Tuesday, May 12, 2009

So You Got A Refund...

So you filed your income tax return and you are getting a big "refund". Images of what to do with that money begin to form in your head. A new flat screen? A trip? Just what to do with the money?

It never ceases to amaze me how often people are fooled into believing they got a refund. It was not a refund. YOU OVERPAID TAXES DURING THE YEAR GIVING THE GOVERNMENT AN INTEREST FREE LOAN.

One person was excited to see they were getting a $4800 refund. I then explained, they could have had an extra $400 per month to live on for the past year.

Is there a perfect amount of money to owe/get back? Sure there is. If you look closely, the CRA (Canada Revenue Agency) states that amounts of under $5 plus or minus are waived. The perfect refund is actually having to pay them $4.99 which gets waived. So what can you do about your own situation?

If you consistently owe money to the government, either you are not paying enough taxes during the year, or you are not taking advantage of all of the deductions available to you. There are actually several measures the CRA allows for average "working" Canadian citizens to take advantage of.

1) Deductions for children - aside from the basic dependent deduction of $2000 per child up to age 16, there are the fitness (up to $500 per child) and child care deductions. It amazes me to find out people don't know they can claim a "child care" deduction for a week of summer camp IF the reason is for child care.
2) Public transit - save your receipts and deduct costs for all forms of public transit.
3) Medical expense tax credit - if you have high medical expenses (and the CRA is very generous as to what qualifies) then make sure you claim for this tax credit.
4) Travel allowance - if you need to travel some distance for regular medical treatment, you may be able to claim the mileage driven.
5) Maximize RRSP's during the year - did you know that if you make monthly contributions to RRSP's, you can file the appropriate tax forms with the government and your income taxes deducted will be reduced.
6) Charitable donations - do not really make an impact unless you make significant donations - have the higher income earner claim them and perhaps accumulate them over time then deduct them.
7) Disability benefits - one of the most significant areas for deductions deals with disabilities. A few years ago, I explained to a relative that his hearing loss may qualify as a "disability". He had never claimed it - now he gets to claim it and his spouse gets to claim the "caring for a related disabled person" benefit.

There are other ways to save money as well - these are just some basic ones - remember to forward a copy of your notice of assessment and T1 General to your advisor - they can often spot an overlooked "deduction". A simple letter after the fact can often put some money in your pocket.

As always, Stay Well and Pay It Forward

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