Focused Tax TipsA dozen deductions often missed by taxpayers

Why Use a Tax Expert? Knowledge * The Income Tax Act is very complicated, as are the myriad of Interpretation Bulletins regarding various tax issues

* Ongoing training is mandatory in order to build sufficient knowledge of existing rules and changes that occur every year

Experience * Seeing hundreds of tax returns every year, an expert can easily identify the right questions for each taxpayer

* An expert knows how to find the right answers, and how to apply that knowledge to the benefit of their client

Judgement

Why choose Focused Bookkeeping * We believe every client has the right to minimize their taxes … legitimately

* We apply our knowledge, experience and good judgement to get the best possible results for every client

* 63% of our new clients have been referred by existing clients … so we must be doing something right !

* As you see from our clients’ testimonials (www.focused.biz/testimonials), we strive to help every client feel comfortable and confident in the end-result

* We are pro-active, spending time with each client to plan for the future

Recent StoriesTaxpayers who came to us, after encountering problems

Client hadn’t filed a tax return in years There are 2 sides to these situations:

* Often, employees who catch on filings end up getting refunds. Why leave your money with Canada Revenue Agency?

* Others who owe money are also faced with accrued interest and penalties. One recent client owed only $700 … but the penalty was $2,500 because she filed late every year, and frequently omitted important information

We work with new clients to catch up on all of their tax returns. In certain situations, we can file a Voluntary Disclosure Application to request that penalties and interest be waived.

Errors from hand-written returns Our new client has been doing his own tax returns by hand, which is fine in most circumstances. In his case, the CRA miss-keyed his RRSP contribution by entering $50,000 instead of the $5,000 that the client reported (and was confirmed by RRSP contribution slips submitted with the tax return).

The CRA sent out notices that the client had over-contributed to their RRSPs with a penalty of 1% per month until the situation was resolved. Given that this error occurred 3 years ago, the penalty was $18,000, and the CRA wanted payment.

The client had no idea what all this meant. We reviewed the returns, discovered the error, called the CRA and got everything corrected and the penalties reversed. The CRA agent said they have seen quite a few errors of this kind … what ?

Moving Expenses Our client moved from Alberta to BC, incurring quite a bit of costs in the process. He prepared his own tax return, including the T1-M schedule to claim the moving expenditures as a deduction. The result was a refund, which the CRA paid to him. When the CRA looked back on the return many months later, the disallowed 100% of the claim, insisting that he now pay back the refund; unfortunately, he had already spent the money.

Moving expense claims are often reviewed by the CRA. If prepared carefully, following the guidelines, they present a meaningful deduction, and rightly so. The problem with our new client’s original claim was that he did not earn income in the new province. We submitted an adjustment to the original return to carry-forward the moving expenses to the following year, when he was able to use the full deduction.

12 Deductions Often Overlooked

Summary1. Employment Expenses

2. Fitness and arts tax credits for children

3. Transit passes

4. Optimizing deductions with your spouse

5. Equivalent to spouse exemption

6. Tuition

7. Moving expenses

8. Home buyers plan (RRSP)

9. Income splitting

10. Disability Tax credit

11. Premiums on group health benefits

12. Interest paid

Employment Expenses

If your employer requires you to incur certain expenses for which you will not be reimbursed, you may be able to deduct part or all of those expenses against your employment income.

The employer must complete and sign a form T2200 (Conditions of Employment).

Examples include vehicle expenses (gas, insurance, repairs, parking and depreciation), telephone, internet, home office (part of your rent, utilities and insurance), supplies, fees for an assistant, tools and more.

Fitness and arts tax credits for children

Parents may claim up to $500 per child for a fitness programs AND up to $500 per child for arts programs and self-development.

You must keep receipts in order to qualify.

Transit passes

You can claim as a deduction 100% of monthly transit passes, provided that you were not reimbursed for same.

If your employer paid for the transit passes, then they will report that amount under Box 84 of your T4 slips, which is deductible.

You may share and/or transfer part or all of these deductions to your spouse.

Optimizing deductions with your spouse

We meet quite a few new clients who prepare their taxes separately from their spouse, whether married or common law.

There are many advantages to linking the returns through professional tax software, before filing the taxes (individually).

Various deductions can be shared and/or transferred between spouses including medical expenses, donations, transit passes, the child tax credit, fitness and arts amounts and childcare expenses, tuition and even splitting of pension income.

