Smart Canadians Make May Income Tax Month

Written by Posted On Monday, 01 May 2006 17:00

Canadians should act as if May, not April, is "Income Tax Month" and give themselves 12 months head start on return filing by acting on tax benefits offered to Canada's tax payers.

The pattern of sudden frenzy over income tax concerns in April, followed by almost complete disinterest in May is an annual, stressful waste of effort and opportunity.

  • Why spend April madly learning about tax deductions, credits and government programs in an attempt to pay as little income tax as possible, and then abandon this worthwhile project the day after the tax deadline?

  • Why not receive a year's worth of benefits, such as interest on RRSPs, and prepare to use programs like the Canada Revenue Agency's Home Buyers' Plan or Lifelong Learning instead of wishing you had?

  • Why has this last-minute management strategy become the accepted norm, cheerfully documented by media each April?

Answer? It's become a socially-acceptable habit, but it is not a useful nor productive one.

While the pain of paying income tax is still fresh in your memory, why not spend a little time in May setting up your finances to take advantage of tax deductions, credits and programs open to you? Invest some effort this month finding an accountant with relevant experience and a compatible style to guide your efforts or to improve upon the professional advice you've been receiving. Accountants, run off their feet in April, are open for new business in May.

Property owners often overlook the role that their real estate can play in making the most of every loonie they earn and in keeping as much of those earnings as possible. The federal housing agency, Canada Mortgage and Housing Corporation (CMHC) and the Canada Revenue Agency (CRA) offer many financial opportunities related to real estate:

  • Buying or building a new home may qualify you for the GST/HST new housing rebate.

  • CRA's Home Buyers' Plan allows use of RRSPs for purchase or construction of a home without penalty.

  • Renovating your home, with or without a professional contractor, may entitle you to a GST/HST rebate for substantial renovations, conversions and major additions.

  • Renting out all or part of your home involves allowable expenses and deductions that lower taxable rental income, and there's also the GST/HST rebate for new residential rental property.

  • Selling your home has GST/HST implications, offers principal residence exemptions from capital gains and may include income tax deduction of moving expenses.

  • Working from home as a teleworker, a business owner or a self-employed professional may entitle you to claim home expenses against income.

  • Including provincial tax credits and programs like those in Manitoba and Ontario with municipal benefits like property tax deferral can also make a difference.

Other government agencies and departments like Natural Resources Canada Office of Energy Efficiency also offer money-saving programs worth investigating.

If you are a self-employed business person (or plan to be one soon), a commissioned salesperson or a professional, you may be eligible to deduct expenses for the business use of a work space in your home. Salaried and commissioned employees, whose employers do not pay for or reimburse expenses incurred in earning employment income, may be entitled to deduct expenses for employment use of a work space in their home. Those who operate a day care in their home may also qualify to claim business expenses against their business income.

Deducting business-use-of-home expenses from income may enable you to buy a home with more home office space than you could otherwise afford or to locate in a more preferred area. Do you, or could you, meet one of these conditions:

  • this is your principal place of business where you mainly carry out your work; or

  • you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers or patients.

    The size of the work space stated as a percentage of the total area of your home determines the proportionate share of expenses that may be considered a deduction against income, although other factors such as seasonality of the business may be involved. Estimate how much you'd be eligible to claim against income from these allowable expenses:

  • maintenance costs such as heating, home insurance, electricity, and cleaning materials

  • property taxes, mortgage interest (or rent, in rented premises) and capital cost allowance

Caution: The capital gain and recapture rules will apply if you deduct capital cost allowance on the business use part of your home and you later sell your home, so proceed with forethought and professional advice before compromising your principal residence exemption.

Although deductions could cancel out income, they cannot be applied to increase a loss or to create a business loss. Expenses are limited to the net before-deductions income from the business in that taxation year, however, unused expenses may be carried forward to be added to deductions for that following year.

Yes, there are dos and don'ts, and forms to fill in, but that's where CRA or the appropriate government office will get you started and an accountant with home-based business experience will set you straight.

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