The deadline is April 30th: here are some tax time tips to maximize your return
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First, let’s start with the tax credits and deductions that are unique to you as an education member.
Eligible educator school-supply tax credit:
New for the 2021 tax-filing year—eligible teachers and early childhood educators can now claim 25% of up to $1,000 in eligible school supply expenses, up to a maximum tax credit of $250 a year (previously the refundable tax credit was 15%). The list of eligible supplies has also been expanded to include electronic devices such as graphing calculators, digital timers, and tools for remote learning.
Just a heads up that if you plan on claiming this credit, the Canada Revenue Agency (CRA) might ask you to provide certification that validates your eligible supply expenses.
So, it’s a good idea to request certification before completing/submitting your return. This certification is typically a form that can be obtained by either the school you’re employed with or your district representative. Keep in mind that your administration may require a longer period of time to get back to you with the necessary forms. Which is why it’s always best to gather any necessary documentation well ahead of the tax-filing deadline.
In order to be eligible for this credit:
- You must be a teacher or early childhood educator employed at an elementary/secondary school/a regulated child-care facility, and have a teacher’s certificate that is valid in the province or territory where you are employed (or must have a certificate or diploma in early childhood education that is recognized in the province or territory where you are employed)
- Supplies must be purchased within the taxation year(s) you are claiming and used in a school or in a regulated child care facility for teaching or helping students learn—and must not already be reimbursable by your school/board and not subject to an allowance or other form of assistance (unless the reimbursement, allowance, or assistance is included in your income and not deductible)
Pension buybacks (OTPP):
If you bought back pension credits (due to a leave) during the same tax year in which you began collecting a pension, only payments made from your personal funds (i.e. by cheque or online banking) are tax deductible. Just be aware that you cannot carry forward non-deducted amounts to the following tax year; payments can only be deducted in the tax year in which they were made.
Receiving OTPP benefits? Click here for more educator-specific tips when it comes to filing your taxes in retirement.
Pension income splitting:
Your pension is one of the greatest benefits of choosing a career in education—and pension income splitting is one of the best ways to keep more of that pension income in retirement.
How pension income-splitting works:
- If you are the higher pension-earning spouse (collecting from OTPP for example), you can transfer up to half of your eligible pension income to your lower-earning spouse (not literally, but for tax purposes)—this ensures that both of you are kept within the overall lowest possible tax bracket
- If you and/or your spouse are receiving Registered Retirement Income Fund (RRIF) payments, pension income splitting could also potentially reduce the impact of Old Age Security (OAS) clawbacks
- Keep in mind that neither Canadian Pension Plan (CPP) nor OAS payments qualify for pension income splitting
To ensure that pension income splitting is right for you, be sure to consult with a tax professional.
Notable updates for the 2021 tax-filing year:
- Canada Workers Benefit: This refundable tax credit for low-income earners now has different benefit rates and income thresholds for 2021, as well as a new secondary earner exemption (click here to learn more about the CWB)
- Climate Action Incentive (CAI):Prior to 2021, this was a refundable tax credit. Now eligible residents of Alberta, Saskatchewan, Manitoba, and Ontario will automatically receive the payments four times a year starting in July 2022. To receive payments, a tax return must be filed. A supplement for residents of small and rural communities may be available for those currently residing outside a census metropolitan area (and who expect to do so on April 1, 2022)
- Home Office Expenses Deduction: Eligible Canadians will now be able to claim up to $500 for home office expenses using the temporary flat-rate method if they worked more that 50% of the time from home for a period of up to 4 consecutive weeks due to COVID-19. This method can also be used if the employer provided a choice to work from home due to COVID-19 during this period
Next, here are the latest updates and changes to tax rates and limits for 2022:
- Federal and provincial income tax brackets are increasing to keep up with inflation
- The basic personal amount (the amount of tax-free annual income) has increased from $13,808 to $14,398
- Employment Insurance (EI) premium rate remains the same from 2020 at $1.58 per $100
- Maximum pensionable earnings (the amount used by the government to calculate CPP contributions for the year) increasing to 64,900 in 2022—up from $61,600 in 2021
- The employee and employer CPP contribution rates for 2020 will be increasing to 5.7% in 2022 (up from 5.45% in 2021)
- The Canada Child Benefit (CCB) will continue to be indexed to inflation in 2022—the maximum annual benefit amount from July 2021 to June 2022 a parent can now receive is $6,997 for children under 6 years of age(up from $6,833 in 2021), and$5,903 for children ages 6 to 17 (up from $5,765 in 2021)
Here are a few other credits and deductions to have on your tax filing radar:
Canada Training Credit (CTC): This refundable tax credit will cover up to 50% of the eligible tuition and fees associated with taking a course or training program. As of January 1, 2019, eligible individuals will be able to accumulate $250 per year—up to a maximum lifetime credit of $5,000.
