Ensuring you Maximize your 2022 Personal Tax Deductions and Tax Credits

Unfortunately, any tax planning for your 2022 personal tax return needed to be done by December 31^st of 2022 and there is very little, if any, planning you can do in March and April of this year.

However, there is still hope to reduce your 2022 income tax liability, especially if you are not a detailed organizer of information.

Today, I will review a few deductions and tax credits people sometimes leave on the table. None of this is cutting edge information; it is just double checking you have claimed all your deductions and credits. In fact, if you read my last blog post On How to Get on Your Accountants Good Side During Tax Season, you may have already assembled much of that information for your accountant and your double checking and digging for receipts will be limited.

Tax Deductions and Tax Credits to Double-Check Completeness

Carrying Charges

Many people borrow to finance their stock market investments, real estate and rental property investments or capital contributions to their professional firms or other possible investments. In many cases, a summary letter of the interest expense paid on your bank loan or line of credit is not provided by the lender and can be easily overlooked.

If you have not received a summary document, see if you can obtain a summary letter from your financial institution. Failing that, ensure you have summarized each interest charge for January to December 2022.

Capital Losses

If you engage an accountant or use tax software to prepare your return, the software will typically keep track of any capital loss carryforwards you have to apply against any capital gains you incur in the year. However, the carryforward information is predicated on accurate historical information being input in the first place.

I have occasionally seen capital losses missed due to improper carryforward information, especially where T1 Adjustments have been filed in prior years in respect of capital gains and losses. To ensure your information is accurate (your accountant will likely do this if they have access to your CRA information) check your 2021 income tax assessment in the explanation section. This section reflects any capital losses carried forward. Alternatively, if you have registered for My Account with the CRA, check the balance online.

Donation Tax Credits

It is very easy to miss a donation receipt. It can be lost in the mail, caught in your email spam or be misplaced. I suggest you quickly scan your monthly bank statement and/or credit card statement to ensure you are not missing any charitable receipt.

Going forward (if you are not doing this already), best practice would suggest you enter each donation you make during the year on an Excel or other spreadsheet and have an additional column that tracks whether your have received the tax receipt for each donation you made. This allows you to follow-up any missing donation tax receipts. 

Medical Tax Credits

Medical receipts are similar to donation receipts. You should again review your bank statement and credit card statement to ensure you are not missing any medical receipts. For health and medical practitioners you use on a consistent basis such as orthodontists, chiropractors, physiotherapists, dentists etc. ask them to print out a summary of paid expenses for 2022 (or for the twelve month period ending in 2022 if you are using that alternative).

If you have a health insurance plan, you should go online and print out all the insurance statements relating to any reimbursements made by the insurance company in 2022. Under most health and dental plans, you will have incurred some portion of the medical or dental cost and that uncovered portion is deductible as a medical credit.

Going forward (if you are not doing this already), best practice would suggest you enter each medical expense you incur during the year on an Excel or other spreadsheet and have an additional column that tracks whether your have received a receipt marked paid for that expense (ensure your receipts reflect your payment made, this will keep the CRA happy). If you have a Health Insurance Plan, I would have an additional column that reflects insurance reimbursements for your medical expense. This ensures you claim all non-reimbursed medical expenses.  

Pension Splitting 

If you are eligible for pension splitting, this could result in significant tax savings. Most tax programs have a function to maximize the pension splitting, but I would ensure the function has been applied and any eligible pension income has been split to your benefit.

Employment and Business Expenses

Employees may receive a T2200s or T2200 from their employers that allow them to deduct home office expenses and other employment expenses. If you are entitled to claim employment expenses, ensure you have received these forms from your employer or request the form, if you are entitled to claim employment deductions.

Once you have the form, go through your expenses for the year to ensure you have captured all your home office, car or other employment expenses you are entitled to claim. It is best practice to record these expenses throughout the year (monthly or quarterly) so you do not miss any expenses or create a 5 hour receipt sorting project at tax time.

If you are self-employed, you will not need a T2200. However, the same advice holds as for business expenses as for employee expenses. Ensure you have captured all your expenses for the year through diligent tracking.

Ontario Staycation

If you are an Ontario resident, don’t forget to assemble your Staycation receipts. Ontario residents can claim 20% of their eligible 2022 accommodation expenses. For example, for a 2022 stay at a hotel, cottage or campground you can claim eligible expenses of up to $1,000 as an individual or $2,000 if you have a spouse, common-law partner or eligible children, to get back up to $200 as an individual or $400 as a family. For Staycation information, see this link.

 

The above discussion is not tax planning. It is record keeping diligence. As noted above, I suggest you get in the habit of tracking these items throughout the year to avoid missing any deduction or credit at tax-time.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

2022 Financial Clean-up and 2023 Tune-up

In January, we are keen to tackle our New Year’s resolutions. Yet most of us abandon our goals by March. Researchers have stated one of the main reasons we do not keep our resolutions is that we do not make our resolutions actionable and achievable.

So, if one of your financial resolutions is to clean-up your 2022 financial affairs and tune them up for 2023, I today provide a roadmap to make these goals actionable and achievable.

For each financial topic or issue below, I will discuss what you should do to clean-up for 2022 and what you should consider doing in 2023 to tune-up your finances.

