This winter may be a bit long in the tooth, but spring inevitably comes. Sadly, so does the April 30th tax filing deadline. Here’s some of the most common (and costly!) tax traps and deductions you should know about to help you save money on your upcoming income tax bill.
Safety Deposit Box: Deduct While You Still Can
You are permitted to deduct certain carrying charges incurred to earn income from your investments. For 2013 and previous years, these charges include the cost of renting a safety deposit box. This is perhaps the one of the most missed tax deductions.
For 2014 and subsequent years, you can no longer claim a deduction for safety deposit box. In other words, 2013 will be the final year that you can deduct such fees.
Lifetime Capital Gains Exemption: Know Your Limit
For dispositions of certain properties (such as qualified small business corporation (QSBC) shares) after 2013, the lifetime capital gains exemption (LCGE) limit increased from $750,000 to $800,000. The new limit applies for all individuals. (For those who have previously used the $750,000 limit, they will generally be entitled to an additional $50,000 limit after 2013).
However, be aware that for the 2013 year, the LCGE limit remains $750,000. As such, for dispositions of QSBC shares (or other qualified properties) in 2013, you can only claim a maximum capital gains deduction of $375,000 (i.e. half of $750,000) against eligible taxable capital gains.
First-Time Donors: To Claim Or Not To Claim?
A “first-time donor” to a registered charity can claim an additional 25% non-refundable federal tax credit when claiming the charitable donation tax credit. This enhanced credit applies to monetary donations made after March 20, 2013 of up to $1,000.
However, qualifying for the enhanced credit may not be easy. You are a “first-time donor” only if both you and your spouse (or common-law partner) have not claimed the charitable donation tax credit since 2007.
If you qualify as a “first-time donor” and have made monetary donations of less than $1,000 in 2013, it may be beneficial for you not to claim the donation credit in 2013, but rather to accumulate additional donations until your cumulative eligible donations reaches (or becomes close to) $1,000 in a future year.
First-Time Home Buyers: Maximize Your Savings
If you purchased a home in 2013 and are a first-time home buyer, you may be able to claim a non-refundable tax credit of up to $750 on the purchase of a “qualifying home”.
To qualify for the home buyer’s tax amount for 2013, you (or your spouse or common-law partner) must have bought a qualifying home during the year. Also, you cannot have lived in another home owned by you (or your spouse or common-law partner) between 2009 and 2013.
A “qualifying home” must either be registered in your name, your spouse’s or common-law partner’s name, or in both names. Also, it must be located in Canada. It includes existing homes and homes under construction.
You may also be eligible to participate in the Home Buyers’ Plan which allows you to withdraw funds from your Registered Retirement Savings Plan to buy or build a qualifying home. You can withdraw up to $25,000 in a calendar year, and you have up to 15 years to repay the amounts withdrawn.