Financial Power

I’m glad to know that I’m not the only one who hates tax season. This is the time when I prepare the taxes, not just my personal tax, but my hubby’s business tax too. I know my accountant likes this season of the year because he makes most of his yearly income between January and July. The truth is that filing income tax is so boring I am withering away while gathering my tax paperwork. But like it or not, we just have to file taxes anyway so we should do it right.

Important Tax Dates to Remember
After the RRSP season has ended on March 1st, it is time to gather all your paperwork to file your income tax report. The deadline is getting closer so you better get to work fast!

April 30, 2010 Tax Deadline
2010 Tax Deadline for personal income tax filing for the 2009 tax year.

April 30, 2010
Payment to CRA of your balance owing for 2009 personal income tax is due April 30, 2010 for all personal income tax filers including self-employed.

June 15, 2010
Tax deadline for self-employed persons to file their personal income tax return. Any balance owing must be paid by April 30, 2010.

Canada Revenue Agency (CRA) has Web pages created specifically to tell you what you need to know about your 2009 income tax and benefit return?

To get information about the credits, deductions, and benefits to which you may be entitled or other information about your specific tax situation and CRA services available to you, go to www.canada.gc.ca/taxinfo.

The problem with income tax reporting is that nobody likes it and this is how the Government makes so much money from us even though they offer many tax deductions and tax shelters. Often in the last week we just gather a few papers and quickly put them in an envelope for an accountant.

Start early in order to make sure you have everything and that you gathered all the proof that will result in a tax credit or deduction. It is important to gather all your paperwork leading to your non-refundable tax credits and tax deductions before the income tax deadline of April 30th 2010. This could save you a lot of money!

Speaking of which, a pretty common question asked during tax season: What exactly is the difference between a non-refundable tax credit and a tax deduction?

Tax Deduction

A tax deduction reduces your income for the year in which you potentially over paid on your taxes. Come tax return season, you’ll get a refund on your over paid amount. I really like the concept of tax deduction as you deduct the amount from your income.

Remember that if you’re getting a big tax refund at the end of the year, the money was an interest free loan to the government.

A common tax deduction for Canadians is an RRSP contribution. Contributions made in RESP or TFSA are NOT tax deductible. One of the easiest ways to calculate the tax return based on a tax deduction, simply multiply the tax deductible amount by your marginal rate.

If your income is over $50,000 then your combined (federal and provincial) marginal tax rate will be around 35%-40%.

Some of popular tax deductions are:
- RRSP contribution
- Interest expenses
- Child care expenses

If you own a business, a tax deduction is the same idea but it works a little differently. As a business, you make money, subtract your tax deductions, and then pay taxes on the net amount. Businesses have big tax advantages over employees as they have numerous tax deductible expenses where employees have few.

Non-Refundable Tax Credits

Instead of reducing your taxable income, non refundable tax credits reduce your taxes owing. Therefore, you will not get extra money back if you have more tax credits than taxes owing.

The tax credit is calculated as followed: amount claimed x lowest federal rate. Therefore, if you have spent $500 in your children’s activity (maximum allowed as tax credit in 2009), you will get a tax credit of $500 X 15% = $75.

Where Tax Credit gets confusing is that provinces will match the federal rate with their own lowest marginal rate on some tax credits (like donation tax credit).

You have to keep in mind that some tax credits are federal programs only, while others are matched by the provincial programs too.

Among the most popular tax credits you can find:
- Tax credit for donation: If you made some donations for victims of earthquake in Haiti or any charity don’t forget to claim your credits
- Child Tax Credit
- Home Renovation Tax Credit: If you are a homeowner, you may be able to claim a non-refundable tax credit of up to $1,350, based on eligible expenses incurred for work performed or goods acquired after January 27, 2009, and before February 1, 2010, in respect of a renovation or alteration to an eligible dwelling. The credit applies to expenses of more than $1,000, but not more than $10,000.
- First-Time Home Buyers’ Tax Credit: If you are a first-time homebuyer, a person with a disability, or an individual buying a home on behalf of a related person with a disability, you may be able to claim a non-refundable tax credit of up to $750 for the acquisition of a qualifying home acquired after January 27, 2009 (closing after this date).

In addition to these, other credits and deductions may be available to you. For more information, go to www.cra.gc.ca/myhome.

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Tags: Tax Credits, Taxes

This entry was posted by FP on Sunday, April 4th, 2010 at 9:46 PM and is filed under Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.