It’s tax season, and while we at TurboTax adore this time of year as we get to help millions of Canadians get their taxes done right, we know that most people don’t get quite as giddy as we do about taxes.
We’ve compiled a list of the top five burning questions you had for us during our recent #taxtalk Twitter chat with the Best Buy team. We hope they help you better understand your taxes.
Q: What Tax Credits are available for college students?
Canadian students are eligible for several tax credits. Here are the common ones:
Tuition and Education Amounts
The tuition amount (the amount of the tuition itself) and the education amount (an additional credit) are both available to students who attend a qualifying post-secondary school. The education amount for a full-time student is up to $400 per month, and for part-time students it’s up to $120 per month. How much you actually save on your taxes will depend on your tax rate. If your income isn’t quite high enough for you to get the maximum value out of these credits, your can either carry the credit forward to a future year, or transfer it to your parent, grandparent or spouse.
Textbooks
Students are entitled to a tax credit toward their textbooks. A full-time student can claim up to $65 for each month they were in school, while part-time students can claim $20 per month.
Accommodation
If your college or university campus is far from home, and you’re a full-time student living on campus, you may be able to claim a portion of your rent depending on your province of residence. For example, in Ontario you could claim any rent paid toward living accommodations on your provincial tax return.
Scholarship Exemptions
Good news! If you’re a full-time student and you’re claiming the education amount, bursaries, fellowships and scholarships aren’t considered taxable up the amount required to pay for your program. If you’re a part-time student claiming the education amount, the scholarship exemption applies for tuition and program-related expenses.
Moving
If you’re a full-time student and you moved more than 40 km to be closer to your college or university, you may be able to claim your moving expenses. Unfortunately, you can only deduct your moving expenses against amounts received as bursaries, certain prizes, fellowships, research grants and scholarships.
Also, if you move for a paid internship, you can claim these moving expenses against the income that you earned as an intern. Again, you have to have moved more than 40 km closer to your internship placement.
Public Transit Deduction
If you buy a monthly transit pass in order to get to school, you can deduct the cost on your tax return. Like all expense receipts, hold onto your monthly passes in case the CRA asks you for proof of the expense.
Q: What is the Number 1 thing the average person misses on their tax return? And what type of medical expenses can be claimed?
One of the most commonly missed tax deductions is medical expenses. The medical expenses credit is designed to assist Canadians who have significant expenses over the course of a year, but only a portion of your medical expenses translates to a deduction. From your total medical expenses, the lesser of either $2,208 or 3% of your income will be deducted. For example, if your net income is $60,000, the first $1800 of medical expenses won’t count toward a credit. If your medical expenses total, $2000, only $200 will be applied to your bottom line.
Unlike most other expenses, medical expenses don’t have to follow a calendar year—you’re allowed to pick your 12-month period, provided the end of the period falls within the tax year you are reporting. If you choose to alter your twelve month period, make sure you keep track of the dates for future years.
For a full list of what medical expenses are eligible, please visit: http://www.cra-arc.gc.ca/medical/
Q: If I make less than my husband, who should be the one claiming deductions? (IE: Medical, Child Care, Donations?)
It depends on the deduction. Medical and child care should go on the lower income earner, and donations should be claimed by the higher earner.
For example, let’s look at claiming medical expenses. Because of the 3% rule mentioned above, the lower earning spouse has a lower threshold to reach before the medical expenses translate to a credit. If one spouse earns $70,000 in net income, only the expenses over $2100 will be applied as a deduction. If the other spouse has $30,000 of net income, amounts over $900 count toward the credit.
However, if one spouse has enough credits to bring their tax owing to zero, the medical expenses may be wasted if this spouse claims them as medical expenses are generally non-refundable.
TurboTax features an excellent tool for figuring this out. By using the details of each spouse’s return, the medical expenses optimizer runs the numbers for you and indicates who should claim the expenses for the most overall benefit.
Q: Is there a special tax deduction for new home owners?
Yes! The Home Buyers’ Amount credit is available to qualifying first-time buyers. This non-refundable credit is worth $5000 at tax time and can be shared between spouses. If you’re a person with a disability, you don’t need to be a first-timer. As long as you’ve purchased a qualifying home that’s more accessible to your needs, you could qualify for this credit.
If you’re buying a new build, you can also receive a rebate of the federal component of any GST/HST paid on your purchase. Usually, the builder will rebate the amount back to you directly and submit the necessary paperwork on your behalf to the government. If you’re building your own home, you may also qualify for a rebate of any GST/HST paid for land or building supplies. Many provinces, including British Columbia, Nova Scotia, and Ontario offer similar rebates for the provincial portion of the HST.
And, whether it’s a new build or a fixer-upper, remember to look into provincial energy rebates for even more savings. Most provinces offer cash back for purchasing energy efficient furnaces, cooling systems, and appliances.
Q: What should I know about filing my taxes after getting married or beginning a common-law relationship?
Once your marital status changes, your tax situation changes as well. How much it changes depends on a variety of factors including whether you have kids, the available credits and income levels of each spouse.
Transferrable Credits
If you file as married (or common-law), you are entitled to transfer a number of credits to your spouse, as long as you don’t need them first. If your spouse doesn’t use the full amount of any of the credits below, you can transfer the unused portion to your own return at line 326.
- Age amount – line 301
- Tuition, education, and textbook amounts – line 323
- Disability amount – line 316
- Pension income amount – line 314
- Family caregiver amount for children under 18 years of age – line 367
Pooling Credits
As a couple, you may now pool certain expenses and have one spouse claim the total in order to maximize the deduction. Eligible expenses include:
- Medical expenses for yourself, your spouse, and your (or your spouse’s or common-law partner’s) children born in 1998 or later – line 330
- Medical expenses for other dependants you support such as your parents or grandparents – line 331
- Charitable donations – line 349
If you each have charitable donations for example, you can choose to have your spouse claim the combined amount of both of your donations. Because donations totaling over $200 give a bigger deduction, combining these credits can lead to significant savings.
Pension Splitting
If one spouse has eligible pension income and is the higher earner, splitting the pension income may lead to a lower bottom line overall for you as a couple. Although no money actually changes hands, designating a portion of pension income to a lower earning spouse could put the higher earning spouse into a lower tax bracket, thereby potentially resulting in tax savings.
Family Tax Cut
This credit (which s still available for tax year 2015, but eliminated for 2016) can save married or common-law couples with minor children up to $2000. Similar to pension splitting, the Family Tax Cut credit allocates some of the higher earning spouse’s income to the lower earning spouse on paper only – actual net income amounts do not change.
Joint Return versus Coupled Return.
In Canada, regardless of your marital status, tax returns are filed individually with the CRA, it’s a misconception that you have to file a ‘joint’ return. However, it’s a good idea to prepare your returns together – we call this a ‘coupled return’. Doing your returns together helps you combine or split the credits above that may apply to you.
Regardless of your tax situation, TurboTax can help ensure you get your maximum refund. It walks you through your taxes step-by-step and automatically searches through more than 400 tax credits. All you need to know is yourself to get your taxes done right.
