Welcome back folks to this next instalment of What’s the Buzz on Finance, I wanted to get started by thanking Alicia and everyone at Truro Buzz for inviting me back! I’m happy to say this is going to be a regular concern going forward so I look forward to where this goes. I’d also like to encourage anyone with a question to send them along or comment them on a post and I’ll pick some of them each month to address at the end of each blog.
It’s Tax Season, but Don’t Fret
Whether you’re an early filer or a deadline defy-er taxes happen. So let’s dig into some things to be on the look out for this year, and some of the advantages to getting your taxes done. We’ll also look at some of the easy ways you can get your taxes done.
The Carbon Tax is coming to Nova Scotia
The Climate Action Incentive Payment (CAIP) is the payment you receive back from the government to help households with the additional costs associated with carbon pricing. Starting July 1st Nova Scotia is going to be added into the federal climate pricing initiative, so you can expect to see the prices at the pump jump on that day. The cost of any fossil fuel related product, such as furnace oil, will see a direct increase, but that’ll also have a spinoff effect to other goods and services.
The CAIP is designed to help mitigate those rising costs, but you only receive it if you’ve filed your taxes. So make sure you’ve filed on time to get your first payment in July, the payment comes every quarter and there’s a 10% increase if you live in a rural area. Fill out Section 14 of your tax return correctly when you’re preparing your taxes to ensure you’re getting the most from this program.
That’s Not the Only Payment
Many government direct assistance programs are tied to filing your taxes, if you’re retired filing your taxes is required for Old Age Security and for the Guaranteed Income Supplement. If you’re looking forward to your next GST cheque or if you’ve got kids you can look forward to the Canada Child Tax Benefit. These are both tied to filing your taxes. Between those programs and the Climate Incentive I talked about above you could be leaving some substantial dollars on the table. If your taxes aren’t complicated there’s plenty of free ways to get your taxes prepared! Check out the CRA’s page on free tax clinics to learn more!
Have You Ever Heard of the Disability Tax Credit?
One of the most misunderstood and underused tax credits out there is the Disability Tax Credit (DTC). It’s designed to help those with an impairment in a number of categories pay less income tax in recognition of the additional time and often cost associated with that impairment. It’s often confused with CPP Disability payments, however they’re completely separate programs. The DTC is available for children as well as adults, whether you’re working or not, and it opens up eligibility to other benefit programs, one of the most powerful of which is the Registered Disability Savings Plan (RDSP.)
You can find out more about how to apply for the DTC here. The credit can be worth up to $1330.50 for an adult and $2106.60 for a child. So it’s worth looking into if you or someone you know meets the eligibility. Those amounts can also be transferred to a spouse or caregiver. This tax credit is included in your tax return so another reason to make sure you get those done on time. If you’re declared eligible for previous years you can also refile those previous years tax returns up to 10 years past.
Who Doesn’t Want a Big Refund?
Changing gears another pretty common statement I hear is from folks that contribute to an RRSP or have a lot of tax credits they often want to file their taxes early because they’re looking forward to a big refund. Let’s talk about why that’s not always the best plan.
A big refund means you lent the government money for free. They’re not going to pay you interest on your refund so you would have been better off having just had the money in your own pocket. If you’re in a position where you’ve got a big refund, look at having less withholding tax taken at source. Whether that’s through your payroll or your pensions you can reduce the amount of taxes they take off your cheques leaving more money in your pocket every month. A big refund once a year might sound nice, but you’ve got a lot more control when the money is just in your hands, it can help make any kind of financial hardship a little less difficult.
The Shoe Box
This might be a bit of a dated reference today with digital receipts and invoices, but the mental image of the shoe box stuffed to the brim with receipts still works. Whether you’ve got medical receipts or charitable gift receipts keeping everything organized can be a challenge. As well as knowing what you can and can’t claim, the shoe box is often a ‘hope for the best’ scenario for some folks. So I thought I’d break down the most misunderstood element of medical expenses and also give some tips on how to keep organized.
Prescriptions, treatments, travel, the list of possible medical expenses is tremendous. So let’s start with travel, probably the most widely misunderstood medical expense. First off, your parking costs are not medical expenses, CRA views travel expenses on a distance basis, not on a time basis. So if you have to travel more then 40 km to receive care then there’s a potential medical expense, but you also need to meet these three criteria: “Substantially equivalent medical services were not available near your home. You took a reasonably direct travelling route. It is reasonable, under the circumstances, for you to have travelled to that place to get those medical services.” Now if you’re living in Colchester County and need to go to Halifax to see a specialist, you’re probably going to meet those criteria. For the sake of brevity I’m going to link to per km and meal allowances.
As far as keeping organized, many pharmacies will now produce an itemized listing of your prescriptions, which makes it easier then trying to keep track of a bunch of little printed receipts. There’s an income test for medical expenses so it’s important that you have everything you’re eligible for.
I think I’d be remiss if I didn’t mention pension splitting. This has become a fairly common practice today, but I did want to also mention you can split your Canada Pension Plan credits, which isn’t something everyone knows about. Other pension income is split on your tax return but your CPP needs to be split at source. It doesn’t make sense for everyone so talk to a tax professional before making the decision but it can be a way to help lower your household taxes owing.
You can also split retirement income such as pensions or money from a Registered Retirement Income Fund (RRIF) to name a few which can help reduce the tax burden on the higher earning spouse with a lower earning one.
This is but a glimpse into some of the mechanics of your tax return. If you’ve got a more complicated situation it can help to talk to someone and make sure you’re making the most of your tax season. However it’s important that everyone files their taxes, there’s a lot of potential benefits you’re leaving on the table, the new CAIP is going to be benefiting most households, so there’s no reason not to file.
Until next month, happy filing!
Laura Whiteland is a CERTIFIED FINANCIAL PLANNER® and Chartered Investment Manager® Professional, she is the owner of Inclusive Financial Planning, a fee-only financial planner. Laura also hosts Let’s Talk About It, a podcast dedicated to taking the stress out of personal finance.
This article is intended as general financial information and should not be construed as personalized financial advice.