While most tax planning should be done on an ongoing basis for maximum benefit, there are still some things you can do to ensure that when you file your 2009 return, you pay the least amount of tax legally possible. Following are my top 10 tips to save money on your 2009 return:
1. Report any offshore stash (Form T1135)
At the top of page two of your return, it asks whether you owned any foreign property at any time in 2009. If the total cost of all your foreign investments was over $100,000, you must complete a special form, the T1135 or the "Foreign Income Verification Statement."
2. Split that pension (Lines 116 + 210)
Pension splitting is a tax-planning technique that you can only take advantage of at tax-filing time and, unlike the Home Renovation Tax Credit, requires no prior action.
Pension splitting allows Canadians who received eligible pension income to split up to half of that income with their spouse or common-law partner. It will save you tax if your spouse or partner is in a lower tax bracket and may prevent some Old Age Security benefits from being clawed back. Use Form T1032 for your split.
3. Claim legal fees (Lines 229 or 232)
If you lost your job in 2009, consider whether you can make a claim for legal fees that you paid last year. The Tax Act permits employees to deduct legal expenses "to collect or to establish a right to salary or wages owed by an employer or former employer." You may also be able to deduct legal expenses paid to collect or establish a right to a pension benefit or retiring allowance. The term "retiring allowance" is broad enough to include damages or settlements for wrongful dismissal.
4. Claim the Canada Employment Amount (Line 363)
The Canada employment amount was introduced in 2006 to give Canadians a break on what it costs to work, including expenses such as home computers, uniforms and supplies. No receipts are required to justify any actual employment-related expenses. For 2009, the employment amount is equal to the lesser of $1,044 and the total employment income reported on lines 101 and 104.
5. Write off your kids (Lines 365 + 367)
If you have children who were under 16 in 2009, consider whether you can claim the children's fitness tax credit, which allows parents to generally claim up to $500 per year for eligible fitness expenses paid for each child. And don't forget to claim the "child amount" of $2,089 for each child under the age of 18 in 2009.
6. Claim those renos (Line 368)
As the dust settles on those home renovations you undertook to complete before Feb. 1 of this year, now is the time to collect your Home Renovation Tax Credit. Still have supplies lying around? You're in luck as eligible expenses for renovation supplies, such as lumber, flooring, etc., that were purchased before midnight on Jan. 31 will qualify, even if they are installed afterwards. Make your claim on new Schedule 12.
7. Pool your donations (Line 349)
The amount you donate is eligible for both federal and provincial donation tax credits. For the first $200 of donations you make in a calendar year, the federal donation credit is equal to 15% of the amount given. The provincial/territorial credit varies from 4% to 11% of the amount donated. Once you've made at least $200 of donations in any year, the donation credit jumps to 29% federally, and between 11% and 21% provincially (ignoring any additional provincial surtax savings). If you're married or have a common-law partner, you can pool your donations when you file your return. This allows you take advantage of the higher donation credit faster.
8. Report all your income
Still missing a tax slip or a receipt? Don't let that hold you up from filing on time. Canada Revenue Agency advises that if you know you won't be able to get a slip by the due date, simply attach a note to your paper return stating the payer's name and address, the type of income involved and what you are doing to get the slip. Use pay stubs or statements to estimate the amount of income to report and/or any deductions or credits.
9. File on time
Most Canadians must file their tax returns by midnight April 30. If you or your spouse or common-law partner were self-employed in 2009, your returns are due on June 15. In both cases, any taxes owing for 2009 must still be paid by April 30. If you file your return late, there is an automatic 5% penalty on the amount of tax unpaid, plus an additional 1% per month penalty on the amount due each month the return is late, up to a maximum of 12%. Late filers are also subject to non-deductible arrears interest.
10. Avoid that refund! (Line 484)
If you have already filed by the time you read this, chances are it's because you're expecting a refund. Getting a tax refund is a sign of poor tax planning as it means you've loaned your money to the government at no interest. By taking advantage of the "undue hardship provision" under the Tax Act, it is possible to get your tax refund throughout the year, on every paycheque, instead of waiting until your return is filed the following spring. Apply using CRA Form T1213, "Request to Reduce Tax Deductions at Source."