The average Canadian family of four now receives more than $3,100 in extra tax savings, according to the Canada Revenue Agency, thanks to various tax relief measures put into effect by our federal government.
TurboTax is always up-to-date with all the latest income tax changes and will make sure that you don’t miss out on any tax credits or deductions.
Here are the some tax credits that you might be able to claim on your 2012 income tax return:
The Family Caregiver Amount – If you care for infirm dependent relatives, such as an infirm spouse, common-law partner, or child, you may be able to claim an additional non-refundable tax credit of up to $2,000 when you claim that person as:
The First-Time Home Buyers’ Tax Credit – If you bought a qualifying home in 2012 and are a first-time home buyer, a person with a disability buying a home, or an individual buying a home on behalf of a related person with a disability, you may be able to claim a non-refundable tax credit of up to $750.
The Canada Employment Credit (CEC) – Designed to recognize employees’ work expenses for items such as home computers, uniforms and supplies, this is a 15 percent non-refundable tax credit on an amount of $1,095 in employment income.
The Children’s Fitness Tax Credit – Do you have a child or children that play sports such as hockey or soccer? You can claim a 15 percent non-refundable tax credit on an amount up to $500 for the cost of registering a child in eligible physical activity programs such as these.
The Children’s Arts Tax Credit – You can also claim a 15 percent non-refundable tax credit on an amount up to $500 for the cost of registering a child in eligible “artistic, cultural, or other programs” such as music lessons or tutoring.
The Textbook Tax Credit – If you’re a student, you may be eligible to claim $65 for each month you qualify for the full-time education amount and $20 for each month you qualify for the part-time education amount to help cover the cost of textbooks. The textbook tax credit is calculated as part of the Tuition tax credit and is a 15 percent non-refundable tax credit.
The Public Transit Tax Credit – Those of us that use public transit, whether we’re students or not, can claim the full amount we spend on eligible transit passes for the year. This is also a 15 percent non-refundable tax credit.
The Tradesperson’s Tool Deduction – You can now deduct from your income part of the cost of tools purchased throughout the year.
The Volunteer Firefighters’ Tax Credit – If you were a volunteer firefighter during the year and completed at least 200 hours of eligible volunteer firefighting services with one or more fire departments in the year, you can claim an amount of $3,000 which entitles you to a 15% non-refundable tax credit.
Remember, these are just the some of the tax credits that are available to individuals for the 2012 tax year. There are over 400 potential tax deductions in all, and TurboTax will help you find all the ones that apply to you so use it to get the biggest possible tax refund – guaranteed
Why use TurboTax rather than some other tax application to complete and file your Canadian income tax?
Accessible help to give you the tax answers you need is one reason.
Suppose, for instance, that you’re a parent with two hockey-playing children, wondering if there’s some kind of tax deduction that would give you a break on the registration fees you had to pay to enroll your kids in their hockey program.
If you were using TurboTax to do your income tax, you might:
1) Connect with experts and other TurboTax customers in the TurboTax Live Community and ask them if anyone knew of a tax deduction that would apply to your situation. You might find you don’t even have to ask the question, because a quick scroll brings up an answer to your particular question as one of the most popular ones asked and you can immediately start reading about the Children’s Fitness Credit.
2) Use the TurboTax Help Center to find the answer to your question. You’ll find that the Help Center is conveniently arranged into categories by task, making it even faster to find the answer you’re looking for. When you select the ‘Doing Your Taxes’ category in the Help Center, and then the ‘entering deductions and credits’ section, the question, “What is the Children’s Fitness Tax Credit?” appears – which you would obviously want to explore.
3) Use TurboTax’s Live Tax Advice service to get your question answered. If you use the Premier or Home & Business editions of TurboTax, you can get one-on-one advice from TurboTax’s tax experts by phone or chat for free, seven days a week during tax season. (You can still use the Live Tax Advice service if you use other editions of TurboTax for a $15 fee.)
Prefer to speak French? The Live Tax Advice experts who answer French questions are from Québec.
No matter which method of help you chose to use, you’d quickly discover that the Children’s Fitness Credit applies to situations such as yours – and learn how you can deduct it on your income tax return to give you more tax savings.
And all of these types of help are directly accessible from within the TurboTax program. You don’t have to leave what you’re doing, open a browser window, find the TurboTax website and then navigate to the help section to get the help you need; just select the type of help you want to use from the right side panel of the program, click, and you’re there.
How to transfer your tuition credit. Claiming moving expenses. How to split your pension with your spouse. Whatever your question, TurboTax will help you answer it.
