Let’s be honest, 2020 sucked. You probably sat around, watched Netflix from dawn to dusk with lectures playing in the background. Then you relentlucy checked D2L, waiting for that notification bell to light up, showing signs of hope… or despair. Maybe you picked up a part-time job leaving you with an excuse to leave the house. Maybe you started a side-hustle to keep busy. Regardless of your situation, we can all agree, it was a crappy year. And there’s no better way to get closure than file your 2020 tax return! The Team at LM Tax has compiled some lit tax tips to polish off the decade.
- Deadlines! When do you need to file your tax return?
It’s hard enough to keep track of university deadlines, let alone the CRA’s deadlines. We’ll keep it simple!
- December 31, 2020 – the end of the tax period covered. You do not need to do anything by this date, but it’s important to know that your tax return will cover the period of January 1, 2020 through December 31, 2020.
- February 28, 2021 – this is the deadline for organizations to distribute tax related slips (i.e. T4’s, T5’s, T4A’s, etc.). Unless you are an employer, you do not need to do anything by this deadline.
- April 30, 2021 – this is the deadline to file all personal tax returns. Any returns filed after this date may be subject to interest and penalties. Mark this one on the calendar!
At LM Tax we offer an early filing discount! File with us before March 14, 2021 and receive a 10% discount. Learn more about Leong & Murphy’s 2021 promotion here.
- Tuition Credits! What are they? Do I get my tuition refunded?
As an incentive for attending post-secondary education, the government offers students non-refundable tuition credits. Tuition credits are accumulated when the student pays tuition in excess of $100 to an accredited post-secondary institution. There are three alternatives a student can implement regarding tuition credits:
- Claim tuition credits in the current year – If the student has a certain level of taxable income in the year, the tuition credits will be applied against the amount of tax owing. Therefore, the tax obligation will be reduced.
- Carry forward tuition credits – if the student has low-income status, they will not utilize all tuition credits, therefore, remaining amounts can be carried forward for use in future years. This could result in a larger refund in the first year after graduation!
- Transfer tuition credits – if your spouse, parent or guardian supported you through school, you can return the favour by transferring up to 5,000 credits (only after the credits have reduced your personal tax obligation to zero). Transferring 5,000 could result in an additional $750 refund for your parent or spouse!
Note: In Alberta, 2019 was the last year to accumulate provincial tuition credits, and effective January 2020, students will only be able to accumulate and claim federal tuition credits. Fortunately, provincial tuition credits earned in 2019 and earlier years are eligible to be carried forward.
To effectively claim tuition credits, you will need to obtain a receipt from your institution. The most common receipt is in the form of a T2202, which can often be found on your institution’s online web portal. An example T2202 can be found here.
- COVID-19! CESB / CERB? Free money?
As a result of COVID-19, the Federal Government rolled out two different benefits: the Canada Emergency Student Benefit (CESB) and the Canada Emergency Response Benefit (CERB). As a student, you were likely eligible for one of these benefits if you lost your job or could not find employment as a result of the COVID-19 pandemic.
We will not discuss the details of how to earn money from these programs, as the issuing periods have passed. However, it’s important to keep in mind that these benefits are taxable! As taxable benefits, you will need to claim the amounts as income on your 2020 tax return. Income tax was not deducted at the source of either benefit, therefore, this could result in taxes owing at year end. Every tax situation is different, and we recommend talking to your accountant or one of the specialists at LM Tax for advice on your tax situation.
- Student Loans! I can deduct the interest payments?
Student loans can be both a blessing and curse, however, at LM Tax we believe they can be a blessing if you treat them with respect. All debt requires some form of interest payment, whether it’s a car loan, credit card, or mortgage; but student loans are different. Student loans are interest free for as long as you are a full-time student, and most government sponsored loans hold a 6-month grace period where you need not pay any interest on the loan after graduation. Unfortunately, you will incur small amounts of interest on your loan after the grace period expires. Fortunately, there is a tax benefit to combat this; interest paid on student loans is tax deductible, meaning you can lower your taxable income by including amounts paid for interest on student loans. This will reduce your tax obligation and could lead to larger refund (or less taxes owing). As always, ensure that you supply supporting documentation and retain slips for six years.
For more information on student loan interest deductibility, visit the CRA website.
- Retirement Savings! But that’s so far away?
