In one of George Harrison’s biggest hits, the Beatles sang, “Let me tell you how it will be/ There’s one for you, nineteen for me/ ’Cause I’m the taxman, yeah, I’m the taxman / Should five per cent appear too small /Be thankful I don’t take it all.”
So here we are, more than a year into the pandemic — understanding that getting back to our new normal lives depends entirely on taming the virus, and also understanding that there are many routine things that must be attended to even though the virus has not yet gone.
Among those many routine things is filing income tax returns. By the end of this month, you should have most of your T4 and T5 slips and can be well on your way to filing – no extension of the filing date this year.
This is a very good time to do some tax planning as well as filing your return. There are a few ways to reduce your tax bill, but you have to plan for them during the year. If you haven’t been doing any tax planning, now’s the time to start. If you can reduce your overall income, increase the number of tax deductions throughout the year, and take advantage of certain tax credits, the result will be just as good as winning the Lotto – maybe even better, because it’s a sure thing and you can win year after year.
Let’s start with the simple stuff: The government offers you two ways to save money and taxes. You can put 18 per cent of your income into an RRSP and defer the taxes until you start taking the money out. For 2020, the year you’re filing for in April, up to $27,230 tax deduction is allowed. (It’s higher for 2021.) And for 2020, if you’ve never put money into a TFSA, you can put $69,500 in immediately and pay nothing in taxes when you take it out. If you invest it inside the TFSA , both your contribution and your profits are tax-free.
These two tax planning perks have been around for many years – the RRSP since 1957, the TFSA since 2009. Even now, one out of three Canadians has no RRSP, and more than 40 per cent of us have no TFSA. Considering that only a minority of Canadian workers receive any pensions when they retire, this seems to me a stunning oversight. Especially now and going forward: government deficits, which become government debt, are at their highest levels ever. This means that at some time in the future, stimulus spending will cease and the government will be looking for a way to get some of that money back. One way they can do this is to raise taxes and tax rates. So a little bit of tax planning now will reap big rewards in your future.
The pandemic may have given you another tax deduction. People like me who customarily work from home have long had the ability to claim the “work-space-in-the-home deduction”. If you’ve been working from home and/or have a home office, get your pencil sharpened. Add up all your household expenses for the year – utilities, maintenance and the like. Then figure out what percentage of your home’s square footage belongs to your office. That percentage of your household expenses can be claimed as your work-space deduction.
And of course, check to ensure you don’t have to repay any money if you’ve received CERB.
Tax planning is a vocation for many people, with good reason. Being able to split your pension with a spouse or partner can prevent your Old Age Security cheque from being clawed back. Opening a TFSA for your kids or giving them a gift inside a TFSA will save you taxes today and them taxes in the future. Even your charitable donations can save you taxes: first, make sure they are made before December 31. And if you can donate shares of a publicly traded company, you won’t have to pay capital gains tax.
Don’t worry about finding all the tax saving perks for this year’s return. But start looking for them today. It will pay off big in the future.
Dian Cohen is an economist and the founding organizer of the Massawippi Valley Health Centre
Cohendian560@gmail.com
Beware the taxman
By Dian Cohen
