Missed opportunities mean extra taxes
Thousands of Canadians pay more income tax than they should. By not taking full advantage of deductions, you may be one of those generous Canadians without even knowing it. Are you aware of all the deductions that are available to you? Do you file your return on time? Do you pay tax instalments quarterly to avoid interest charges?
Here is a look at some of the important dates and some of the commonly missed opportunities that could be contributing to your larger than necessary tax bill.
Expenses you may be entitled to deduct
Employees who are required to use their own automobiles for work (other than for travelling to and from their workplace) without reimbursement from their employer can deduct the business portion of their automotive expenses. If you are reimbursed and the amount of the reimbursement is not “reasonable”, you can still claim a deduction for the non-reimbursed portion. In order to claim employment expenses, your employer will have to provide you with a completed form T2200 Declaration of Conditions of Employment.
With millions of Canadians working from home in 2020 in light of COVID-19, the Federal Government recently announced the introduction of a simplified home office deduction. Eligible employees may deduct a maximum of $400 relating to home office expenses and will not require the need to track the details of these expenses. This measure is intended to ease the reporting burden for both the employees, who may not be familiar with the existing home office rules, as well as employers, who may not be familiar with the existing form T2200. Due to the pandemic, CRA has also indicated that there will be some relief this year on amounts that would normally be considered taxable employee benefits. For example, CRA announced that it will not consider an employer’s reimbursement of up to $500 for home office equipment to be a taxable benefit, as long as the employee requires the equipment to perform their employment duties at home. Reimbursements or reasonable allowances received from employers for certain commuting costs, parking, internet and cell phone costs relating to employment purposes would also not be considered taxable benefits.
You may be able to claim additional home office expenses related to your work space and office supplies. Your employer will need to provide you with a completed form T2200 and you must ensure you maintain records of receipts and expenses for any eligible home office expenses incurred.
Carrying charges and deductible interest
Borrowed funds must generally be used for the purpose of earning income (e.g. investing) in order for the related interest to be deductible. Maintaining proper documentation of loans and interest payments will help support claims for interest deductions. Deductible carrying charges may include investment counsel fees, bank fees, or similar charges.
Subject to certain limitations, childcare expenses may be deducted from income by the lower income spouse. These expenses include day-care, babysitting, boarding school, and day camps. Note that you will have to provide the Social Insurance Number of any individual you paid for childcare and supporting documentation is frequently requested by Canada Revenue Agency (CRA).
If you moved during the year to be at least 40 kilometres closer to a new job, to run a business, or to attend a post-secondary educational institute full-time, then you may be able to deduct certain moving expenses. The amount you can deduct is limited to the amount you earn at the new location in the year. Unused deductions can be carried forward and deducted against the related income in a subsequent year.
Some examples of allowable moving expenses are:
- Accommodation, meals and temporary living expenses near your new or old residence
- Cost of changing your address on legal documents
- Cost of replacing your driver’s license
- Cost of cancelling the lease for your old residence or expenses for selling your old residence such as real estate commissions and advertising
- Cost to maintain your old residence when vacant (maximum of $5,000)
- Certain expenses related to purchasing your new residence
- Transportation and storage for household effects
- Travelling from your old residence to your new residence
- Utility hook-ups and disconnections, etc.
Proper documentation of your expenses, including receipts, is critical as the CRA generally requests support for moving expenses.