No good, terrible, but necessary taxes

Hey there, time traveller!
This article was published 01/04/2023 (972 days ago), so information in it may no longer be current.

Let’s be clear: this story about getting ready for filing taxes this month — if you haven’t already filed — is no April Fool’s joke.

That said, many Canadians may feel that doing their taxes — involving calculating a horde of expenses, tax credits and deductions — is a kind of cruel joke.

Of course, if you can keep on top of all the items pertinent to your tax situation, and of all the changes to existing credits and the addition of new ones, you can certainly end up paying less tax.

But a new survey from IG Wealth Management points to potentially troubling devilry in the details for many Canadian tax-filers.

Its annual tax study found only one in 10 Canadians feel confident they are taking full advantage of all the tax credits available.

“There are so many tax credits and deductions, that people may not know what they might be eligible for or not,” says Aurele Courcelles, assistant vice-president of tax and estate planning at IG Wealth Management.

“What all this speaks to is the majority of people could probably benefit from more comprehensive tax planning.”

Few do, according to the IG survey, finding only 22 per cent make tax planning a year-round activity with more than one-third believing this kind of activity is “not important at all.”

Year-round planning is often important, however, though it need not be onerous. Rather, planning can involve just having more awareness of tax rules, credits and deductions and how to use those to your benefit, Courcelles adds.

This can help us recognize, for example, what receipts to keep for medical expenses, or even home renovations. And with knowledge we’re also more likely to realize windows of opportunity before they close.

All too often those windows have already shut because, for example, by the time we typically think about taxes for 2022, it’s April 2023. And it may be too late to gather long-gone receipts or implement strategies to reduce taxes owing and potentially get a larger refund, Courcelles says.

Yet it’s hard to blame Canadians for planning for what they don’t always know. What’s more, our tax system is incredibly confusing; just take a look at the T1, the general income tax and benefit return with more than 160 lines of input.

One of the bigger challenges, especially for Canadians as they age, are medical costs and understanding how to use those to reduce taxes owing, says Evelyn Jacks, president of Knowledge Bureau, a Winnipeg-based leading provider of professional development education for advisers in Canada.

“We’re finding that many people don’t understand a lot of the medical issues,” says Jacks, author of more than a dozen tax books, including Make Sure It’s Deductible (for small business owners).

Indeed, there is plenty to keep track of from drug costs to dental bills to insurance premiums. What qualifies for medical tax benefits changes yearly too.

Jacks points to the recent expansion of what qualifies for the Disability Tax Credit, which now includes individuals with type 1 diabetes and other conditions requiring life-sustaining therapies, or people with mental illnesses.

Additionally, the home accessibility tax credit has been doubled to $20,000.

New medical expenses also qualify for as taxable credits for 2022 that may benefit people trying to start a family, including costs paid for surrogacy, donation of sperm, ova or embryos.

Of course, plenty of online resources are available to help you keep on top of changes. Many are free, like Taxtips.ca. Others you have to pay for like the Knowledge Bureau’s new lineup of micro-courses—on subjects like tax planning—for average Canadians.

“People can drill down on the issues that they should be speaking to an adviser about too,” Jacks says.

Indeed, tax advice is often beneficial to every Canadian—no matter how financially savvy.

Perhaps most of all, low-income Canadians need help even if they often mistakenly believe their income is so low, they may as well not file.

Yet they should and have, to boot, a perennially good option for help from the non-profit Community Financial Counselling Services (CFCS), which has a free tax clinic running until May 1 this year.

The pandemic threw a wrench in its in-person operations in the last few years, says CFSC debt counsellor Sally Massey-Wiebe.

“But we are back in the basement auditorium of the Norquay building at 401 York providing in-person tax preparation on a first come, first served, basis.”

The non-profit organization still also provides virtual tax help (call 204-989-1913 to arrange) as it did exclusively during the pandemic.

Either way, the program helps single individuals with annual incomes of $35,000 or less, and couples and single parents with incomes as high as $45,000 (plus an additional $2,500 per child) file their returns at no cost.

An added bonus is that CFCS tax experts can help these folks receive benefits they might have otherwise missed, Massey-Wiebe says.

“We also seek to empower participants and improve financial well-being by actively looking to connect them to any benefit program they could be entitled to based on their income and circumstances.”

Indeed, this process encourages clients to think about their tax situation a little more frequently than just these coming weeks before the filing deadline.

So too should everyone, regardless of income, Courcelles says.

“Even seemingly little things planning-wise can make a big difference,” he adds.

“It’s all about being proactive versus reactive.”