Last Minute Tax Tips
- Tax year 2007
With the April 30th tax return deadline
fast approaching, some people overlook deductions that they may be
eligible to claim. Below are a list of some available deductions:
Interest Expense - The key to
deducting interest expense on your tax return is if the funds were
borrowed to provide the capital used to earn income. If you must
borrow, try to borrow for investment or business purposes, rather than
for personal reasons. If you have the funds to repay a debt, repay
the personal debt first, and keep the one that provides an interest
expense deduction on your tax return.
Medical expenses. Medical
expenses for yourself and eligible family members can be claimed as
credits on your tax return. These expenses may include fees paid
to medical practitioners; the cost of prescription eyeglasses, drugs and
medicine; fees paid for lab work; and premiums paid for private
insurance, including those made to your employer's health plan.
In order to maximize the claim, the
deduction should be claimed against the spouse who earns the lowest
income.
Charitable donations. Once your donations are greater than $200,
the percentage of charitable donations you are allowed to claim
increases. It is therefore beneficial to pool donations on the
return of the lower earning spouse and carry them forward for a maximum
of five years to maximize your claim.
Safety Deposit Boxes - One
of the deductions that is often missed is the fee for your safety
deposit box. These fees can be deducted at line 221 of the personal tax
return, "carrying charges and interest expense".
Lend your Spouse Money - If
one spouse is in a higher tax bracket, it may be beneficial to lend
money to the lower-income spouse. Money can also be loaned to a child.
The funds can be used to purchase investments, and tax on the investment
income will be paid by the lower-income spouse at a lower marginal
rate. A promissory note should be written for the loan, with the
interest rate and principal amount specified. Interest must be paid on
the loan by January 30th of each year. The interest rate charged must
be greater than or equal to the prescribed rate set by Canada Revenue
Agency (CRA) at the time the loan is made. The prescribed
rates are subject to revision each calendar quarter, and can be found on
the CRA
Prescribed
Interest Rates page. The rate
to use is the one for calculating taxable benefits from low-interest and
interest-free loans to employees and shareholders.
The interest received by the lender must be included in
income, but is deductible as carrying charges by the borrower.
Automobile expenses. If you use your automobile for business you
can deduct the business portion of many expenses related to maintaining
and owning a vehicle. The expenses are usually based on the percentage
of business kilometers to total kilometers driven so keep your receipts
as well as a record of the kilometers driven.
Carry your capital losses. Capital losses can be carried forward
indefinitely, allowing you to use past capital losses to offset capital
gains this year. They can also be carried back up to three years. If you
reported capital gains anytime in the previous three years you can
recover some of the tax you paid by submitting form T1A with your
return.
Transferable credits. Some credits can be transferred to a spouse
or supporting relative. The spouse with the lower income should claim
these, if possible. The person who is transferring the credit to you
must file a return. For example, if your child is in university but
doesn't need his or her education and tuition credits, he or she must
still file a return for you to be able to use them.
Even though time is running short, it is always worthwhile to see which
deductions you are eligible for. If you're unsure of your
situation and want to ensure that all of the deductions you are eligible
for are being taken, please
contact us.
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