months (just so you’re prepared to pay any taxes owing on this year’s CERB payments, next year)
Finally, when it comes to filing your returns this year, the CRA recommends doing so electronically.
While the CRA will continue to process paper returns, they are experiencing significant delays in processing traditional income tax and benefit returns this year, due to the COVID-19 pandemic. As a result, the CRA is advising those who have already filed a 2019 paper tax and or benefit return that has not been processed, to file it again using NETFILE certified tax software (note this does not include certain returns that must be paper-filed or are excluded from electronic filing).
Have a tax refund coming your way? Let us help you put it to good use.
From pay grids to pension plans, Educators Financial Group understands how your pay structure works during your working years and in retirement. Which means we can provide you with the right strategy to make that refund work harder—so you can achieve your financial goals, faster.
Have one of our financial specialists contact you about maximizing your tax refund. Plus be sure to check out: 6 ways to make better use of your tax refund.