Tax Returns 101 | The Fryzuk Group

Always, Always File your Taxes

Tax season is in full swing, and along with a friendly reminder to submit your tax documents by April 30th, we have prepared some helpful information to coincide with Canadians receiving their tax refunds. There are a wide range of factors that will impact the refund you receive (if any) in the coming weeks, so for the purpose of this post, we will assume that a positive dollar amount is coming your way as a result of your tax filing this year. Before we jump in to the best ways to use your income tax refund to improve your financial health, let’s cover 2019 tax season basics that could come in handy.

Your Tax Questions Answered

First and foremost: Always file your taxes! Even if you don’t owe the government, or didn’t receive income during 2018, there are still benefits to filing your taxes. If your tax return results in a balance owing, it is in your best interest to file your taxes on time and pay to avoid interest and penalties that will increase your out of pocket amount. If you don’t have a balance owing, the cost of not filing is missing out on calculated benefits and potential refunds. When you file your taxes, the government calculates credits and benefits including GST/HST credits, climate leadership adjustments, and Canadian child benefit payments. Depending on your income level and your personal situation, these benefits can be worth thousands of dollars. Simply put, if you don’t file, you’re missing out on benefits and refunds that you’re entitled to.

Self Employed Person’s Tax Deadline

If you’re self employed and worried about the April 30th tax deadline, this is friendly reminder that your filing deadline is extended to June 15th, 2019. It is still best to have your tax information in by April 30th if you have a balance owing on your return to avoid interest payments.

Deductions to Consider

Donations from past years: If you have made charitable donations during the current tax year, or any of the past 5 tax years, you can use a receipt from the donation to reduce your taxable income amount. Lost the receipt for your donation? The charitable organization can usually provide you with a copy if you request one.

Tuition paid: Tuition amounts paid to recognized post secondary institutions can be claimed on your tax return in the year you paid them, or you can roll the tuition amount forward if you anticipate earning a higher income in years to come. Request a copy of form T2202A from your post secondary institution to apply for the tuition tax credit.

First Time Homebuyer’s credit: If you have recently purchased a home, you can qualify for a valuable $5,000 tax credit, so long as you have not lived in a home that you (or your partner) have owned in the past 4 years.

Student Loan Interest Deductions: Student loans are a drag, but there is some relief available, interest on student loans is tax deductible.

Should I Contribute to my RRSP or TFSA prior to filing my taxes?

The decision to contribute to savings accounts such as a registered retirement savings plan (RRSP) or a tax free savings account (TFSA) can be confusing, but there are a few rules to follow that can guide you through your account contributions this tax season.

RRSPs

The RRSP contribution deadline for the 2018 tax season fell on March 1st 2019, so these pointers are for the 2019 tax season and will allow you to plan ahead. Contributions within the tax year to your RRSP account deduct from your taxable income and reduce the taxes you pay in the current year. You can contribute up to 18% of your income, capped at $26,500 dollars for 2018. Contributing as much as you can to your RRSP is a good saving technique to practice, and reduces the tax you need to pay in the current period, but it isn’t for everyone.

TFSAs and Choosing Where to Contribute

If you fall within the lowest tax bracket in your province, it may be in your best interest to contribute as much as possible to a TFSA rather than an RRSP. For people earning a lower income, a TFSA offers greater savings flexibility, but is not tax deductible. In the lowest tax bracket, having a flexible savings account that allows for easy contributions and tax free withdrawals can be more beneficial than deducting from your taxable income, because you are already paying the lowest rate.

RRSPs and TFSAs are both important accounts to discuss with your bank or a professional financial advisor. For tax purposes, the key difference between the two is that a TFSA helps you to easily withdraw money in a pinch without penalty, whereas an RRSP taxes any money you withdraw and is intended to sit and earn interest until you retire.

The Fryzuk Group is committed to improving your financial wellness. If you’d like to learn more about filing overdue taxes, tackling rising interest fees, or eliminating debts owed to the CRA, contact us today for a free, private consultation.