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Preparing for the Income Tax Deadline (2013-2014): Personal Taxes





Income Tax Deadline

With the income tax deadline just around the corner for tax year 2013, which is May 5, 2014 it’s time to start thinking about what’s required to file.  Why isn’t it April 30 like other years?  CRA had to close down their NETFILE services for a few days due to an internet security vulnerability called Heartbleed Bug.  In light of this, they have extended the deadline.

If you are a small business owner, you have until June 15th to file, but any taxes owning must be paid by April 30th.  If you are entitled to a tax refund,  although the deadline is at the end of April, the sooner you file, the sooner you get your tax refund

When preparing to file, there is paperwork required to be collected for information purposes, or even to be submitted to CRA.  For me, I use a filing cabinet and separate receipts and other paperwork by category, then use a spreadsheet to summarize everything.  I typically organize the spreadsheet by income, claimable expenses, small business, rental properties well before the income tax deadline.  This article will focus on preparing to file personal taxes with future articles explaining small business and rental properties.

Income

The first step in organizing your taxes is adding up all taxable income for the year.

  • T4 – These are all sources of “other income” such as salary income, employment insurance, pension etc.  The T4 slip will be provided by your employer/government.
  • T5 – This slip usually comes in the mail from your investment brokerage and covers your dividend and interest income.
  • Capital Gains/Losses – This will need to be tracked yourself and is a result of buying/selling investments within a non-registered account (or real estate).  Here is an article on how capital gains tax works.  As well, if you buy and sell the same security multiple times, here is how to calculate the adjusted cost base.
  • Universal Child Care Benefit – If eligible for this program, you’ll get a statement from the government as to the amount received for the year.  This amount can be claimed under the lower income spouse.

Claimable Expenses

After figuring out the income, it’s time to get to the good stuff.  That is, the tax deductible expenses to reduce income reported and tax credits to reduce income tax payable.  They include:

  • RRSP Contributions – The RRSP contribution slip(s) that you’ll receive from your bank/brokerage are important as they may need to be submitted to CRA with your return.  RRSP contributions are perhaps the largest tax deduction/deferral available for salaried workers.
  • Charitable Donations – Usually when you make an online donation you’ll get an email tax receipt shortly afterward.  If you are a monthly contributor, then they’ll most likely send you a large donation receipt at the end of the year.  Note that if you paper file, you’ll need to include donation receipts with your return.  Here is more info on how the donation tax credit works.
  • Medical Expenses – For 2013 tax year,  you’ll get the 15% tax credit for qualified medical expenses in excess of $2,152 or 3% of net income (lower income spouse) whichever is less.  Note that health insurance premiums paid by an employee can be counted as a medical expense.  For example, if the lowest income spouse makes $40k net (ie. after deductions)  income per year, then medical expenses in excess of $1,200 will receive the tax credit.
  • First Time Home Buyer Tax Credit – This is a tax credit that was introduced in a few years ago for new home buyers.  New home buyers are given a non-refundable tax credit on the first $5,000 in expenses related to purchasing the home ($750 value).  More details here.
  • Education Expenses – If you had education expenses such as tuition, then you may be eligible for the tuition tax credit.  As well, text books, student loan interest and an education amount might be applicable.  Check out this article on education tax credits for more info.
  • Child Care Expenses – If you have children, there are a few child care tax deductions available.   If you have a spouse who stays at home, a spousal amount is transferable to the higher income partner, daycare expenses (up to $7,000), children fitness and arts programs, as well as a $2,234 per child per family tax credit (worth about $335).
  • Investment Loan – For those of you who have the risk tolerance to leverage your investments, then providing that the funds were used for eligible investments, you will be able to claim the interest on the loan.  Here are some key considerations with an investment loan.
  • Transit Pass Tax Credit – For those of you who use the public transit system, you may be eligible to claim your transit expenses as a tax credit.  For example, if you paid $1200 in transit expenses for 2013, you would receive a tax credit of $180.  I’ve never claimed this one (public transit where I live isn’t ideal), so make sure to do your own due diligence.

After preparing all your paperwork prior to the income tax deadline, there are a few options.  You can DIY via tax paid online software like UFile or TurboTax, or free via Studiotax or Simple Tax.  Other options include doing an old school paper return, or using an accountant.

Even if you have an accountant, you’ll save them time, therefore save you money if you have everything organized before submitting to them.  Personally, I think that if it’s a fairly simple return with regular salary and perhaps some investment income, then an online program would be just fine.  However, as the tax situation gets more complicated (your own business etc), then it may warrant paying for professional advice.

Note that I’m not an accountant so this article should be used for informational purposes only.





