It's that time of year again - tax time, and it can be a truly taxing time for some of us. This is a topic I haven't really covered thus far, but is something every single one of us has to deal with. Many dread tax time, as it involves collecting documents from work, various financial institutions, healthcare expenses, education records and those oft-forgotten public transit receipts. And this is just scratching the surface! If you have any kind of business, the documentation needed will be even greater. Then of course, there's the big moment when you find out whether the government owes you money or you owe the government money!
Let's think about what taxes are and why we need them, first. Taxes are used to pay for services that we are lucky to benefit from in a country like Canada. Public healthcare, education, police services, fire services, infrastructure, military and even more. The proportion of your taxes that will go to each of these services and more will depend largely on the province you reside in. I recommend checking out the detailed fiscal plans for each province to see how your provincial taxes are being spent. It takes a bit of hunting as the documents are lengthy, but there is usually some breakdown of expenditures for the next fiscal year. Healthcare and education tend to be some of the biggest provincial beneficiaries of tax revenue.
Although I could not find a pie-chart breakdown of the latest federal fiscal expenditures, the following from 2013-14 will give you an idea of the different categories where federally-collected taxes generally go:
With this in mind, you can look at the taxes you've paid and will have to pay as an investment in your province and country, and one that you are also on the receiving end of. Whether you get sick or injured and end up in the hospital, drive on overpasses and bridges, use public transit or get supplemental income in the form of Old Age Security (OAS) when you are in your golden years, it's an investment in your overall quality of life.
While you are gathering the information you need, ask yourself these questions, as they will help you identify necessary forms and what entity provides them (note that form numbers will differ for Quebec):
- Was I employed with a company? T4 - Employer (1 for each employer)
- Have I contributed to an RRSP in the past year? RRSP Contribution Receipt - Financial Institution (1 for each RRSP account, and an additional form for Jan 1 - Mar 1, 2017 contributions)
- Have I had investment income in a non-registered account? T5 - Financial Institution
- Have I traded securities? T5008 - Financial Institution
- Did I attend a post-secondary institution last year? T2202A - Post Secondary Institution (this includes textbook deductions)
- Have I donated to a registered charitable organization in the past year? Donation Receipt - Charity (generally provided for donations over $10)
- Have I donated to a political party in the past year? Political Party Contribution Receipt - Political Party
- Have I had any medical expenses that were not covered by my healthcare plan or paid for in full by a Health Spending Account in the past year? Medical and Dental Claims Summary - Health Insurance Company (a statement can be gotten for a date range from your online health insurance login)
- Have I paid for professional organization or union dues out of pocket? Professional Organization/Union Receipt - Professional Organization/Union (will say Tax Receipt on it)
- Have I paid for monthly/annual transit passes in the past year? Expired Transit Passes with Receipts - Local Transit Authority
The above is by no means an exhaustive list, but it will get most people the majority of their information unless they have a business. In addition to these forms, you will want to have your previous year's (2015) Notice of Assessment, which outlines limits for things like total RRSP deductions available, carried-forward tuition credits and capital losses.
There are also a number of events that can trigger the potential to have tax deductions that could benefit you, including allowable moving expenses (for a job), modifications to your home for disabled persons access, being a first-time home buyer, adoption expenses, caregiver allowances and more.
All of this exciting information can be used to reduce the taxes you pay, often resulting in a tax return. It should be noted that RRSP contributions will always reduce your taxes payable (unless you already have 0 taxes payable), as they are a direct reduction of your net income. Knowing this, you can secure your own long-term future while getting an immediate benefit by contributing to your RRSP each year. Unfortunately, the period has ended (March 1, 2017) that would allow you to contribute to an RRSP for the 2016 tax year, but it's not too late for 2017 taxes.
When it comes to filing taxes, you can work through the physical workbook (not recommended), use free software that walks you through step-by-step while filling in boxes for you based on your inputted information (I personally use StudioTax), pay for software that will also walk you through step-by-step (such as Intuit's Turbotax) or pay a tax preparation agency like H&R Block to do it for you. With all options, you will still need all the forms that are relevant to you, so there's no getting out of gathering up all that information. For the software options, you'll want to ensure that the one you choose is Netfile-compatible, which simply means that the Canada Revenue Agency (CRA) has approved the software for electronically submitting returns.
The nice thing about the software options is that they are more user-friendly than ever before, and are updated to ensure they incorporate changes between tax years. And you don't have to mail in your return (unless it is a complex one), you simply have to keep all your supporting documentation for a period of at least 6 years, in case the CRA audits you. If you have never used tax software yourself yet, a route I recommend taking is to try filling it out yourself, but don't submit it. As a first-check, the CRA has recently introduced the ability to auto-populate a number of forms onto your tax return based on information it has for the main forms, which requires a CRA account login. Use this feature to double-check the forms you are inputting for errors or missing forms. Then, take the documentation to a tax preparation agency and pay to have them submit it, but bring the tax return home and compare it to what you entered in the software.
If it matches, it will give you the comfort level to do your taxes in successive years, saving you money!