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Money News>
Community Resource Centre Money News
May 1, 2008
Canadians Unaware of New Tax Laws, Credits Source: By Talbot Boggs, Canadian Press
It's that time again. Tax season is here, and Canadians all across the country are gathering income statements and receipts for the annual filing frenzy.
As the tax deadline looms Canadian taxpayers, it appears, are woefully unaware of new tax laws and credits that could save them money on their returns.
A recent poll conducted by Environics Research for H&R Block shows that 68 per cent of Canadians are unaware of new tax credits and cuts for 2007.
Only six per cent, for example, are aware that the personal tax exemption - the amount of money that Canadians can earn before paying any income tax - has increased this year to $9,600.
And only one per cent are aware of the retroactive reduction in the marginal tax rate.
"The retroactive reduction in the marginal tax rate (to 15 per cent from 15.5) and the increase in the personal exemption amount could mean significant savings for many Canadians at tax time," says Cleo Hamel, senior tax analyst at H&R Block Canada.
If your taxable income is more than $37,178, the change in the marginal tax rate will mean a tax savings of $186, and likely a refund, Hamel says.
For the average Canadian family with two small children, the new tax laws and changes could mean between $500 and $600 in tax savings and possibly more.
"The new tax laws and changes impact just about every Canadian taxpayer, from families to senior to singles," says Hamel. "Understanding the changes and how they could affect your return is important if you don't want to pay the government more money than absolutely necessary."
Getting knowledgeable about tax changes and doing some homework is the first tip to help you save on this year's return.
Before starting this year's return, make sure that you have filed all previous years and paid any tax on those returns that you might owe. If you do owe you will be charged five per cent on all unpaid taxes plus one per cent for every month you're late and interest. "It can multiply quite quickly," says John Waters, manager of tax planning with BMO Nesbitt Burns."
Assuming you are current, the first thing you should do is to check out the Canada Revenue Agency (CRA) guideline, brochures and web site which will give you general information, planning and filing tips, and a list of what's new for this year.
"Go through this material and understand it," says Waters. "Then go through your return line by line for income, credits and deductions and brainstorm to see if they apply to you."
There are many software programs on the market that you can use to prepare your return and file it online.
April 30 was the deadline for filing your taxes if you owe money. Here are a few tips to help you start gathering the information you need for next year's taxes:
Tips
Moving Expenses
Failure to claim moving expenses when you move at least 40 kilometres to take a new job or to go to school. In addition to transportation costs, you can deduct the real estate commission on the home you sell and the legal fees for both home purchase and sale
Disability Tax Credit
Failure to use the disability tax credit when you can. The disability qualifications have changed for the 2005 tax year, so it is important to check. The Canada Revenue Agency (CRA) usually requires a doctor to fill out a special form and then, if approved, will inform you how many years you can claim it before it is reviewed again.
Post-Secondary Tuition Paper Trail
Not being prepared for a request for documentation for post-secondary tuition expense transfers to a parent or spouse. CRA often will ask for proper documentation. If you don’t respond, you will get a bill in the mail with a reassessment, although if you come up with the documentation, CRA will reverse the assessment and penalties.
Health Insurance Premiums
Lots of people, particularly seniors, miss deducting health insurance premiums as medical expenses, even if the insurance is bought for travel to vacation spots outside of Canada.
Failing to File a Tax Return for Children
Young people often fail to file a return because their income is under the personal exemption (just over $8,000). However, one needs to file a return to get back any income tax withheld at source. Any amount of income reported is also used to calculate your cumulative RRSP deduction room, which could end up being quite valuable in later years. Young people should file a return even if they have no income. Students turning 19 in the next year should file to trigger the GST credit for the first.
Failure to Keep Proper Documentation
Failure to keep proper documentation. In the summer and fall when tax-filing activity abates, CRA goes through the returns again and picks some for special audits. The CRA’s most common requests for documentation include moving and medical expenses, tuition transfers, and proof that a child resides with a single parent claiming an eligible dependent amount for the first time. Taxpayers should not throw important documents away. You need to hang on to them for at least six years.
Caregivers' Deduction
Among other frequent misses by taxpayers is that caregivers sometimes don’t realize they can claim a tax deduction. This applies to parents taking care of infirm children, or children taking care of infirm or elderly parents.
Student Loan Interest
Also, student loan interest is deductible on education loans from the government, but not on loans from banks or other private sector lenders.
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