Lessons Learned from 2014 Tax Filing Season

Summer is a perfect time for hunting…in case we are talking about the CRA.  Well, they call this act a  “processing review program”. In their own words, they select files that have been identified through a risk-scoring process for more in-depth review of specific elements like tax credits or tax deductions. As you know, most deductions and credits appear on page 4 and Schedule 1 of the personal income tax return.

CRA then simply asks taxpayers for more information to verify their claims. Don’t panic if you received that request, all you have to do is collect all the relevant paperwork and submit it to the tax department within 30 days since the date shown on their letter.

Below is a list of some tax deductions and credits that are the CRA’s favorites this year:

1. Public transit tax credit.

You can make the public transit credit claim for yourself, your spouse or common-law partner, and children under 19 at the end of the year. It is important to remember that sending copies of your monthly passes would not be enough. You should be able to prove that those passes belong to one of the above mentioned family members, and that you actually paid for them.

2. Amount for children.

For 2013 you can claim $2,234 for each of your or your spouse’s or common-law partner’s children who are under 18 years of age at the end of the year.

Some couples claim this amount on both tax returns, and that results in getting a letter from the CRA. Remember, if the child resides with both parents throughout the year, either you or your spouse (common-law partner) can make the claim.

In case of separation, if the child did not reside with both parents throughout the year, the parent or the spouse who claims the amount for an eligible dependant for that child, can make the claim.

If you cannot agree who will claim this amount for the child, neither of you can make the claim.

3. Rent paid in Ontario.

If your child is of legal age he or she may be eligible for the Ontario Trillium Benefit. Rental payments would help your kid to get the maximum amount possible. But here’s the trick: he or she should pay for the rent, not you. Regardless of whether your child lives with you or at another address.

Tip: if your child does not have enough cash, give him some money to pay for rent. CRA will ask either for cancelled cheques, or a letter from a landlord to prove those rental payments. Make sure that your child’s name is there.

This is a trap many students fall into. They get a tuition and education credit regardless of who paid for the University, and so they assume that parents can pay for their rent too, which is not the case here.

4. Child care expenses.

You can deduct child care expenses directly from your total income, up to a certain limit, and there also are some restrictions. It is important to keep a receipt from a daycare facility, or a letter from a babysitter. The latter should contain the following information: name of a child, SIN number of a babysitter, and the amount paid.

Tip: your older child (who is at least 18 years old) can look after younger kids in your family, and if you pay him or her for the job you might be eligible for the child care expense tax deduction. Also, your neighbor’s teenager, regardless of his age, can babysit your child, and those expenses could be tax deductible.

Some other notable tax credits that the CRA often wants to verify are caregiver amount and medical expenses, in case they look excessive. In most cases the caregiver amount is claimed for taking care of elderly parents (65 or older). Also, the net income of your parents should not exceed the certain limit ($20,002 for 2014, or $22,060 if he or she is infirm).

Tip: You should be able to prove that your parent actually lived with you at some time during the year, and was not just visiting you. In the latter case the caregiver amount will be disallowed.

In case of the medical expenses, you can go to the CRA’s website and check the list of those ones that are not eligible.