For many Canadians, receiving CERB in 2020 combined with not having as may deductions will cause their tax returns to look quite different this year. In some cases, people who would normally receive a refund, may end up owing tax.
In Canada, we are on a graduated tax system. Usually when someone’s income declines their tax liability declines as well, however, this year the situation may not be that simple.
For those individuals who received the Canada Emergency Response Benefit (CERB), they may (or may not) have noticed there was no income tax deducted at source. In addition, work travel was halted, childcare facilities were closed and other medical services like dentistry and optometry were put on hold. Having less of these deductible expenses, combined with paused contributions to retirement savings plans (especially through work sponsored plans) may lead to many Canadians owning at tax time.
While everyone’s tax situation is different, here are a few ideas for those who think they may owe in 2020:
RRSP Contributions. Topping up your RRSP contribution may be the simplest way to create a tax deduction, lowering your 2020 income and taxes payable.
Carry-forward Amounts. Have a look at your Service Canada account and/or your notice of assessment; this is where you will find any carry-forward amounts. These items include things like moving expenses, charitable donations, tuition/education amounts and student loan interest. If you have any of these available, the amounts can be used to reduce your taxes owing.
Capital Losses. Check your investment statements to see if any of your holdings are worth less than what you paid. These losses can reduce any net capital gains, saving you tax.
Charitable Donations. Many charities are suffering without their usual fund-raising events, making a charitable donation this year would help someone in need; and provide you with additional tax savings.
These tips are just a few of the ways you can save tax when filing your 2020 return. As always, I recommend you use a qualified professional to help with financial matters, including the preparation of your tax return. Please do not hesitate to contact me if you have any questions.
Have a great week,
Tracey
Source: Original article by Curtis Davis; FCSI, RRC, CFP, Senior Consultant for tax, retirement and estate planning services, retail markets at Manulife Investment Management. Tax Planning in a unique year; posted on Advisor’s Edge 10-30-2020