MANY HAPPY RETURNS

FOR the average wage slave, doing a tax return is an elaborate, painstaking ritual to get back money overpaid in taxes to the government. Sure, it's also an opportunity for governments to retrieve additional tax on income we might have earned from side jobs or investments.

But with each passing budget speech, the tax return becomes more about retrieving your money than the government claiming what it missed the first go-around.

Politicians announce new tax savings yearly, and while it's great to pay less tax, every new tax credit, rebate or deduction only serves to muddy the waters.

Thankfully, tax software -- like QuickTax -- helps the average wage earner navigate the maze of tax bureaucracy. In many respects, tax software is like a magic box. The numbers go in and out comes the return in all its complex glory.

But upon review afterward of the approximately 36-page-long T1 form, you're certain to realize there's a lot more going on behind the scenes. And it's messy.

"If it was a road map, you'd likely never get to where you had intended to go," says Geoff Garland, a chartered accountant specializing in tax preparation for BDO Dunwoody in Winnipeg.

While tax-return software programs are excellent tools, Garland and other accountants say the software also gives us a false sense of security.

"They definitely work, and they get you a refund," Garland says. "But the software doesn't say 'Hey! I noticed you have two kids, and intuitively, I know you put your son in hockey. Did you know there's a fitness credit?'"

Chartered accountants are required to put in more than 40 hours of professional development every year, but Garland says keeping up with the latest changes to the tax rules easily eclipses that. "It's near impossible for the average person to keep up with the rule changes," he says. "I do this day in and day out, and there are still things that only when I get into tax season, I realize have changed or are altogether new."

Still, many of us stubbornly press on, doing the work ourselves at our own economic peril. And while tax rules are constantly in a state of flux, accountants say getting the most from your tax return lies in understanding how the deductions, non-refundable tax credits, refundable tax credits and rebates work.

The most familiar of their goodies is the tax deduction. Registered pension deductions and RRSP contributions are the obvious ones, but they are not true deductions so much as tax deferrals, says Bob Walker, chartered accountant and tax partner with PKBW Group in Winnipeg.

But for the purposes of immediate tax-savings gratification, pension contributions and RRSPs are the most effective deductions for reducing total income to arrive at your net income. And net income is important because it determines your marginal tax rate. While earning a high income is desirable under most circumstances, that's not the case when figuring out your return.

Walker says the goal is reducing income as much as possible by using every deduction legally available, including pension income splitting and child-care expenses. Still, it's not always possible to reach a lower marginal tax rate, but because deductions reduce net income, you will at least receive some money overpaid when taxes were deducted from your paycheque (at source) over the last calendar year.

While deductions are likely the most effective way to reduce your tax burden, tax credits -- in particular the non-refundables -- often hog the political limelight. The child fitness and public transit amounts make for great optics that give the impression of politicians working to reduce your taxes, but upon closer look, the thrill of tax savings is somewhat muted.

For one thing, Walker says, the credits are calculated at the lowest marginal rate. The new child-fitness tax credit allows you to claim up to $500 per child. It sounds substantial, but it only amounts to 25.9 per cent of that amount -- provincial and federal credits combined.

Although the taxpayer saves, the credit likely does little to encourage parents to get their kids more active, says chartered accountant David Markham with the Exchange Group in Winnipeg. "You've already spent the money, so they throw in a little nugget," he says.

Regardless of your motivation, these non-refundable tax credits, which also include donations and gifts, reduce your tax owing.

Along with deductions, these credits often lead to a tax refund, but they only retrieve overpaid taxes taken off your paycheque.

Refundable tax credits, however, can result in the government owing you money even if you are not in a taxable position. The refundable tax credits are applied only after the deductions have reduced your income, and the non-refundable credits have reduced your tax owing.

You are left with a tax amount payable and this is where refundable tax credits are applied, says certified general accountant Scott Anderson, with the Certified General Accountants Association of Manitoba. It's also where your taxes paid at source are deducted from your taxes owing, which for most wage earners leads to a return.

Many of the refundable credits often only apply if you are a low-income earner, like the medical-expense supplement, which you may receive with an income of $23,000 or less, Walker says. "Sometimes people think they don't need to claim medical expenses because they aren't in a tax position," he says. "But that's a refundable tax credit, so you would get it back even if you had no tax owing."

Last and certainly not the least are rebates, which can reduce your payable tax dramatically, Markham says. The Manitoba Tuition Tax Credit is likely the rebate that offers the greatest tax savings. It allows post-secondary students who graduated after Jan. 1, 2007, to use 60 per cent of their tuition fees to reduce their taxes. The maximum claim is $25,000 in tuition, which amounts to $15,000 (with a maximum of $2,500 a year) in real tax savings so long as you remain in the province. It even applies to graduates who studied out of province but settled in Manitoba to work.

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Get professional help

WANT to get the most from your taxes? Seek out the advice of an accountant. While their help may cost you a few hundred dollars, an accountant is less likely to overlook any available tax savings. PKBW charges $175 for a very basic return, says Bob Walker, a chartered accountant with the Winnipeg-based firm. The fee isn't tax deductible, unless it relates to the calculation of business or investment income.

Trouble spots: The average taxpayer knows about the most common deductions and credits, but they are often in the dark about other areas that could result in additional tax savings or they might be trying to claim an ineligible expense, which could lead to them owing money someday down the road.

Owed versus owing: If you owe the government unpaid taxes, you pay interest on that unpaid amount beginning May 1. It's not like being late on your credit card, "but it isn't exactly at prime, either," says Geoff Garland, a chartered accountant with BDO Dunwoody.

Disability tax credit: Chartered accountant David Markham says many people may overlook this non-refundable credit even though they may have a spouse or dependent that qualifies. Unclaimed credits can go back 10 years, which can add up to significant savings, he says.

Donations: Couples should combine their donations. You get only about 25 per cent tax savings for every dollar donated on the first $200, while you get about 46 per cent savings for every dollar above that amount, says Scott Anderson, certified general accountant.

Medical expenses: In most cases, you want to deduct expenses from the spouse with the highest income, but because medical expenses are only deductible when they exceed three per cent of income or $1,962, whichever is the lesser of the two, the lower-income earner stands to save more in taxes. If your income is $30,000, then any medical expenses above the $900 threshold are counted as a non-refundable tax credit. "So if your medical expenses are over $900, say $1,500, so you get $600 times 26 per cent," Markham says.

The home office: Many of us work from home on weekends and evenings, but that doesn't mean we can claim it as an expense deduction, Garland says. If your employer provides you with an office at your location of employment, you can't claim the home office expense.

Other employment expenses: If you try to claim work-related expenses, your employer needs to sign the T2200 form confirming the costs are necessary to your employment and that you don't receive compensation for them. If you use your vehicle (for other than commuting to work), you can claim car expenses, but it also means you have to keep detailed logs of where you went, when and how many kilometres you travelled.

Education Property Tax Credit: If you own a home, you should get $600 credited to your property taxes automatically. But if you recently purchased a home that was previously a rental property, you might not receive the credit, Garland says. Furthermore, if you are a renter, you can have the credit applied to your taxes because you don't receive a property-tax bill and the credit along with it. "If you're a guy living with three other buddies, you each don't get the $600 based on per renter," Garland says. "If the four of you are in a home together, you have to make a deal that one guy is going to claim this and give the others their share afterward."

Republished from the Winnipeg Free Press print edition March 22, 2009 C6