Tips To Reduce Income Taxes
The Canada Revenue Agency encourages Canadians to file and pay on time and online using it’s quick, easy, and secures electronic services.
Pay in Time-As has been the practice of the CRA when April 30 falls on a weekend, this year's filing deadline extends to Monday, May 2, 2011. You have until midnight on May 2 to file your 2010 income tax and benefit return and to pay any balance owing.
If you or your spouse or common-law partner is self-employed, you have until midnight on June 15, 2011, to file your 2010 return, but you still have to pay any balance owing by May 2, 2011.
Avoid late-filing penalties – Make sure to gather your receipts and NETFILE code, register for My Account, and sign up for direct deposit before April 30. Submitting your income tax and benefit return before the tax-filing deadline means you can avoid having to pay late-filing penalties.
Tax-free savings account – A tax-free savings account (TFSA) is one great way to save money, since you don’t pay tax on any income you earn from investments in your TFSA. This money can be invested in syndicated mortgages.
Registered retirement savings plan – Any income you earn in a registered retirement savings plan (RRSP) is exempt from tax, as long as the funds stay in the plan. RRSPs help you save for your retirement and get a break at tax time too. Canadians can use self directed RRSP as Home Buyers Plan (HBP) as well invest in Canadian mortgages.
Children's arts tax credit- Parents can save up to $75 at tax time when they claim an amount for eligible expenses paid for the registration or membership in a prescribed program of artistic, cultural, recreational, or developmental activities for their children.
Canada child tax benefit-Parents must now notify the Canada Revenue Agency (CRA) of any changes to their marital status by the end of the month following the month in which the status changes. Since July 2011, each eligible parent in a shared custody situation will get half of the child benefit and credit payments for that child every month they qualify
Public transit tax credit – If you or someone in your family is a regular user of public transit then you may be able to claim a non-refundable tax credit based on the cost of eligible transit passes.
Pension income splitting – If you are receiving income from a pension, you can split up to 50 per cent of eligible pension income with your spouse or common-law partner to reduce the taxes you pay.
Taxable capital gains- Donations of certain flow-through share properties made to a qualified done after March 21, 2011, may give rise to a deemed capital gain that is subject to an inclusion rate of 50%.
Allowable amount of medical expenses for other dependants: The $10,000 limit per eligible dependant has been removed.
Students –can claim the tuition, education, and textbook amounts. Have you graduated recently? You may be eligible to claim the interest you paid on your student loans. More examination fees now qualify for the tuition amount. In addition, the minimum duration of courses taken at a university outside Canada has been reduced to three consecutive weeks.
Child care expenses – For those who have children, you may be able to claim child care expenses that you or your spouse or common-law partner paid so that of you could work, do research, or go to school.
Home buyer’s tax credit – If you’re a first-time Canadian home buyer you may be eligible to claim $5000 on the purchase of your new home, which can save you up to $750.
Canada Pension Plan (CPP) contribution: As of January 1, 2012, the rules for contributing to the CPP changed. The changes apply if you are an employee or self-employed, you are 60 to 70 years old, and you receive a CPP or Quebec Pension Plan retirement pension.
Saskatchewan pension plan (SPP)-The annual contribution limit to the SPP has increased to $2,500 from $600. For 2012 and later tax years, SPP contributions are subject to the same rules as RRSP contributions. Claim your SPP contribution on line 208.
For self-employed Canadians
Hiring an apprentice – Did your business employ an apprentice? A salary paid to an employee registered in a prescribed trade in the first two years of his or her apprenticeship contract qualifies for a non-refundable tax credit for the employer.
Creating child care spaces – Did your business (which is not mainly a child care services business) create licensed child care spaces for the children of your employees? If so, you may be eligible for an investment tax credit for the child care spaces you created.
Penalty for Filing Your Income Taxes Late
If you owe Canadian income tax and file your Canadian income tax return after the deadline, the Canada Revenue Agency will charge a penalty of
- five percent of the balance owing and
- one percent of the balance owing for each full month that your return is late, to a maximum of 12 months.
If you were charged a late-filing penalty in one of the previous three years and are late filing your income taxes again, the Canada Revenue Agency will charge a penalty of
- ten percent of the balance owing for the current year and
- two percent of the balance owing for each full month that your current income tax return is late, to a maximum of 20 months.
Interest Charges for Filing Your Income Taxes Late
In addition to the penalty for filing your Canadian income taxes late, the Canada Revenue Agency will also charge compound daily interest
- on any unpaid amounts owing for 2011, starting May 1, 2012 &
- On any penalties charged, starting the day after your return is due.
The interest rates charged can change every three months.
More tips on how best to prepare your 2011 income tax and benefit return can be found online at www.cra.gc.ca/getready
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