Tax tips to get a healthier return: Ted Rogers School of Management expert

With the deadline to file taxes just a few weeks away, Canadians are looking for ways to maximize their returns.  Professor Jonathan Farrar, a tax expert and accounting professor at Ted Rogers School of Management at Ryerson University, offers these tips to help you this tax season:

1. Make an RRSP contribution

Contributing to your registered retirement savings plan is one of the best ways to lower your tax bill. However, keep in mind that you do not have to deduct the entire RRSP amount in the year in which you make the contribution; you can save a portion for a future year.  If you anticipate getting bumped to a higher tax bracket in the future, it makes sense to save your RRSP deductions until then. Remember the deadline is Feb. 29^th this year to make a contribution for your 2015 tax return.

2. Deduct the cost of last year’s tax return preparation fee

You can deduct this fee if you had income from a business, rental property, or investments. Don’t forget to keep records of your transactions. 

3. Deduct interest paid on money borrowed to purchase investments

If you have an investment loan and receive interest or dividend income from shares, bonds, and other Canadian and foreign investments, you can deduct the interest you paid, as long as the investments were not held in an RRSP or a tax free savings account.

4. Do not include “Return of Capital” amounts in your income.

First of all, let’s explain what this term means.  “Return of capital” refers to a portion of an investor’s principal that is returned to them.  Mutual funds and real estate investment trusts sometimes include a return of capital as part of their annual payments to an investor.  Check your T3 slip carefully to see if part of the payment is a return-of-capital.  This amount is not taxable and should not be reported on your tax return.  Make sure you or your accountant keep records of any return-of-capital amounts you receive.

5. Deduct other years’ losses this year.

If you have losses from other years, you can offset them with income earned this year. For example, you may be an investor with a capital gain of $5,000 this year, and capital losses of $3,500 from previous years.  You can offset the capital gain with the capital losses, and pay tax on the difference – in this case, $1,500. 

6. Retired? Consider income-splitting with your spouse.

If one spouse earned a significantly higher income than the other, and therefore will be taxed at a higher tax rate, it makes sense to income-split to lower taxes for the spouse who earned more money.  Pension income splitting is possible for pension payments from a company pension plan, a registered retirement income fund (RRIF), or RRSP.  For example, if one person has no income while the other receives a company pension of $90,000, they can split the $90,000 between them so that each person reports $45,000.

7. Claim home office expenses.

If your employer requires you to work from home, and your home office is where you do most of your work (at least 50%), you may deduct a share of the operating expenses of your house (utilities, cleaning supplies, maintenance costs).  Commissioned salespeople can also deduct a share portion of property taxes and home insurance.

8. Know what expenses are deductible as a salaried employee.

If you travel as part of your job and have expenses (car, food, hotels, airfare), these may be deductible.  However, you cannot deduct any costs of your commute to and from your employer’s office.  Furthermore, if your employer requires you to pay for supplies (such as stationery, stamps, ink cartridges), you may deduct these costs.  Long-distance calls are deductible as long as they are related to business.

9. Medical expenses

To qualify for medical expense tax credits, total medical expenses must be reduced by three per cent of your net income or $2,208, whichever is less.  There is a tax credit for 15 per cent of the remaining amount (which means you reduce your tax bill by this amount).  For example, suppose your net income is $60,000, and your medical expenses are $5,000.  Three percent of your net income is $1,800.  You would reduce your medical expenses by $1,800, and claim 15% of the difference, i.e. 15% of ($5,000 - $1,800), which is $480.  In other words, you can reduce your tax bill by $480. Examples of medical expenses are prescription drugs, dentist fees, massage therapists and chiropractors. However, if your insurance company reimbursed you for part or all of the costs, you cannot claim these expenses.

You can include medical expenses for you, your spouse, and your children under age 18, as well as adult dependents.  You can claim medical expenses in any 12-month period that ends in 2015 (it does not have to be the calendar year). 

10. Did you use public transit in 2015?

If you bought a TTC Metropass, or have a registered Presto card with GO Transit and made more than 15 return trips in a month, you are eligible for a tax credit on 15 per cent of the amount you paid.

EXPERT AVAILABLE FOR INTERVIEWS:            

Jonathan Farrar
Assistant Professor
Accounting and Finance
Ted Rogers School of Management
Office: 416-979-5000 x 2515
jmfarrar@torontomu.ca

Expertise: personal income taxes, taxpayer psychology