If you do over-contribute, you will be taxed one percent per month each and every month the excess amount stays in your TFSA account(s).
And an excess amount in a TFSA can occur at any time during the tax year. So if you over-contributed to your TFSA account in January of a tax year and didn’t notice it until you did your income tax, you would be charged monthly interest for almost an entire year!
Now, unless you’ve made a huge error, we’re not talking about the kind of sums that will drive you into bankruptcy, as there is a limit on how long the penalty will be charged.
“The tax of 1% per month,” says the Canada Revenue Agency (CRA), “will continue to apply for each month that the excess amount remains in the TFSA. It will continue to apply until whichever of the following happens first:
However, small amounts add up, too, and no one likes to pay more tax than they have to.
How to Avoid Having an Excess Amount in Your TFSA
The best way to avoid over-contributing to your TFSA account is to know how TFSA contributions work.
You are considered to have an excess TFSA amount “at any time in a year as soon as the total of all TFSA contributions you made in the year exceeds the total of your TFSA contribution room at the beginning of the year plus any qualifying portion of a withdrawal made in the year up to that time” (Canada Revenue Agency).
Look at this example the Canada Revenue Agency provides:
In 2011, Judy begins the year with a TFSA contribution room of $5,000.
Judy’s contributions and withdrawals for 2011 are the following amounts:
You might think, looking at the above, that Judy is fine, TFSA contribution wise, because although she hit her TFSA limit on March 16th, she withdrew $2,000 on June 15th before she contributed another $2,000 on August 23rd.
You’d be wrong.
The Canada Revenue Agency explains, “Judy’s first two contributions, in January and March, reduced her TFSA contribution room to zero. Since her June withdrawal does not get added back to her contribution room until the following year, her August contribution caused an excess TFSA amount of $2,000 for that month. Her September withdrawal of $1,000 would be considered a qualifying portion of the withdrawal in computing her highest excess amount for the following month, October. An excess TFSA amount of $1,000 remains until the end of the year and she will have to pay a 1% tax for the months of August to December.” (our italics).
Judy ends up paying an additional $70.00 in tax.
Here are two other examples of qualifying portions of a withdrawal on the same page as the one just quoted.
The best advice? If you’re going to make withdrawals and contributions in the same tax year, keep a close eye on the overall balance of all your TFSA accounts (if you have more than one), so you can immediately make the kind of qualifying portion of a withdrawal that counts – one made during the year that was required to reduce or eliminate a previously determined excess amount.
With the RRSP deadline on March 1st, it’s a good time to consider whether you should stick with your individual RRSP, if you’ve already opened an account, or whether a spousal RRSP is right for you.
Spousal RRSPs are a good idea if one person has a significantly higher income compared to the other partner. Having the higher-income spouse contribute to a partner’s RRSP will help the couple defer taxes or reduce the taxes you pay on your investments. Someone who makes a higher income is taxed more by the government, which means any earnings they make on their investments are taxed at a higher rate. With income splitting, this couple can save money they pay on taxes.
Keep in mind that the amount the higher-income partner contributes to his/her partner’s RRSP still counts against their contribution limit. If the contribution amount they make to their or their partner’s account exceeds their limit, they will be dinged by the government. This also means that the lower-income partner is still able to contribute their full contribution limit to the spousal RRSP since the partner’s contributions doesn’t affect their individual contribution room.
The spousal RRSP belongs to whomever it is under, in most cases it’s the lower-income holder. One thing to keep in mind is that there’s a three-year limit before the amount contributed to spousal RRSP – whether by the plan owner or the partner – will be counted as income for the lower-income partner. If funds are withdrawn before then, the income will be counted as income for the other partner.
If there’s a younger person in the relationship, spousal RRSPs are also a method to continue contributing to an RRSP since the RRSP can be under the younger partner’s name. The older, higher-income earner can continue to contribute to the account. As long as the spouse is under 71 years old, the higher-income earner can still claim tax deductions on the amount they’ve contributed.
Save your household’s funds from taxes when it comes to retirement by taking advantage of spousal RRSPs. TurboTax can help you see how much get the most of your RRSP contributions.
You can do it the long, aggravating way by setting up a spreadsheet and entering the data such as your income, the amount you might contribute to an RRSP, and your marginal tax rate before and after that particular contribution amount to guesstimate how much of an RRSP contribution you should make this tax year.
Or you can use TurboTax.
TurboTax’s built-in RRSP Optimizer makes it easy to see how different RRSP contribution amounts can increase your tax refund or lower your tax owing.
And using the RRSP Optimizer is easy.
