Are you ready for your 2018 taxes?

·       A number of personal tax credits reduces your net income dollar-for-dollar. Among these are the basic personal amount ($12,069 for 2018, available to all taxpayers), and the age amount ($7,494 for all those age 65 and over). Each province and territory also applies separate personal tax credits to their residents’ income-tax calculations.

·       A credit is a direct reduction in tax. Some credits are "non-refundable," which means you can only claim the credit to the extent you have taxable income, whereas other credits are refundable since you will pocket the amount even if your taxable income is zero.

·      A deduction reduces the amount of the income on which you pay tax and thus is worth more to those with higher incomes.

With this knowledge in hand, the first task is to identify all the slips and other paperwork (real or virtual) related to all of the above, which you will need to complete your return.

Tax slips related to income

Employment income – T4s and T4As must be delivered to employees and contractors by the end of February. Increasingly these are sent as PDFs via email.

Investment income – T5s and T3s normally are sent out during March, with some not turning up until April. The former are for interest, dividends and other types of income paid by corporations, while the latter are for income received from a trust, such as a conventional mutual fund (note that corporate-class funds will issue a T5). In addition to the amount of income, these slips include information needed to claim the dividend tax credit (see below).

RRSP contributions – These receipts normally are issued when you make your annual contribution. If you put money into your plan at various times of the year – or have accounts at more than one institution – make sure you have receipts covering all of your contributions.

Receipts to support tax credits and deductions

Charitable donations – Federal and provincial tax credits are available for donations to registered charities made during calendar 2018, as well as any donations you made during the previous five years (2013-2017) for which you’ve not claimed a credit. Official tax receipts are required to back up these claims. The federal credit is calculated at 15% of the first $200 donated and 29% on the remaining amount up to a maximum of 75% of your net income. The provincial credit amounts vary.

Tuition – Fees paid to a university, college and other qualifying educational programs can be claimed as a tax credit, but require an official tax receipt. In some cases, examination fees for licensing or certification paid to a school, professional association, provincial ministry or other qualifying institution may also be included as a tuition expense. The education-amount and textbook credits were no longer available for the 2017 taxation year onward, although unclaimed amounts from a previous year can be carried forward and claimed on your 2018 return.

Medical expenses – You can claim a credit for the eligible amount of medical or dental expenses not covered by a provincial health plan. The type of expense must qualify and is limited to the total of these expenses, minus $2,302 or 3% of your net income, whichever is less. Expenses for any 12-month period ended during 2018 can be claimed. Identifying a medically expensive 12-month timeframe that began in 2017 and ended in 2018 often is the only way many taxpayers can make use of this credit, due to the 3%-of-net-income limit. Note that total expenses for yourself, your spouse or common-law partner, and dependent children or step-children born in 2001 or later can be included in your claim. The credit also may include medical expenses you or your spouse paid for other dependents who are family members, depending on circumstances.

Professional /union dues – Generally, dues paid to a trade group or professional association in which membership is required to maintain your employment are deductible. This amount will be shown on a T4 slip, or on the appropriate receipts. Such groups include a trade union, an association of public servants, or an organization in which membership is required to maintain a professional status recognized by law. Other costs that can qualify for this deduction include professional board dues required under provincial or territorial law and professional or malpractice liability insurance premiums.

Moving expenses – You may claim a tax deduction for the cost of moving a distance of 40 kilometres or more for the purpose of relocating for work or to run a business. A move of that distance or more for study purposes also can qualify. The student must be enrolled full-time in a post-secondary program at a university, college or other educational institution. Eligible expenses normally include the cost of transporting and storing furniture and personal effects, related travel expenses for you and household members, and temporary living costs related to the move for up to 15 days. A number of other expenses can also qualify.

RRSPs – Contributions to a registered retirement saving plan are tax deductible. Subject to the annual contribution limits, you may deduct the total of any amounts put into an RRSP during the taxation year in question, as well as during the first 60 days of the following year. To be claimed as part of your 2018 deduction, these contributions must have been put into your plan between Jan. 1, 2018, and March 1, 2019 inclusive. Of course, you may also contribute any amount of your cumulative contribution room that you may have up built over previous years. Your deduction must be supported by an official RRSP receipt.

Reporting investment income

Reporting income from cash deposits, bonds, stocks, mutual funds, and other investments is a complex process. A brief summary follows. (For more detailed information, see How to report investment income on 2018 tax returns.)

·       Interest is taxed at your full marginal tax rate, similar to employment income. Depending on the type of interest-bearing investment, both income actually received during the year as well as accrued income must be reported on the 2018 return.

·       Dividends received from Canadian corporations are taxed at a more favourable rate, depending on whether they are eligible for the dividend tax credit. For example, in Ontario, a taxpayer with a taxable income of $100,000 in 2018 would pay tax at a 25% rate on eligible dividends, compared with about 43% on interest or employment income. In British Columbia, those rates are 18% and 38%, while in Quebec they are 29% and 46%.

·       One-half of capital gains realized from the sale of stocks, bonds, mutual funds, real estate or other capital investment is taxable. For the $100,000 Ontario taxpayer, that results in a capital-gains tax rate of approximately 22% for 2018 (19% in B.C. and 23% in Quebec). Note that the gain from the sale of a principal residence is not taxable.

·       The full amount of withdrawals from registered retirement accounts – such as a registered retirement income fund (RRIF) or life annuity – are fully taxable at your top marginal rate. This is because contributions to the RRSP that funding these accounts were deductible.

·       Investment carrying charges, including certain fees, commissions, load interest and other charges paid to acquire, maintain or sell and investment, are tax-deductible.

File by April 30

The deadline for filing 2018 income tax returns is midnight on Tuesday, April 30, 2019. Any outstanding income tax owing must also be paid by then. (If you are self-employed, you and your spouse have until June 17, 2019 to file. However, your taxes owing for 2018 must be paid in full by April 30.)

If you file after the deadline and owe tax as of April 30, you will be charged a late-filing penalty of 5% of the outstanding balance plus 1% of the balance owing for each full month your return is late. Note that if you also were charged a late-filing penalty for late-filed returns in any of the three previous years, the penalties on a late 2018 return are doubled.