With tax season upon us it’s important for taxpaying Canadians to round up all paperwork that deals with their personal tax returns and submit it to their tax preparation specialist. Taxes are a part of life and they allow the wheels of government to function on behalf of all of us. Still, it doesn’t mean we have to like it and we certainly don’t need to pay any more than our fair share. So how is our fair share determined?
Allowable Credits and Deductions
Simply put, each of us needs to take our total income from all sources and subtract allowable credits and deductions. This gives us our net income. This net income is taxed at a rate determined by a schedule put forth by Revenue Canada every year. Once we have this figure, the amount already submitted through remittances by employers, etc. is subtracted from the amount owing. If there is a remainder owing, this needs to be paid. If a surplus has been remitted, we get a refund. This is somewhat over-simplified but it is essentially what happens, especially for a relatively straight forward tax return.
The thing about tax credits is that there are literally hundreds of them available. This is why it is important to have a knowledgeable specialist involved in helping prepare your return. These credits when fairly applied will minimize your taxable income and thus the taxes you will need to pay. The rub is that the government and Canada Revenue Agency is not obligated to scrutinize your return and allow for any deductions you may have missed. That’s your responsibility.
Some of the main tax credits that you may be familiar with include:
- Your basic personal amount – $11,327.00 for your federal taxes as well as a provincial component
- An age amount – for taxpayers aged 65 or over at the end of the year – as high as $7,033.00 for 2015 based on your income down to zero if income is high enough
- A spousal or common law partner credit if one has a spouse or partner with little or no income
- A credit for eligible dependents – not necessarily just children
- An employment credit for employed Canadians
All of your income must be declared and taxed. To not do so is tax evasion and that is illegal. Tax avoidance, or paying as little tax as legitimately necessary, is a noble pursuit. Proper application of all your tax credits will ensure that you pay the least amount of taxes and get the maximum return you are entitled to.
Make sense? If not or if you need expert assistance in the preparation of your tax return connect with us. Taxes are what we do.