Experts stress the importance of retaining original records and receipts, which are essential if the CRA reviews claims (Getty Images/JGI/Tom Grill)
Tax time can be stressful for everyone. To avoid the last-minute rush of gathering documents and putting finances in order, experts recommend starting to plan as early as possible (i.e., now).
“Although tax season is still several months away, it’s not too early to plan for your 2022 personal tax return,” says FCPA Bruce Ball, vice-president of taxation at CPA Canada.
General tax readying tips such as making RRSP contributions are likely well known. Another common year-end idea is triggering capital losses for investments held in non-registered investment accounts. There has been intense market volatility this year which has caused significant losses for some people.
“If you are considering a sale of non-registered investments with an accrued loss, selling them before the end of 2022 may allow you to use the resulting capital loss to offset capital gains you may have in 2022 or if a loss carryback is requested, to offset capital gains subject to tax in 2019, 2020 or 2021,” says Ball.
To ensure the loss will qualify, the same security cannot be bought within 30 days before or after the sale date by you, or people or other entities that are affiliated with you.
In addition to these common ideas, there are several lesser-known tips, most of which should be done before year-end (December 31, 2022). Here are things to consider as 2022 draws to a close.
PAYMENTS FOR EXPENSES
There are certain expenses that qualify for tax deductions or credits in a year. But since many of these are available only for items that have been paid for during the year, it’s important to make sure to pay for them by year’s end. This may ensure a credit or deduction can be claimed on your 2022 tax return.
In addition, Ball says to consider expenses you might normally pay for in the early part of 2023 to see if they can be advanced to 2022. “On medical expenses in particular, you can claim a non-refundable tax credit if you paid for medical expenses exceeding a threshold based on your net income,” he says. “If you have already incurred expenses in excess of the threshold in 2022, it can make sense to advance payments for any additional costs, if possible, to maximize the credit.”
As an example, if you are planning to purchase new glasses, consider buying them before the end of the year as opposed to early next year.
Many mutual funds make taxable distributions once a year, and December is a common month. “If you buy into a mutual fund before a distribution, you may be allocated taxable income or gains,” says Ball. “Consider checking on when a fund of interest makes distributions before buying a new investment in a non-registered plan.”
Moving is a major life event. Many people don’t realize that when they relocate for work-related reasons, associated costs may be deductible, says CPA Hugh Neilson, director, taxation at Kingston Ross Pasnak LLP.
“Homeowners may also overlook costs such as selling their old home. For example, there are realtor commissions, mortgage penalties and legal fees, or even the costs associated with purchasing a new home if the old home was sold because of the move. These can include land transfer fees, legal costs and more.”
Tax considerations are not just for homeowners. Renters should also know that the costs of breaking a lease can be claimed. Utility bills, as well as drivers’ licence replacements and vehicle registrations are often overlooked too, says Neilson.
And new for 2022, tradespeople and apprentices who temporarily relocate for work in the construction sector can claim up to $4,000 of related costs.
Post-secondary education costs are claimable. Neilson recommends not waiting until April to look for these receipts (which can easily be downloaded through the school’s student portal), since that’s when most students are in the middle of final exams and likely focused on schoolwork.
For students who are outside of Canada, foreign institutions need to complete a TL11A form from the CRA. “Starting that process early is advisable, especially if the registrar is not familiar with this form,” Neilson says.
It’s true you can claim donations up to five years prior, but experts still advise people to review their contributions and organize their receipts in advance of tax deadlines to ensure nothing is missed or forgotten. This also leaves enough lead time to request receipts if needed. Also, if donations are planned for early 2023, making the donation before year end will mean that you will get a tax refund or a reduction in the amount you owe one year sooner.
“While prior returns can be adjusted if older receipts are discovered, donations can be claimed in the year they are made, or in any of the five subsequent years,” says Neilson. “Donations as old as 2017 can be claimed on your 2022 return—but make sure you have not already claimed them in a previous year.”
KEEP YOUR RECEIPTS
No matter what you plan to claim, it’s essential to retain original records and receipts, which will be needed if the CRA reviews claims, says Neilson.
“While much of our tax information is communicated on information slips, you may have income from a small business or rental properties, or transactions in stocks and bonds, or even commodities or cryptocurrencies, requiring more detailed recordkeeping.” It’s much easier to organize your records as you go as opposed to waiting until tax season.
While readying your records, don’t forget to ensure you have a CPA you can rely on. Experts advise against waiting until the last minute to try and hire an accountant.
“Many CPAs will have checklists to assist you in gathering your tax information,” says Neilson. “A wide variety of tax credits and deductions exist, so make sure you ask your accountant about your specific situation.”
MAKE TAX PREP EASIER
Filing taxes can be overwhelming, but these tips from CPAs will help simplify the process. Plus, stay on top of the latest tax updates and news by subscribing to CPA Canada’s tax blog.