The deadline is April 30th: here are some tax time tips to maximize your return

First, let’s start with the tax credits and deductions that are unique to you as an education member.

Eligible educator school-supply tax credit:

As of 2021, eligible teachers and early childhood educators have been able to claim 25% of up to $1,000 in eligible school supply expenses, up to a maximum tax credit of $250 a year (before 2021, the refundable tax credit was 15%). The list of eligible supplies was expanded in 2021 to include electronic devices such as graphing calculators, digital timers, and tools for remote learning.

Just a heads up that if you plan on claiming this credit, the Canada Revenue Agency (CRA) might ask you to provide certification that validates your eligible supply expenses.

So, it’s a good idea to request certification before completing/submitting your return. This certification is typically a form that can be obtained by either the school you’re employed with or your district representative. Keep in mind that your administration may require a longer period of time to get back to you with the necessary forms. Which is why it’s always best to gather any necessary documentation well ahead of the tax-filing deadline.

In order to be eligible for this credit:

• You must be a teacher or early childhood educator employed at an elementary/secondary school/a regulated child-care facility, and have a teacher’s certificate that is valid in the province or territory where you are employed (or must have a certificate or diploma in early childhood education that is recognized in the province or territory where you are employed)
• plies must be purchased within the taxation year(s) you are claiming and used in a school or in a regulated childcare facility for teaching or helping students learn—and must not already be reimbursable by your school/board and not subject to an allowance or other form of assistance (unless the reimbursement, allowance, or assistance is included in your income and not deductible)

Pension buybacks (OTPP):

If you bought back pension credits (due to a leave) during the same tax year in which you began collecting a pension, only payments made from your personal funds (i.e., by cheque or online banking) are tax deductible. Just be aware that you cannot carry forward non-deducted amounts to the following tax year; payments can only be deducted in the tax year in which they were made.

Receiving OTPP benefits? Click here for more educator-specific tips when it comes to filing your taxes in retirement.

Pension income splitting:

Your pension is one of the greatest benefits of choosing a career in education—and pension income splitting is one of the best ways to keep more of that pension income in retirement.

How pension income-splitting works:

• If you are the higher pension-earning spouse (collecting from OTPP for example), you can transfer up to half of your eligible pension income to your lower-earning spouse (not literally, but for tax purposes)—this ensures that both of you are kept within the overall lowest possible tax bracket
• If you and/or your spouse are receiving Registered Retirement Income Fund (RRIF) payments, and are over the age of 65, pension income splitting could also potentially reduce the impact of Old Age Security (OAS) clawbacks
• Keep in mind that neither Canadian Pension Plan (CPP) nor OAS payments qualify for pension income splitting

To ensure that pension income splitting is right for you, be sure to consult with a tax professional.

Notable updates and changes to tax rates and limits for tax year 2023:

• The Registered Retirement Savings Plan (RRSP) maximum contribution limit changes every year. For 2023, it increased to $30,780 from $29,210 . (Important note: as an education member your maximum RRSP contribution limit is impacted by your pension contributions. The maximum that you as an individual can contribute will be found on your CRA Assessment Notice.)
• Canada Carbon Rebate (CCR): Formerly known as Climate Action Incentive (CAI). Prior to 2021, the CAI was a refundable tax credit claimed annually on personal income tax returns. In July 2022, the Climate Action Incentive Payment (CAIP) changed to be paid as a quarterly benefit paid to those eligible, four times a year. Amounts vary per province.
• Federal and provincial income tax brackets increased to keep up with inflation.
• The Basic Personal Amount(BPA) (the amount of tax-free annual income) increased to $15,000 for 2023.
• Employment Insurance (EI) premium rate – the maximum annual insurable earnings changed from $60,300 in 2022 to $61,500 in 2023. The rate increased at 1.63%.
• Maximum pensionable earnings (the amount used by the government to calculate CPP contributions for the year) increased to $66,600 in 2023, up from $64,900 in 2022.
• The employee and employer CPP contribution rates increased from 5.70% in 2022 to 5.95% in 2023.
• The Canada Child Benefit (CCB) The maximum annual benefit amount from July 2022 to June 2023 for children under age 6 is $6,997 and $5,903 for children aged 6 to 17.
• Home Office Expenses Deduction: Eligible Canadians who worked from home in 2023 will be required to use the detailed method to claim home office expenses. The temporary flat rate method does not apply to the 2023 tax year.

Here are a few other credits and deductions to have on your tax filing radar:

First-Time Home Buyers’ Tax Credit (HBTC): This non-refundable credit (also referred to as the Home Buyers’ Amount Tax Credit by the CRA) has a maximum claim of $5,000 to a maximum claim of $10,000. It can result in a maximum tax rebate of $1,500. In order to qualify, you or your spouse/common-law partner must have acquired a qualifying home during the tax-filing year and you must not have lived in another home owned by you or your spouse/common-law partner in the year of acquisition—or in any of the four preceding years.

Canada Workers Benefit: The benefit rates and income thresholds, which were introduced in 2021 by this refundable tax credit for low-income earners, still apply. It features a secondary earner exemption (click here to learn more about the CWB).

