I was reading this information and though it would be beneficial to every one and hence pasting it here.

http://www.ey.com/global/Content.nsf/Canada/Tax_-_Library_-_Top_10_Tax-Filing_Tips


Top 10 Tax-Filing Tips from ERNST & YOUNG


By Gena Katz, CA, CFP

With tax season in full swing, people’s thoughts are turning to filing their personal tax returns. To assist you through what can be a daunting process, here are 10 practical tax-filing suggestions. Some of these tips will save time, some will save stress and—best of all—many will save money. Careful preparation and a methodical approach to completing the T1 form can take the anxiety out of tax season and help you to gain the most benefits in the process.

1. Charitable Donations—One spouse should claim all the family donations.
There are a number of filing opportunities relating to donations. The federal tax credit for donations is available in two stages. A low-rate credit is available on the first $200 of donations made in the year and a high-rate credit is available on the remainder. Spouses and common-law partners can claim donations in respect of one another—therefore, it makes sense for only one spouse to claim all of the family donations. A tax savings results because the low-rate credit is only used once. Another way to benefit from the high-rate credit is to accumulate donations made over a few years and claim them all in one year. The donation credit is available for donations made within the five preceding years. Remember, if you donated stocks, bonds or mutual funds, only 25% of the resulting capital gain must be included in your income.

2. Medical Expenses—The lower-income spouse should claim all medical expenses.
The claim for medical expenses is limited by an income threshold. In other words, the lower your net income, the more you can claim in eligible medical expenses. Because one spouse or common-law partner can claim medical expenses on behalf of the entire family, claim all expenses in the lower-income spouse’s return. But remember, this credit is non-refundable; the spouse who is making the claim should have sufficient income to absorb the entire credit. If you cared for an elderly parent, grandparent or infirm dependant in your home, you may be entitled to claim a caregiver tax credit.

3. Business Owners—Ensure you benefit from the many deductions available to business owners. As a self-employed individual, there are a number of business-related expenses that you can claim to reduce the tax you pay. Ensure that you have taken advantage of all available deductions, including automobile expenses, parking, business association fees, home office expenses (if you qualify), entertainment, convention expenses (a maximum of two per year), cell phone, depreciation on your computer and salaries paid to assistants, including family members. In most cases you can deduct private health-care premiums as a business expense instead of a medical expense and one-half of CPP paid in respect of self-employed earnings is deductible instead of creditable. A word of caution: If you claim home-office expenses, you’re likely better off not to claim the depreciation on the home office portion of your home. Although this will give you a deduction in the current year, you will lose some the capital gains protection available from the principal residence exemption.

4. Old Receipts—Certain deductions can be carried forward beyond the year incurred. In gathering together your information, you may stumble across older receipts you think are garbage, but that actually still have value in your 2005 return. Charitable donations can be carried forward and used in any of the five years after the year the gift is made. Medical expense receipts can be claimed for any 12-month period that ends in that year if they have not been claimed previously. In addition, under the fairness provisions, CRA has the discretion to make adjustments to previously filed returns (10 years back), in relation to certain errors or omissions, on request from a taxpayer.

5. Moving Expenses—The cost of travel, meals and lodgings if you moved to a new job or went away to school are expenses that can be claimed. If you moved during 2005 to start a new job, a new business or go to university or college, you may be able to claim expenses relating to the move. In addition to the actual cost of moving your personal effects, you can claim travel costs, including meals and lodging while en route. Lease cancellation costs, as well as various expenses associated with the sale of your former residence, are also deductible, including up to $5,000 in costs associated with maintaining a former residence that was not sold before the move. The expenses are only deductible to the extent of income from the new work or business location and if this income is insufficient to claim all of the moving expenses in the year of the move, the remaining expenses may be carried forward and deducted in the next year.

6. Tax Returns for Kids—Filing a return for children establishes room for RRSP contributions for future years. It is often not necessary for your children to file a tax return, even though they may have earned income in the year. Nonetheless, in many cases it makes sense to file a tax return. If your children had part-time jobs during the year or have been paid for various small jobs, such as baby-sitting, snow removal or lawn care, by filing a tax return they report earned income and thus establish contribution room for purposes of making RRSP contributions. Contributions can be made in any future year. Another advantage is the availability of refundable tax credits. Many of the provinces offer such credits to low- or no-income individuals. When there is no provincial tax to be reduced, the credit is paid out to the taxpayer.

7. Business Investment Losses—Money lost investing in a small business corporation may be claimed. If you’ve invested money in a small business corporation, perhaps to help a friend or family member get started, and all you have to show for your investment are shares or a note of a worthless corporation, you may be able to claim a loss on the invested funds. This loss, referred to as a “business investment loss,” is like a capital loss in that only one-half is deductible; unlike a capital loss, however, it can be claimed against any income in the year, not just capital gains.

8. Capital Losses—Carry back your capital losses. Capital losses can only be applied against capital gains—and if you have a net capital loss for the year, it can be carried back three years and/or carried forward indefinitely, to be applied against capital gains realized in those years. If you realized a net capital loss in 2005 and have realized net gains in any of 2002-2004, file a form T1A to carry the loss back to those years and recover the related tax.

9. Go Digital—Use tax preparation software to save time and maximize deductions.
There are a number of inexpensive income-tax software packages available that you can use to prepare your tax return. These programs often provide step-by-step instruction and helpful tax-filing hints based on the information you input.

10. E-File—Electronic filing is as much as three times as fast as submitting a hard copy. Electronically filed returns are generally quicker and easier to prepare and are less prone to mechanical errors. The processing time of electronically filed returns is substantially shorter than that associated with paper returns. If you are getting a tax refund, you can expect it within two weeks if you file electronically (as opposed to six to eight weeks for a paper return). Electronic filing options include Netfile, Efile and Telefile. In order to Netfile, you will have to use approved tax-return software. Alternatively, you can have your return filed electronically by using an approved Efile agent who will charge a fee for this service. Telefile is available for simple returns.

And here’s a bonus suggestion: Most people who report more than just employment income on their annual tax return can benefit from having the return prepared or at least reviewed by a professional advisor. Tax-return information can alert an advisor to a number of potential tax-savings opportunities that can provide benefits for many years to come.

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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada