TORONTO, March 13 /CNW/ - Now that the tax season is in full swing,
personal tax returns are top of mind. Allow Ernst & Young's top 10 practical
tax-filing tips to guide you through this process. Some of these tips will
save you time, some will save you stress, and most important, many will even
save you money.
1. One spouse or partner should claim all the family's charitable
The federal tax credit for donations is available in two stages - a
low-rate credit is available on the first $200 of donations made in the
year and a high-rate credit is available on the remainder. Spouses and
common-law partners can claim donations in respect of one another,
resulting in tax savings because the low-rate credit is only used once.
In addition, because unused donations can be carried forward for up to
five years for purposes of computing the credit, accumulate donations
made over a few years and claim them all in one year.
2. Medical expense claims (limited by an income threshold).
The lower your net income, the more you can claim in eligible medical
expenses. Because one spouse or common-law partner can claim medical
expenses on behalf of the entire family, claim all expenses in the
lower-income spouse's return. The individual who is making the claim
should have sufficient income to absorb the credit, as this is a
non-refundable credit. You might be able to claim medical expenses of
other dependent relatives (e.g., elderly parents or grandparents).
3. Take advantage of the new 2006 tax credits and deductions.
These include the employment tax credit, the credit for public transit
passes, the textbook tax credit and the deduction for tradespeople's
4. Business-related expenses that business owners can claim.
Take advantage of all available deductions, from automobile expenses to
parking, and business association fees to home-office expenses (if you
qualify). In most cases, you can deduct private health-care premiums as a
business expense instead of a medical expense, and one-half of CPP paid
in respect of self-employed earnings is deductible instead of creditable.
5. Older receipts may have value in the 2006 return.
Charitable donations can be carried forward and used in any of the
five years after the year the gift is made. For medical expense receipts,
these can be claimed for any 12-month period that ends in that year if
they have not been claimed previously. And for other missed expenses,
keep in mind that the CRA has the discretion to make adjustments to
previously filed returns (10 years back) in relation to certain errors or
omissions, on request from a taxpayer.
6. Don't forget moving expenses.
If you moved during 2006 to start a new job or a new business, or to go
to university or college, you may be able to claim expenses relating to
the move. In addition to the actual cost of moving personal effects,
travel costs, including meals and lodging while en route, can be claimed.
Lease cancellation costs, as well as various expenses associated with the
sale of your former residence, are also deductible, including up to
$5,000 in costs associated with maintaining a former residence that was
not sold before the move.
7. Filing tax returns for children.
In many cases, there are benefits in filing returns for children who had
part-time jobs during the year. By filing a tax return, your child
reports earned income and thus establishes contribution room for the
purpose of making RRSP contributions. The contributions can be made in
any future year. Another advantage in filing a return for teenagers is
the availability of refundable tax credits, including the GST credit and
certain provincial credits for low- or no-income individuals over age 18.
8. Business investment loss.
It is possible to claim a loss on funds invested in a small business
corporation if all you have to show for the investment is shares or a
note of a worthless corporation. A "business investment loss" is like a
capital loss in that only one-half is deductible; however, unlike a
capital loss, it can be claimed against any income in the year, not just
9. Capital losses can only be applied against capital gains, and carried
back three years and/or carried forward indefinitely.
If you realized a net capital loss in 2006 and have realized net gains in
any of 2003-2005, file a form T1A to carry the loss back to those years
and recover the related tax. Unused net capital losses from prior years
can be applied against your net taxable capital gains in 2006.
10. Using income tax software is generally quicker, easier and less
prone to errors.
Programs often include helpful tax-filing hints based on the information
you enter. The processing time of electronically filed returns is
substantially shorter than that associated with paper returns.
When in doubt, see a professional tax advisor. Tax return information can
alert an advisor to a number of potential tax-saving opportunities that can
provide benefits for many years to come.
For more helpful tips and information, see Ernst & Young's Guide to
Preparing 2006 Personal Tax Returns, available in both print and online
editions. To order a copy, contact the Canadian Institute of Chartered
Accountants at 1-800-268-3793 or visit knotia.ca/store/06t1eypr.
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For further information: Nichola Petts, Media Relations, Ernst & Young
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