This makes it easier to minimize the family tax bill (or maximize the refund).

Equivalent to spouse exemption

Single parents with children (under 18) may be entitled to claim an exemption that would be equivalent to having a dependent spouse.

There are quite a few criteria, but it is worthwhile investigating your eligibility.

We have noticed quite a few single parents are not aware of this exemption

Tuition To claim tuition, the student must have completed part-time or full-time studies at an accredited educational institution. Details will be provided by that institution by way of a T2202 or TL11 slip.

In addition, students are given an educational deduction and a textbook deduction (no receipts required) based on the number of months of part or full time attendance.

If the student does not earn sufficient income to take advantage of these deductions in the same year, they can either transfer up to $5,000 to a parent or spouse … or carry-forward the amount to be used as a deduction in future tax returns. To transfer tuition, the student must first file a tax return, including the information about the transfer; only then can the transferee claim the deduction.

Moving expenses If you move at least 40 km closer to your work or to become a full-time student, you may be able to deduct part of all of certain qualified moving expenses, e.g. transportation and storage costs, some travel expenses, temporary living expenses, costs to maintain old residence, and other incidental expenses. It is extremely important to keep all of your receipts, as these claims are often reviewed by the CRA.

The claim is made using schedule T1M, which requires quite a bit of detail, including your old and new addresses, the name and address of your (new employer) and the income that is related to this move. Please note that if you moved for employment (or self-employed), you must have enough reportable income in that year or you will not be able to use this deduction; however, you should still complete the form and carry forward the moving expenses to the next year, when you may be able to use the deduction.

Home buyers plan (RRSP) You can withdraw up to $25,000 from your RRSPs to buy or build a home in Canada, without incurring withholding taxes, or paying income taxes on the withdrawal.

You must repay this back into your RRSP within 15 years, with a minimum annual repayment of 1/15th of the original amount withdrawn.

You can achieve the repayment by contributing to your RRSP, but you won’t get a deduction for the contribution. If you fail to make the repayment (contribution), the minimum payment will be added to your taxable income, thereby increasing your taxes.

We frequently see new clients who have taken advantage of this wonderful program, but they have mishandled the repayments and the tax filings related thereto.

Income splitting Income splitting is a tax-planning technique designed to shift income from a taxpayer paying a high rate of tax to another taxpayer within the family unit paying tax at a lower rate. While one must be careful of the rules, there are a number of permitted ways of splitting income with your spouse or family members, including:

* self-employed individuals and business owners can pay a reasonable salary and/or dividend to their spouse and/or children, subject to certain rules.

* you can re-structure your investment and rental income so that is can be shared with your spouse or other family members.

* you can split your CPP and your pension income with your spouse.

Income Splitting (continued) * you can make a low interest (2% per year) loan to your spouse, so that he/she can fund investments the income from which will then appear on their tax return.

* the higher income spouse can setup Tax Free Savings Accounts of up to $20K per family member.

* you can contribute to a spousal RRSP, which is particularly effective if the spouses’ future income will be lower than your own.

* capital losses can be transferred to a spouse so that they can apply them against capital gains, thereby reducing their taxes

Disability Tax credit The disability amount is a non-refundable tax credit of up to $7,697 that a person with a severe and prolonged impairment in physical or mental functions can claim to reduce the amount of income tax he or she has to pay in a year. A supplement is available for persons under 18 years of age at the end of the year.

In order to qualify, your physician must complete a form T2201, which then is submitted to the CRA for approval.

 Premiums on group health benefits

If you are paying part or all of the premiums on a group benefit plan, you may include these amounts as medical expenses in your tax return.

Interest paid There are quite a few types of interest payments that are deductible, including:

* interest on student loans,

* interest on loans used to fund qualified investments,

* part of your mortgage interest if you qualified to deduct home office expenses (as an employee or self-employed person),

* interest on a line of credit or mortgage used to purchase rental properties, and interest on funds invested in a business.

To qualify, the taxpayer must reasonably expect the borrowed funds will result in income, which can include interest, dividends, rents, royalties or business profits. Capital gains don’t count; they aren’t considered income. 

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Or email us at Larson@focused.biz

Address:#212 – 640 West BroadwayVancouver, BC, V5Z 1G4

Hours:Monday – Saturday: 9 am – 6 pm

Randy Larson, B.Comm., CBPPresident & Founder