19 Comments, Comment or Ping

  1. 1. Sandy

    Hi MDJ,

    Last yr was my first yr trading stocks. I thought that my broker IB will send me how much I made that would go towards capital gains on T5. But reading your post it seems that I’ve to calculate my own, that would be lot of work as I day trade. Is there any other option ?

    Sandy

  2. Hi Sandy, yes you are responsible for tracking your own capital gains/losses. Fortunately for you, IB does a great job of summarizing trades. If you login to your admin panel, you can download all of 2009 transactions in a nice summarized format.

  3. 3. Sarlock

    Just waiting for my YLO distribution breakdown and then I am ready to file.
    Most brokerages do a good job of tracking and organizing your trading activity for you so that calculating your capital gains isn’t too onerous of a task. Most will let you download your trading reports to an Excel spreadsheet so that you can put the finishing touches on organizing it.

  4. Thanks for the timely reminder. I still have my year end statement from my broker unopened. I really should start gathering my paper work at least.

  5. 5. The Rat

    @FrugalTrader: I tend to follow the same method of compiling all my files as you do. April 30th will come quick. The worst is waiting for those T5s that trickle in. I’ve had to do 2 amendments because of that and I hate it when that happens! Nice post.

  6. 6. Jeremy

    “… daycare expenses (up to $7000k) …”

    Up to $7000k? Wow, I have to start paying my daycare provider better … *wink*

  7. lol @ jeremy, good eye! fixed!

  8. fyi, I am going to link this onto my site if its ok with you. Also, I will be doing a short overview of the new EI program for self-employed because I am encouraging all my clients to sign up. I can send a copy along to you if you like to use.

  9. 9. Lizard

    What happens if I lost my T5 form, Can I ask for a new one and submit it for my 2010 tax year?

  10. @lizard, yes, contact the institution for another copy of the T5. Brokers shouldn’t have a problem issuing an extra.

  11. 11. Pacific

    Offshore Employment Tax Credit Phase Out

    I am a Hydrographic Surveyor with specialties in the area of submarine telecommunication cables and power cable installation. At the moment the struggle for work is more difficult as there are now many countries supplying surveyors at very low rates (mainly Malaysia, where the cost of living is very low compared to Canada). To remain competitive we have had to hold back and or lower our rates. Our only advantage has been the tax credit. 

    It seems backward thinking to force so many offshore workers to have to quit their jobs and be retrained. Also the amount of money we having been bringing into Canada and spending here is not insubstantial. 

  12. 12. Jamie

    Is it possible to carry forward investment loan interest expenses from a year of lower income to a year where you know your income will be higher?

  13. 13. Tax CA

    @Jamie – the interest expense must be claimed in the year it was “paid or payable” to meet the requirements under 20(1)(c) of the Income Tax Act.

  14. 14. SST

    Any experience with reporting flow-through shares?

  15. I’ve never purchased them, but I assume that the tax information will show up on a T5.

  16. 16. Tax CA

    Flow through shares are generally investments in limited partnership units. A partnership must issue a T5013 to report the amounts of income / loss / resource expenses which the partners are entitled to. It is important to track the adjusted cost base of your partnership units, as the annual income allocations will impact your acb.

    For example – assume you purchased units for $5,000 and received a resource expense allocation of $4,500 (a current year deduction), your ACB would be $500.

  17. 17. Punrun

    Do I have to wait for the tax information slips from my bank? I’m planning of submitting my income tax return online for the first time and they said that receipt from banks regarding tfsa, rrsp, etc. would take long; thus, I have to wait for it.

    I do want to submit my income tax return as early as possible but if it is the case then I’ll just have to wait and be patient.

  18. 18. Ali79uk

    Hi,

    I have started reading your blog and find it interesting, as I will be moving to Canada next year and need to clue myself up about local taxes and regulations.

    I noticed you also trade in Covered Calls and had a question regarding this. I read that as a Trader of covered calls you can trade on Capital Account and so the income is taxed as a Capital gain. I wanted to understand is this for all securities (as I currently trade US securities) or only Canadian securities.

    Secondly, when it mentions the frequency of transactions and the short term nature, what does this mean, ie I trade Covered calls (about 35-40 per month) and usually write monthly options.

    Your help/input would be most appreciated.

  19. @Ali79uk, it is really up to CRA’s (Canada Revenue Agency) discretion to determine whether or not you trade as a business. If trading volume is high with little or no other sources of income (ie. employment), then it is likely that they will consider your trading activity as a business. This will mean that your gains will be taxed as income but on the bright side, you can claim your losses as a business loss as well.

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