Saving Money
Taxes: Save Money, Solve Problems
Taxes take a big bite out of most Canadian’s budgets. In fact, they are the largest single expense for many of us.
According to tax-news.com, the average Canadian family (with two or more individuals) earned $79,396 in 2006 and paid a total of $36,650 in taxes.
To help Canadians understand how much we pay toward taxes, we “celebrate” Tax Freedom Day. This is the date by which Canadians’ average earnings equal their annual federal, provincial and local tax bills. In 2006, it was celebrated on June 19th. That means for the first six months of the year, the average Canadian was working solely to pay taxes!
In addition, many people probably pay more taxes than they need to. Each year, many Canadians overpay only because they fail to file common deductions and credits that they are entitled to. Most, if not all, of the following deductions are available to the average Canadian, working taxpayer.
At Consolidated Credit Counseling Services of Canada, Inc. we often hear questions and concerns about taxes from the consumers we counsel. This brochure covers five tax topics that come up frequently:
- Saving Money on Taxes
- Lending Money to the government (through refunds)
- Rapid Refunds
- Taxes and Settled Debts
- When You Can’t Pay Revenue Canada
Saving Money
Getting organized and keeping good records are the two keys to making tax time less painful and expensive. If you haven’t already done so, start a file and notebook where you can keep track of your income and expenses. If you only receive income through one job and your employer withholds taxes, this will be easier. Still, it’s a good idea to keep copies of your pay stubs in case of any problems later on.
Always write down tax deductible expenses immediately, the same day you incur them. Otherwise, you’re likely to quickly forget about them. Keep records and receipts of any items you may be able to deduct.
Scott Estill, former tax attorney and author of Tax Secrets of Millionaires, recommends you include five pieces of information in your records:
- Who?
- What?
- Where?
- When?
- Why?
Answering these questions will usually give you the information you need to explain any items that may be questioned by Revenue Canada.
Many people fail to take legitimate deductions because they are afraid it will result in their being audited. In fact, your best defense is to keep good records, check your returns carefully, and make sure you get good advice about legitimate deductions. But overpaying your taxes won’t protect you against an audit.
Here are some commonly overlooked deductions:
Equivalent-to-Spouse Credit – Taxpayers can claim this credit if they were single, divorced or separated and supported a qualified relative that lived with and was dependent on them at any time during the year. This credit is calculated in the same way as the spousal credit. There are restrictions that are listed below:
- If the dependent is not a child, he or she must be a Canadian resident.
- If the child is claimed as a dependent, he or she must have been under the age of 18 years of age at least in part of the tax year, unless the child is mentally or physically disabled.
- Only one dependent can be claimed under this credit.
- Only one taxpayer can claim each dependent.
- The credit can not be claimed in cases where the taxpayer is subject to court-ordered support obligation.
To be eligible, the dependent did not have to live with the taxpayer for the entire year.
Charity - The CRA allows a federal tax credit on charitable donations of 17% for the first $200 and 29% on amounts over $200 up to a maximum of 75% of net income. The corresponding provincial tax credit for Ontario residents is 6.05 % of the first $200 and 11.16 % of any amount over $200. Spouses can pool their contributions to maximize the tax break.
Childcare Expenses – Childcare expenses are deductible if both spouses or single parent are working full-time or where one spouse is attending school for all or part of the tax year. Childcare expenses can include daycare fees, boarding school, hockey school or summer camp fees.
If both spouses are working, the lower-income earner must claim the deductions. If the lower income earner is a full-time student, the deduction is available to the higher earner for the number of weeks the spouse attends school.
The maximum you are allowed to claim under the childcare deduction is $7000 for each child under seven at the end of the year, and $4000 for each child over seven and under 16. For children with disabilities, you can deduct up to $10,000 starting in year 2000. The deductions cannot exceed two-thirds of your earned income.
