Tax tips for Canadian income tax return

We understand that you are here to learn tips for filing income tax so that you can maximize your personal income tax refund. Before we go through the tax tips, let us review how income tax system actually works in Canada. What you pay as tax amount is primarily driven by your income amount. However, Revenue Canada (CRA) allows you various deductions to cover eligible expenses or investment for you and your extended family members which reduces your taxable income. CRA follows progressive tax rate system which means higher personal income is taxed at a higher rate and lower personal income is taxed at lower rate. By applying proper deductions, you can reduce your taxable income and move from higher tax rate to a lower tax rate and reduce your tax liability. You can estimate your income tax quickly using our simple income tax calculator.

Maximize your tax refund

Let us look at the tax credit to maximize your tax refund. The key to maximize your tax refund depends on how you use the available deductions and non-refundable tax credits.

  • Non-refundable tax credits: Non-refundable tax credits can reduce your tax liability up to zero. If you have more non-refundable tax credits than your tax owing, you can carry forward or transfer your tax credits to other family members who can make use of those credits to reduce their tax owing and thus maximizing the tax refund for entire family. Each province has their own set of non-refundable tax credits. Not all credits can be transferred or carried forward.
  • Deductions: Deductions allow you to reduce your taxable income, resulting in less taxes and maximizing your tax refund.

You can maximize your tax refund using following 4 approaches to various deductions and non-refundable tax credits available to you:

  1. Split : You can split your pension income with your spouse. This will move spouse with higher income in a lower tax bracket resulting in lower combined taxes for the family. Certain non-refundable tax credits can be claimed by more than one individual. You can optimize the amount to be claimed by different people to get the maximum value of the available non-refundable tax credit.
  2. Combine: As Canadians, we are very generous. Almost 80 to 85% of Canadians make an average annual donation of around $400 to various charities. CRA recognizes donations to registered charities and provides 2 tiered non-refundable tax credit to enhance the value of your charitable donation. Since it is non-refundable credit, you can only reduce your tax owing by using this credit. It is better for higher income spouse to claim credit for charitable donation.
  3. Carry forward: You can carry forward certain tax credits to claim more tax benefits in the future. There is no minimum donation to claim donation tax credit. For first $200, you get tax credit at the minimum tax rate. Anything beyond $200 earns you tax credit at the highest marginal tax rate which can be different depending on your province of residence. CRA also allows you to carry forward your donation up to 5 years.E.g. As a good Canadian residing in Ontario, you donate $200 every year for 5 years. If you claim donation credit for $200 every year, you will get a credit of around $40 (@ 20.05%) every year with a total tax credit of $200. Alternately, you can carry forward all the donations for 5 years and claim it all at the end of 5 year. In this case, you will get $40 credit for the first $200 and $320 (@40.16% – highest marginal tax rate for ON) for the remaining donation of $800. You get a total tax credit of $360, 80% increase in your tax credit by just deferring the claim of donation credit and combining all donations to claim together. No safe investment can get you that kind of return.Similarly, you can carry forward your RRSP contribution and claim it in future years when you have higher income.
  4. Transfer: You can transfer certain tax credits to your spouse or parents. e.g. Student can transfer their tuition fee to their parents. Since student has limited income, parents can get tax credit for those tuition fees.

To find out all about credit and deduction, you can visit our Credit and deduction page.

How do I know if I owe taxes or getting a refund

FastnEasyTax provides 2 simple ways to calculate your tax return for free and find out if you owe taxes or you are going to get a refund for this tax year –

  1. Quick income tax calculator – You can use our simple calculator without creating an account to estimate your tax refund or tax owing based on your net income.
  2. Complete tax calculation – Create an account for free and use the CRA certified tax filing program to estimate your return. You can find out if you owe tax or you will get a refund for free.