The amount of the CTC will be the lesser of:
- Half of the eligible tuition and fees you paid for the year
- Your CTC limit for the tax year
First-Time Home Buyers’ Tax Credit (HBTC): This credit (also referred to as the Home Buyers’ Amount Tax Credit by the CRA) is a $5,000 non-refundable tax-credit that can land you a total tax rebate of $750. In order to qualify for this credit, you or your spouse/common-law partner must have acquired a qualifying home during the tax-filing year and you must not have lived in another home owned by you or your spouse/common-law partner in the year of acquisition—or in any of the four preceding years.
Home Accessibility Tax Credit (HATC): Homeowners who are over the age of 65, or are disabled and qualify for the , are eligible for this non-refundable renovation tax credit. The HATC allows a deduction of up to $10,000 in expenses associated with a renovation that is needed for the sole purpose of helping you to stay in your home. While any changes must be permanent and attached to your residence in order to qualify for the HATC, any non-permanent updates that are listed as a medical expense (such as a new tub, grab bars in a shower, or an elevated toilet seat) can also be claimed.
Medical Expense Tax Credit – Service Animals (METC): Provides tax relief to Canadians in respect to certain expenses related to having a service animal. In order for expenses to qualify, animals must be trained or provided by an accredited individual or organization to perform specific tasks that help their owners cope with a severe impairment. This includes blindness, profound deafness, severe autism, severe diabetes, severe epilepsy, or any severe and prolonged impairment that greatly restricts the use of a person’s arms or legs.
Do you have kids? Be sure to cash in on all eligible tax credits that pertain to parents.
According to a survey by tax-filing software TurboTax, 93% of Canadian parents could be missing out on thousands of dollars in tax credits. That’s because only 7% of those surveyed actually planned to take advantage of childcare-related tax credits and deductions.
Those childcare-related tax credits and deductions include:
Child Care Expenses Deduction: You can claim this if you hire caregivers or enroll your children in day/overnight camps, nursery schools and centres, educational institutions that provide childcare services, and boarding schools. The amount you can deduct annually is $8,000 for each child under the age of 7 and $5,000 for each child between 7 and 16. If you have a child who is eligible for the Disability Tax Credit, their deduction limit jumps to $11,000—regardless of the child’s age.
Canada Child Benefit (CCB): This is a tax-free monthly payment made to families/single parents who are eligible to help with the cost of raising children under the age of 18. Benefits are paid over a 12-month period from July of one year to June of the next year and are then recalculated every July based on information from your income tax and benefit return from the previous year (see above for updates on the latest amounts).
Child Disability Benefit (CDB): This benefit is for families that care for children under the age of 18 who have a severe or prolonged impairment in physical or mental function. For the period of July 2022 to June 2023, you could get up to $2,886 per year ($240.50 per month) for each child who is eligible. Eligibility requirements are as follows: you must be eligible for the Canada Child Benefit (CCB); your child must be eligible for the Disability Tax Credit (DTC).
Be sure to visit the CRA’s website for full details on any of the above tax credits.
Bonus tax tips:
- If you sold your home last year: make sure to designate it as your principal residence when you file your tax return—forgetting this step could mean the principal residence exemption gets denied and the capital gain from the sale would be taxed as income (if you own multiple properties, discuss with a tax professional about whether or not to designate your recently sold property as your principal residence)
- If you are a diabetic: be sure to file your receipts that detail how much time/money you spent on life-sustaining therapy during the last calendar year in order to get back the money that is owed to you (through the Disability tax credit)
- If you are a caregiver: specifically if you are supporting a spouse, common-law partner, or a dependent with a physical or mental impairment, the Canada Caregiver Credit is a non-refundable tax credit that may be available to you (click here for a full description of this tax credit, including eligibility requirements and the total amount you can claim)
- If you have a balance due on your 2020 tax return: make sure you file by the deadline, April 30, 2021, even if you don’t have the cash to pay—interest on any unpaid amounts owing for 2020 will be compounded daily starting May 1, 2021, however, there is also a late-filing penalty on any amount owing past the deadline which is calculated as 5% of your balance due, plus 1% per month for a maximum of 12 months
- If you collected any pandemic-related benefits in 2020: such as Canada Emergency Response Benefit or the Canada Recovery Benefit, you may have some taxes owing, even if you only received benefits where taxes were withheld (since the marginal tax rate of most Canadians is higher than 10%)
Finally, when it comes to filing your returns this year, the CRA recommends doing so electronically.
While the CRA will continue to process paper returns, this method tends to take longer to be processed. To get your notice of assessment (NOA) and refund faster and more securely, be sure to sign up for direct deposit and to file online.
Have a tax refund coming your way? Let us help you put it to good use.
From pay grids to pension plans, Educators Financial Group understands how your pay structure works during your working years and in retirement. This means we can provide you with the right strategy to make that refund work harder—so you can achieve your financial goals, faster.
Have one of our financial specialists contact you about maximizing your tax refund.
Plus be sure to check out: 6 ways to make better use of your tax refund.