Yes, I know what you’re thinking! “I haven’t even graduated, why on earth would I be thinking about retirement?” Time and compound interest will lead you down a path of financial freedom faster than you realize. The two best vehicles to save for retirement are through a Registered Retirement Savings Account (RRSP) and a Tax Free Savings Account (TFSA). I won’t bore you with the math on why these are great options, however, I recommend you reflect on the following benefits:
- Tax deferred growth – when your money grows in a traditional savings account or stock market account, you may be subject to annual taxes. However, an RRSP allows you to save your money or invest in the stock market without an annual tax bill. In fact, you can defer taxes until you are retired, and need to remove the money from your account.
- Tax deduction – contributions to a RRSP are tax deductible. You can use the amounts contributed to an RRSP to lower your taxable income, which could earn you a larger refund (or less taxes owing). As a student your income is likely quite low (compared to what it will be when you are 30 or 40 years old); don’t worry! You can contribute to a RRSP and claim the deduction on a future tax return. Win-win!
- “Set it and forget it” – RRSPs are great to take advantage of time and compound interest. A $10,000 investment at 20 years old could leave you with over $57,000 when you are 50 (assuming a 6% rate of return).
Note: The RRSP contribution limit for 2020 is $27,230 or 18% of earned income for the year, whichever is lower. Previously earned contribution room is also carried forward and accumulated.
Click here for more info on RRSPs.
- Tax-free growth – similar to an RRSP, money in a TFSA grows without an annual tax liability… Actually, it grows without ever being subject to taxes. Therefore, any income earned in a TFSA will not be taxed, EVER, whether it’s $10 or $10,000. This is different from an RRSP, where amounts withdrawn are taxed as regular income.
- Freedom – money that goes into a TFSA has already been taxed (as deductions on your pay cheque), therefore, the government cannot tax it again. And, as mentioned above, the government also won’t tax you on income earned in a TFSA (i.e. dividends on stocks, interest, or capital gains). You have the freedom to deposit money, withdraw money, or leave it in there; no questions asked! This also makes TFSA’s excellent short-term savings alternatives. It may get you to Thailand or fund that downpayment on your first house!
- “Set it and forget it” – similar to an RRSP, a TFSA is a great place to park your funds and forget it. You’ll thank yourself later!
Note: The 2020 TFSA contribution limit is $6,000. Please click here for limits for prior years and more information.
- My Account for Individuals and why you need to register!
If you’re like us at LM Tax, you hate waiting around for Canada Post to deliver your mail… especially when it’s April and you’re waiting for a big refund cheque from the CRA. Not only that, but there is an important slip of paper attached to that cheque called a Notice of Assessment and you’ll need the information it holds to file next year’s tax return.
Wait no more! Visit myCRA and set up an online account. You’ll be able to receive your refund in a matter of days through direct deposit, track CRA mail, Notice of Assessments, and view prior year tax information. Don’t wait another year, set up your account now!
- Lit Bonus Tips!
Not bored yet?! Great! Here are a few bonus tax tips that will save you a few cups of coffee!
- Moving expenses – travel more than 40 kilometres for work or school? Claim the costs of moving as a deduction on your tax return! This includes gas, hotels, meals, etc. Don’t forget to hang onto the receipts! For details on moving expenses, please visit the CRA website.
- Medical expenses – any medical expenses prescribed by a doctor and paid out-of-pocket by you (not covered by insurance) can be claimed as a credit on your tax return. For example, if you are diagnosed with Celiac disease, you can claim the incremental cost of gluten-free groceries as a credit on your tax return, potentially expanding your refund! For an exhaustive list of allowable medical expenses, visit this website.
- Home office expense deduction – COVID-19 has made life hard for us in more ways than one. Some of us have had to complete our work from our living rooms, bedrooms, etc. If you worked from home more than 50% of the time for a period of 4 consecutive weeks, you may be able to claim $2 for every day you worked from home in 2020 up to a total of $400. Visit the CRA Website for details.
- Save the hassle and file with LM Tax! We’ll make sure you’ve got your bases covered, all while maximizing your refund. Have questions? Contact us! Want to get started right away? Well… get started here!
Disclaimer: The information provided above was prepared by Leong & Murphy (“LM Tax”) for information purposes only. Canadian Income Tax laws are constantly changing, therefore, LM Tax does not assume responsibility for any form misinformation. While the information provided in the article above is relevant to the 2020 Income Tax Year, LM Tax recommends that all individuals perform research and/or talk to a tax professional regarding their specific financial situation. If there are any concerns about the article, or any other information posted on this Website, please do not hesitate to contact the Partner’s at firstname.lastname@example.org.