When you first start working on your return with TurboTax, you are asked to enter your personal information and answer a few simple questions about your tax situation. One of these is whether or not you’ve contributed to an RRSP from January 1st, 2012 through March 1st, 2013.
Once you’ve completed your Personal Tax Profile, and entered your income, you can quickly access the RRSP Optimizer by clicking on the blue file folder RRSP tab across the top of your screen.
This will bring up the RRSP Optimizer welcome screen that tells you how the Optimizer works.
“The RRSP Optimizer lets you see the effect that purchasing additional RRSPs before March 1, 2013 would have on your tax return. Use the sliders or enter directly in the Additional contribution or Balance due fields to see how your bottom line could change.”
The only holdup is that you have to enter your RRSP limit for the 2012 tax year before you can use it. It’s not much of one though. You’ll notice that the phrase RRSP limit is hyperlinked in blue on the screen. If you don’t know where to find your RRSP limit, clicking on the hyperlink will take you to a screen that explains where to find it.
Enter your contribution limit, click on the blue RRSP tab again to bring up the RRSP Optimizer, and voila! You’ll see how much of a tax refund you would get or how much income tax you’ll have to pay with the information you currently have put into the tool.
So why do it the hard way? Get TurboTax in the online or desktop edition that’s right for you and see how much easier it is to make the most of your RRSP contributions.
Yes, he should file an income tax return. Filing an income tax return early allows a few things to happen:
TurboTax Online allows people who make under $20,000 to file for free; so he can use any version of TurboTax Online and he’ll be able to NETFILE his return.
Throughout tax season, Caroline, a tax analyst with TurboTax, will answer your tax questions. Have a question you’d like to ask Caroline? Click here.
Not because you don’t have the money – you’ve managed to put aside some funds – but because you don’t know what to do with the money. All you know for sure is that you can’t afford to do both.
Sure, everyone says that contributing to an RRSP is a good thing but what about that mortgage you’re still paying every month? Wouldn’t you be better off if you made a lump sum payment on that?
It’s that old February dilemma again; RRSP contribution versus mortgage payment? Which is best?
The Simple Solution
The simplest way to decide is to look at two things; the interest rate on your mortgage and the return rate of your planned RRSP investment. Generally, if your mortgage interest rate is equal to or higher than the rate of return on your RRSP, you would be better off paying down the mortgage.
So, for instance, if your mortgage interest rate is 5% and you plan to put your RRSP contribution in to a GIC which pays 2.5% interest, the quick and easy answer is that you would be better off paying down your mortgage.
A More Detailed Analysis
However, this is a very rough guide. If you make a more detailed analysis of the potential financial benefits of each option, the answer may be different.
Let’s suppose again that your mortgage interest rate is 5%. It’s actually not just a matter of paying down the mortgage and getting the financial benefit of not having to pay that 5% interest in the future; it’s a matter of how much it costs to pay down a dollar of debt, which is always more than a dollar. So if it costs $1.50 to pay down a dollar of debt, the financial benefit of paying down your 5% mortgage would be 7.3%.
The financial benefit of the RRSP contribution, on the other hand, depends on your marginal tax rate. In our tax system, taxpayers pay tax on their income based on their earnings so that taxpayers who earn less are taxed at a lower rate.
So depending on what province you reside in and what tax bracket you’re in, your RRSP contribution could give you a tax savings of anywhere from 25 to 48%. That’s a whole lot better than 7.3%, isn’t it?
You Can Do Both
Still having trouble sleeping at night because of your mortgage debt? Then why not do both?
Make an RRSP contribution to get those great tax savings (and tax-deferred compounding working for you!) and then use your tax refund to pay down your mortgage.
TurboTax’s RRSP Optimizer lets you see exactly how much income tax would be due or how much of a refund you would get depending on how much of an RRSP contribution you make.
Using money you’ve saved to save even more money. Now that’s a smart decision.
So why not inject some fun in to your tax season by playing the TurboTax $25,000 Tax Trivia Challenge?
Starting today, a new tax trivia question will run every week on our TurboTax Facebook page! Every new tax trivia question you answer gives you another entry for the $10,000 Grand Prize, and a chance to instantly win an an Amazon gift card or a TurboTax Online code.
Giving roses and chocolates on Valentine’s Day is for the shallow. This Valentine’s Day why not give your loved one a gift that expresses the depth and constancy of your feelings such as one of these tax-related ways to say “I love you?”
For instance, you could:
Contribute to your spouse’s RRSP – Nothing says love like making sure your loved one has a better tomorrow. Two catches to this gift: you can’t transfer money or assets from your own RRSP to your spouse or common-law partner’s RRSP, and you can’t contribute more than your own RRSP limit, as whatever amount you contribute decreases your own RRSP limit.