Canada Training Credit (CTC): This refundable tax credit covers up to 50% of the eligible tuition and fees associated with taking a course or training program. Since January 1, 2019, eligible individuals have been able to accumulate $250 per year—up to a maximum lifetime credit of $5,000.

The amount of the CTC is the lesser of:

• Half of the eligible tuition and fees you paid for the year, OR
• Your CTC limit for the tax year

Home Accessibility Tax Credit (HATC): Homeowners who are over the age of 65, or are disabled and qualify, are eligible for this non-refundable renovation tax credit. The HATC allows a deduction of up to $20,000 in expenses associated with a renovation that is needed for the sole purpose of helping you to stay in your home. While any changes must be permanent and attached to your residence in order to qualify for the HATC, any non-permanent updates that are listed as a medical expense (such as a new tub, grab bars in a shower, or an elevated toilet seat) can also be claimed.

Medical Expense Tax Credit – Service Animals (METC): Provides tax relief to Canadians with respect to certain expenses related to having a service animal. In order for expenses to qualify, animals must be trained or provided by an accredited individual or organization to perform specific tasks that help their owners cope with severe impairment. This includes blindness, profound deafness, severe autism, severe diabetes, severe epilepsy, or any severe and prolonged impairment that greatly restricts the use of a person’s arms or legs.

The Ontario Seniors Care at Home Tax Credit is a refundable personal income tax credit to help seniors with eligible medical expenses, including expenses that support aging at home. The credit is equal to 25% of your eligible medical expenses up to $6,000, for a maximum credit of $1,500. This amount is reduced by 5% of family net income over $35,000 and fully phased out by at most $65,000.

Do you have kids? Be sure to cash in on all eligible tax credits that pertain to parents. 

According to a survey by tax-filing software TurboTax, 93% of Canadian parents could be missing out on thousands of dollars in tax credits. That’s because only 7% of those surveyed actually planned to take advantage of childcare-related tax credits and deductions.

Those childcare-related tax credits and deductions include:

• Child Care Expenses Deduction: You can claim this if you hire caregivers or enroll your children in day/overnight camps, nursery schools and centres, educational institutions that provide childcare services, and boarding schools. The amount you can deduct annually is $8,000 for each child under the age of 7 and $5,000 for each child between 7 and 16. If you have a child who is eligible for the Disability Tax Credit, their deduction limit jumps to $11,000—regardless of the child’s age.
• Child Disability Benefit (CDB): This benefit is for families that care for children under the age of 18 who have a severe or prolonged impairment in physical or mental function. For the period of July 2023 to June 2024, you could get up to $3,173 per year ($264.40 per month) for each child who is eligible. Eligibility requirements are as follows: you must be eligible for the Canada Child Benefit (CCB); your child must be eligible for the Disability Tax Credit (DTC).

Be sure to visit the CRA’s website for full details on any of the above tax credits.

Bonus tax tips:

• If you sold your home last year: make sure to designate it as your principal residence when you file your tax return—forgetting this step could mean the principal residence exemption gets denied and the capital gain from the sale would be taxed as income (if you own multiple properties, discuss with a tax professional about whether or not to designate your recently sold property as your principal residence).
• If you are a diabetic: be sure to file your receipts that detail how much time/money you spent on life-sustaining therapy during the last calendar year in order to get back the money that is owed to you (through the Disability tax credit).
• If you are a caregiver: specifically if you are supporting a spouse, common-law partner, or a dependent with a physical or mental impairment, the Canada Caregiver Credit is a non-refundable tax credit that may be available to you (click here for a full description of this tax credit, including eligibility requirements and the total amount you can claim).
• If you have a balance due on your 2023 tax return: make sure you file by the deadline, April 30, 2024, even if you don’t have the cash to pay. Interest on any unpaid amounts owing for 2023 will be compounded daily starting May 1, 2024, however, there is also a late-filing penalty on any amount owing past the deadline which is calculated as 5% of your balance due, plus 1% per month for a maximum of 12 months.
• If you collected any pandemic-related benefits in 2022 such as Canada Emergency Response Benefit or the Canada Recovery Benefit, you may have some taxes owing, even if you only received benefits where taxes were withheld (since the marginal tax rate of most Canadians is higher than 10%).

 

Finally, when it comes to filing your returns this year, the CRA recommends doing so electronically. 

While the CRA will continue to process paper returns, this method tends to take longer to be processed. To get your notice of assessment (NOA) and refund faster and more securely, be sure to sign up for direct deposit and to file online.

Have a tax refund coming your way? Let us help you put it to good use.

From pay grids to pension plans, Educators Financial Group understands how your pay structure works during your working years and in retirement. This means we can provide you with the right strategy to make that refund work harder—so you can achieve your financial goals, faster.

Have one of our financial specialists contact you about maximizing your tax refund.

Plus be sure to check out: 6 ways to make better use of your tax refund.

Sources:
https://business.financialpost.com/personal-finance/taxes/what-every-parent-needs-to-know-about-deducting-child-care-expenses-come-tax-time 
https://wolterskluwer.ca/blog/climate-action-incentive-payment-amounts-for-2020/
https://www.canada.ca/en/revenue-agency/services/child-family-benefits/child-disability-benefit.html
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/whats-new.html
https://www.investmentexecutive.com/news/industry-news/whats-new-on-income-tax-returns-for-2021/