Often people avoid thinking about their taxes until the tax season arrives. However, for effective tax planning and benefits, it is generally advisable to start planning your taxes as soon as the previous year’s tax filing season ends, and then follow up with a mid-year review during the third quarter of the year.
Now that the 2018 tax season has ended, the following is a list of tax issues prepared by AG Tax professionals that Canadian taxpayers should consider.
Canadian Tax Tips & Mid-Year Review for Taxpayers
Review Your Estimated Quarterly Tax Payments for Self-Employed
For Canadian self-employed individuals, the deadline to file the annual income tax return is June 15, however, any tax owing should be paid by April 30. In addition, self-employed taxpayers are required to make quarterly installments if the self-employed taxpayer had a tax liability of more than $3,000 in the recently filed tax return and in either of the previous two years’ tax return.
Instalments are periodic income tax payments that you have to pay on certain dates. These are to cover tax that you would normally have to pay in lump sum on April 30 of the following year. Instalments are not paid in advance; they are paid during the calendar year in which you are earning the taxable income.
Generally, the previous year’s tax due is used to estimate the quarterly tax liability. These tax payments are made, on a quarterly basis, to the Canada Revenue Agency (CRA). The due dates are March 15, June 15, September 15 and December 15.
If you are required to make instalments, the CRA will send a reminder for these advance instalment payments. The statement will advise the taxpayer of the amount they are required to pay based on the prior returns.
Now that you have filed your 2017’s tax return, it is important to review your advance tax payments so that they are close to the actual tax amount. Although, the CRA will refund any excess amount paid, if you estimate that your income will be much lower, you may wish to reduce your payments which increases your current cash flow.
To estimate your advance tax payment accurately, you may use the following steps:
- First, review your tax deductions and credits, if your income stays the same every year, pay the amount mentioned on the instalment payment reminder.
- If your income will be the same as the previous year’s but different from the prior two years, then base your instalments on the prior year’s tax liability.
If you are expecting more income, or may have deduction and credits lesser than the previous year, it is likely the tax liability could be higher than the previous year. In this case, consider preparing an estimated tax return, and either increase your advance tax payments or make a large payment by April 30 based on the tax amount calculated. Even if there is variation in the tax amount, if the instalment payments are timely, you will not be subject to any interest on any additional amount.
If you are expecting more credits and deductions due to certain additional business or other qualifying expenses with similar amount of income or lower, you may re-estimate based on an estimated tax return. Remember, you may need to pay interest if the installments are far lower than your required installments. Also, note that the CRA levies interest on any unpaid installment(s), at the prescribed interest rate.
Review Your Payroll Deductions & Tax Withholding
As a salaried employee, your employer is required to withhold tax from your monthly pay, and remit it to the CRA. Now that you have filed your tax year 2017’s return, it is recommended that you review, and revise your monthly tax withholding depending on whether you received significant tax refund or had to pay more. As mentioned above, do not forget to consider an increase or decrease in your benefits, credits, and tax deductions.
You should review your payroll deductions, such as employee insurance, RRSP savings deduction, and other similar deductions. If you have not maximized your RRSP savings, you may consider increasing it. Likewise, carry out a review for other savings and deductions. Do not forget to consider any major life-changing event, such as marriage, a newborn, or retirement, as these would also affect your refundable and non-refundable tax credits.
If you find yourself owing additional taxes each year, you may ask your employer to increase your deductions. Likewise, if you are constantly receiving large refunds, you may ask for a decrease in your withholdings.
Finally, if you have decided to revise your tax withholding, inform your employer and file Form TD1, Personal Tax Credits Return to adjust the amount of tax withheld from each pay-cheque. If you intend to reduce your tax withholding, you may additionally need to file Form T1213, Request to Reduce Tax Deductions at Source.
Review Your Additional Income Taxes
Often individuals may earn additional income from investments or renting out a room, garage or basement in their house for extra income while working as a salaried person. In this case, the person should consider increasing the tax withheld from their pay-cheque to cover the tax payable on this additional income or pay advance quarterly payments as a self-employed person to avoid any interest applicable on insufficient payments.
Review Your Canada Tax Benefits
As a Canadian resident, taxpayers qualify for certain tax benefits, which are recalculated after the tax filing season ends. For example, benefits for 2018 will be recalculated after the taxpayer’s 2017 tax return is processed. Some of these benefits are:
Canada Child Benefit (CCB) – The CCB is a tax-free monthly payment made to qualifying families, who are raising children under age 18, to help them with the childcare expenses. Some taxpayers may qualify for additional benefits, such as child disability benefit, or provincial benefits. Depending on the change in income and other benefits received, the CCB amount is recalculated in July of every year.
Therefore, do not forget to check the amount for which you are entitled so that you can prepare for the situation depending on the increase or decrease in the benefit amount.
Goods and Service Tax/Harmonized Tax Credit – The GST/HST credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST or HST that they pay. You do not have to apply for the GST/HST credit. The Canada Revenue Agency will automatically determine your eligibility when you file your income tax and benefit return. As with the CTB, the amount is recalculated in July and may increase or decrease depending on your income level.
Working Income Tax Benefit (WITB) – The Canadian government provides this refundable tax credit to qualifying low-income earning working individuals and families to reduce their tax burden. If you have recently started working, or lost a job, or there has been an increase or decrease in your income, it is recommended that you apply and check if you qualify for the WITB. You can claim the WITB on your income tax return. However, eligible individuals and families may be able to apply for advance payments.
Your taxes could vary every year depending on changes in income, expenses, changes in tax laws, life-changing events, unforeseen situations, and various other situations. As a result, it is extremely crucial to stay updated with the tax laws that impact your tax situation, and consider how any changes such as sale of a house or property, any inheritance, or other possible events effect your taxes and estimate of your tax due.
AG TAX LLP CAN HELP
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
Please contact either of our offices in Canada at 604-538-8735 (Greater Vancouver), or 780-702-2732 (Edmonton and Alberta) to arrange for an appointment to discuss your tax related queries.
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.