Contribute to your loved one’s Tax-Free Savings Account (TFSA) – Don’t have any RRSP contribution room or want to gift a loved one who’s 71 or older? You can still contribute up to $5,500 to their TFSA account (depending on how much has already been contributed this year). And don’t forget, you can contribute to anyone’s TFSA, not just your spouse’s, as long as they’re over 18 – such as your children or grandchildren.
Learn more: Tax-Free Savings Accounts
Set up or contribute to a Registered Education Savings Plan (RESP) – Valentine’s Day isn’t just for lovers. Setting up and/or contributing to an RESP for your children or grandchildren is a great way to show you care. Basically, once the plan is set up, you make contributions which are paid out to the beneficiary when he or she is enrolled in a qualifying education program.
Learn more: Registered Education Savings Plans (RESPs)
Share your pension income – Admittedly, there’s a bit of self-interest to pension income sharing. Sharing your pension income with your spouse or common-law partner can be a wise tax strategy for you if it lets you shift income from the higher-earning person to the one who earns less, thereby reducing the amount of income tax you have to pay. But hey, you’re still thinking of them, right?
Learn more: Pension Income Splitting
Give your spouse or common-law partner a gift of property – Property doesn’t have to be real estate; you could give a gift of stocks, bonds, mutual funds, or art. Tax-wise, the great thing about this kind of gift is that it doesn’t normally result in a capital gain on your taxes. And hopefully, the gift you’ve given will appreciate over time, making it all the sweeter.
Is there anything that makes you feel as rich as getting the first pay cheque from your first “real” job? You know – the job where you didn’t have to wear a paper hat on your head and actually wanted to tell people about?
Well one of the first things you should do with that money is contribute to an RRSP. That way you’ll get to hold on to more of the money you’re now earning.
You see, when you contribute to an RRSP, you don’t have to take the tax deduction in the same year you make the RRSP contribution. You can defer your RRSP tax deduction to another year – such as one of those years when you’re making more money, giving yourself more of a tax break.
And if your new pay cheques have you dreaming of buying a house, an RRSP can help you do that, too. Use an RRSP to put away money and then when the time comes, you can withdraw up to $25,000 from your RRSP to purchase a home. (See the Canada Revenue Agency’s Home Buyer’s Plan guide for details.)
And then there’s – you guessed it – retirement. The plain fact is that the sooner you start contributing to an RRSP, the more money will be in the RRSP at the end, when you want to start withdrawing money from it to live on.
That’s easy enough to understand. Basically all the RRSP contributions you make over the course of a year count as one RRSP contribution each tax year, and, because you have to stop contributing to an RRSP at age 71, there are only so many years you’re able to contribute.
If you start contributing to an RRSP at age 41 and put $1,000 into an RRSP each year, you will have made 30 annual contributions by the time you are 71 and have put away $30,000.
But if you started contributing to an RRSP at 18 instead and did the same thing, you would have made 53 contributions and have put away $53,000.
That’s not really the way it works, though, because putting your money in to an RRSP has a huge advantage over shoving your money under a mattress; the money in an RRSP earns interest and compounds. So in real life, if you contributed $1,000 each year for 30 years in to an RRSP that earned a 5% return, you would have $69,761, which is a whole lot better than $30,000.
Now here’s the big thing that most people don’t realize; when you contribute the money really matters.
Let’s take a closer look at the 30 years of contribution scenario.
Suppose that over the course of the 30 years, you contributed $1,000 the first 15 years, and then nothing the next 15 years. With a 5% return rate, you would end up with $47,103 in your RRSP.
Then turn it around and suppose that instead, you contributed nothing the first fifteen years, and then$1,000 each year for the next 15 years. With the same 5% return rate, this time you would end up with only $22,658 in your RRSP – less than half than you would have if you had contributed when you were younger! (See this comparison in chart form.)
Okay, you’re convinced. Good! Setting up an RRSP account is easy. When you’re ready to make your RRSP contribution, just go to any bank , credit union or other financial institution and tell them what you want to do.
You don’t have to make a hefty donation at this point to make a difference. The $1,000 mentioned in this article is just an example. Five hundred dollars, $250 – whatever amount you can put away right now will make a big difference later on.
And when you’re ready to do your income tax, don’t forget that SnapTax, the super easy way to get your income tax completed and filed using your iPhone, handles RRSP deductions. Don’t have an iPhone? TurboTax Online is also easy to use and will help you maximize your income tax deductions.
Oh and the rest of that first real pay cheque? Definitely some kind of celebration is in order.