With the tax deadline coming up soon, I thought I’d give some quick tips for anyone who is doing their tax return at the last minute. If you haven’t filed yet, there are still a few days left.
Charitable Donation Super Credit
Charitable donations get an extra “super” credit of 25% (must be $1,000 and under). For someone who donates $600 they would receive a credit of $296. This tax credit can be shared between spouses but can only be claimed once.
The biggest catch is that the taxpayer needs to be considered a ‘first time donor’ – they must not have made a charitable donation after 2007.
Click here to read more about the charitable donation super credit.
Family Income Splitting
Families with children under 18 have a new tax credit this year – income splitting that allows them to “split” income of up to $50,000 per year. The tax credit was introduced last October as a way to help with the costs of raising a family.
Related: How Income Splitting Works
The credit is most helpful for families where one spouse has a higher income (working full time) and the other spouse has a lower income (attending school, maternity leave, etc). This is because there is a large difference in tax brackets between a higher income and lower income, so when the income gets transferred from the higher income spouse to the lower income spouse, the money gets taxed at a lower rate.
The tax credit is non-refundable and is a maximum of $2,000 per year.
This tax credit is located on Schedule 1A and is straight forward for anyone preparing their tax return using tax software. When preparing the returns, you’ll want to make sure you “couple” both tax returns so that the incomes of both spouses are taken into account and also enter the age information for any dependents.
For last minute filers I’d recommend efiing your tax return – it’s cheaper (no postage costs), instant and the easiest option available.
I filed my tax return in late February and received my tax refund within about a week, which is a great turn around and it means I have more time to invest my tax refund dollars.
You’ll also want to make sure you have direct deposit setup with CRA so that your tax refund can be deposited automatically into your account and you won’t have to wait for a physical cheque to be mailed out.
I have one client who prefers to send in their tax return via regular mail, and during busiest time of the tax season (any time in March-April) it can take 6-8 weeks for a refund to be mailed out.
Comparing Prior Year Amounts
Before you file your tax return, make sure you take a quick look a the comparison summary for the year to make sure everything looks accurate. You’ll want to compare your income sources and amounts to make sure they are accurate and consistent with last year. Tax credits depend on your life situation so if you had a life change (ie. new baby) your tax credits may look different and should reflect this.
Don’t File Late
Even if you are missing information or still have documents you need to file your return, it’s important to file on time.
Filing late may mean the quarterly GST credits are delayed (assuming you’re eligible) and it could also delay the child tax benefit payments.
If you owe money and file late, you’ll be charged a 5% penalty on the amount you owe plus 1% per month for each full month your return is late. Compound interest on the amount owing begins on May 1 so it can add up quickly if you owe a large amount.
If you know there is missing information on your return, it’s better to file on time (and make changes later) than to file late. You can easily make changes to a prior year return yourself by requesting an adjustment. Click here to find out more about fixing a tax return error from a prior year.
Related: The Ways We Overpay on Taxes
Related: Tax Deductions vs. Credits