Tax season can be stressful, but it doesn’t have to be. Knowing the basics of Canadian taxation laws can help make the filing process easier. Whether you are a tax novice or a seasoned tax accountant, here are five tips every Canadian taxpayer should know to get the most out of their return.
1) The Basic Personal Amount
When it comes to Canadian taxation, one of the most important rules to understand is the Basic Personal Amount (BPA). This amount is a basic tax-free allowance given to every taxpayer in Canada. It helps to reduce the amount of taxable income an individual has and can be used to offset any taxes that may be owed.
The amount for 2021 is $13,808 for every taxpayer and it is adjusted each year based on the cost of living. This means that the first $13,808 of income you earn is not subject to federal taxes. You can use this allowance to reduce your taxes owed or if you have already paid your taxes, you can receive a refund of any extra taxes that have been paid on your income up to this amount.
The BPA can also be claimed by individuals with disabilities who are registered with the Disability Tax Credit, as well as those with certain medical expenses that exceed three percent of their net income. This additional amount can be up to $2,000 and is added to the regular BPA.
In addition to reducing the amount of taxable income, the BPA also affects other areas of taxation such as income splitting, pension splitting, and capital gains. Knowing how to take advantage of these benefits can help save you money when filing your taxes.
2) The Spousal or Common-Law Partner Amount
The spousal or common-law partner amount is a tax credit that you can claim when filing your taxes if you are married or in a common-law partnership. It is an amount equal to the lowest personal amount that the Canada Revenue Agency (CRA) has set for the year, and it reduces the amount of tax you owe.
To be eligible to claim this credit, you must have been married or in a common-law partnership with your spouse or common-law partner at the end of the tax year for which you are filing. You also must have not lived apart from your spouse or common-law partner for 90 days or more during the tax year and you must have not claimed the eligible dependant amount for any other person.
In addition, one partner must be a resident of Canada for income tax purposes for the entire year, or have died during the year. The other partner must have been a resident of Canada at some point in the tax year, even if they had departed before the end of it.
When claiming this credit, you must also provide your Social Insurance Number (SIN), as well as the SIN of your spouse or common-law partner. It’s important to note that both parties cannot claim this amount in the same year.
This credit can go a long way toward reducing your taxes and ultimately boosting your refund. It’s important to be aware of this credit so that you can take advantage of it when filing your taxes.
3) The Eligible Dependant Amount
The Eligible Dependant Amount is a tax credit available to individuals who have a qualifying dependent for whom they are financially responsible. A qualifying dependent is a person who meets the eligibility criteria, such as a minor child, grandchild, or infirm family member. To be eligible, the dependent must live with you and depend on you for support. This amount can provide a tax credit of up to $2,150 in 2020.
For tax purposes, an eligible dependent can be someone who is related to you by blood, marriage, common-law partnership, or adoption. To claim this amount, you must meet all the following criteria:
• The dependent is 18 years old or younger (or mentally or physically infirm);
• The dependent lived with you throughout the year;
• The dependent was financially dependent on you for support throughout the year;
• You provided more than half of the dependent’s financial support for the year; and
• The dependent has not claimed any other amount for their own tax return.
You may be able to claim the Eligible Dependant Amount even if your dependent does not have a Social Insurance Number (SIN). To do so, you will need to complete a T1013 form and send it to the Canada Revenue Agency (CRA).
The Eligible Dependant Amount can be claimed by either the taxpayer or their spouse/common-law partner. If both parties are claiming it, they must divide the amount between them based on how much each earned in the previous year.
If you are claiming the Eligible Dependant Amount on behalf of a qualifying dependent, make sure that you have all the required documents to submit to the CRA. This includes proof of relationship, income information, and proof of residence.
Knowing about the Eligible Dependant Amount can help you save money on your taxes and maximize your tax return.
4) The Age Amount
One of the tax benefits available to Canadian taxpayers is the Age Amount. It is a non-refundable tax credit that you can claim if you are 65 years of age or older at the end of the taxation year. The amount of the credit depends on your income and marital status.
To be eligible for the Age Amount, you must meet several requirements. First, you must be a resident of Canada. Secondly, your net income must be lower than a certain limit set by the Canadian government. You must also have filed an income tax return for the year and not be claimed as a dependant of another taxpayer.
The Age Amount can help lower your overall tax burden and reduce your taxes owing. If your net income is higher than the specified limit, you may still be able to claim the Age Amount depending on how much other income you have. In these cases, it’s recommended that you speak to a tax accountant who can help you determine whether you’re eligible and how much of the Age Amount you can claim.
The Age Amount is just one of many tax credits and deductions available to Canadian taxpayers. Knowing which ones you’re eligible for can help you maximize your tax savings and get the most out of your refund. A qualified tax accountant can provide advice and assistance in understanding and claiming all the credits and deductions for which you are eligible.
5) The Canada caregiver amount
The Canada caregiver amount is a tax credit that allows you to claim up to $6,986 for the care of a dependant with an impairment in physical or mental functions. This credit is available for those with a dependant who is 18 years of age or older and has an impairment in physical or mental functions. This credit can help offset the costs of caring for an impaired dependent.
To qualify for the Canada caregiver amount, the defendant must have an impairment in physical or mental functions. This means that they must be either blind or have an impairment in physical or mental functions that restricts their ability to perform everyday activities. To be eligible, the impairment must be severe enough to last at least 12 months or result in death.
The Canada caregiver amount can help make the cost of caring for a dependant with an impairment more affordable. The amount of the credit depends on the dependant’s net income and includes amounts to cover medical expenses, personal care services, care in a nursing home, and attendant care services. The credit also includes an amount to cover up to $200 for other related expenses such as transportation, equipment, and special diets.
To claim the Canada caregiver amount, you must complete form T778 and attach it to your tax return. You can also claim any other applicable credits that may apply to your situation. If you’re not sure which credits you may qualify for, you should speak to a professional tax advisor.
Caring for a dependant with an impairment can be both rewarding and challenging. Claiming the Canada caregiver amount can help make the burden of caring for a dependant with an impairment more manageable by providing some financial relief.