 

Yearly Spending Summary  

 

2022 Clean-up

In 2022, the rapid increase in inflation and interest rates caused a significant increase in almost every Canadians spending. While you will have felt the impact of rising prices at the cashier, the pump and on your monthly credit card statement, many of us do not have a grasp of the details and/or quantum of these increased costs.

I use Quicken to reconcile my bank and track my spending. A couple weeks ago I printed out a summary of my 2022 spending by category for the year. This exercise provided some eye-opening data. This information is invaluable. It provides the basis for yearly budgeting, income tax information (see below), and among other uses, it provides a starting point for determining your cash requirements in retirement. If you do not use Quicken or some other tracking software or personally developed spreadsheet, it would likely require significant work to re-create your 2022 expenses. So practically, you may just want to start tracking your expenses in 2023.

 

2023 Tune-up

 

During my career, I often discussed financial, retirement and estate planning with my clients. One of the questions I typically asked for these planning exercises (especially for those whose spending was excessive), was what was the breakdown of their monthly costs? I would say in at least 60%-75% of the cases, people had little idea of their actual spending and when they undertook the exercise they were surprised at the quantum of their actual spending. If you are one of those people, I strongly suggest you buy a personal finance software program that lets you download your bank data (so it limits your time tracking your spending) or create a detailed excel spreadsheet with expense categories down the vertical axis and the month across the horizontal axis. Then fill in the spreadsheet at each month end.

By undertaking this expense tracking for 2023, you will be able to budget, plan short-term and project your retirement spending.

Income Tax Items

2022 Clean-up

 
I print out from Quicken the details of donations and medical receipts (acts as checklist of the receipts I should have or will receive) and summaries of expenses that may be deductible for tax purposes, such as auto expenses. If you use your home office for business or employment purposes (remember, you need a T2200 from your employer if you are not using the temporary flat method), you should print out a summary of your home-related expenses.

Where you claim auto expenses you should get in the habit of checking your odometer reading on the first day of January each year. This allows you to quantify how many kilometers you drive in any given year, which is often helpful in determining the percentage of employment or business use of your car (since, if you are like most people, you probably do not keep the detailed daily mileage log the CRA requires). Keep in mind if you are audited, you will probably have to go back and complete a log; using an estimated percentage of business use based on your odometer reading will typically not cut-it with a CRA auditor.

 

As I have a health insurance plan, in January I start to assemble the receipts for my final insurance claim for the 2022 calendar year. I find if I don’t deal with this early in the year, I tend to get busy and forget about it.

To facilitate the claim and lessen my administrative burden, I ask certain health care providers to issue yearly payment summaries. This ensures I have not missed any receipts and assists in claiming my medical expenses on my income tax return. You can do this for among others: physiotherapists, massage therapists, chiropractors, and orthodontists—even some drug stores provide yearly prescription summaries. This can depending upon your personal health care costs, condenses a file of 50 receipts into four or five summary receipts. 

 

If you are an Ontario resident, don’t forget to assemble your Staycation receipts. Ontario residents can claim 20% of their eligible 2022 accommodation expenses. For example, for a 2022 stay at a hotel, cottage or campground you can claim eligible expenses of up to $1,000 as an individual or $2,000 if you have a spouse, common-law partner or eligible children, to get back up to $200 as an individual or $400 as a family. For Staycation information, see this link.

 

2023 Tune-up

 

January or February is the perfect time to sit back and consider your income tax situation. 

On a personal basis, if you are married or common-law, review your 2022 income and estimated 2023 incomes to see determine if there is a significant difference in taxable income and marginal tax rates between you and your spouse/partner. In prior years, I would often suggest if the higher earning spouse has significant assets, that you consider a prescribed rate loan. However, with the rapid rise in interest rates, the 1% prescribed rate of early 2022 has risen to 4% for the first quarter of 2023. It is therefore no longer a slam-dunk decision to utilize a prescribed rate loan and you should discuss the merits with your accountant and/or investment advisor.

Where spouses have significant differences in marginal rates, you should review whether the higher earning spouse has any ability to pay a reasonable salary based on actual work undertaken by your lower income spouse. This is typically applicable where the higher earning spouse is self-employed or has a corporation. Where the higher income spouse is an employee, it can be problematic to pay a salary to your spouse unless an assistant is required by your employer and your T2200 from your employer reflects the requirement for an assistant. If you are considering paying a salary to your spouse, you should review this with your accountant.

Where a spouse has lost their job or has low taxable income and has their own RRSP, consideration should be given to whether they should draw down on their RRSP at a low marginal tax rate in 2023. You will have to navigate certain rules (if a spousal contribution was made in the last two years, the withdrawal will be taxed in the higher income spouse's income, so it is likely a non-starter). Also keep in mind the statutory tax withheld on the RRSP withdrawal may be lower than the actual tax your spouse may owe on their tax return.  

If you own a corporation, you should touch base with your accountant to discuss if your corporation has a tax-free capital dividend account available, if the company has refundable tax on hand, is the company going to be subject to the small business claw-back etc. or if there are any tax reorganizations or planning that can be undertaken to minimize current or future corporate and personal taxes.

Estate Affairs

2022 Clean-up

 
When discussing your estate, the terms clean-up and tune-up are often synonymous with initiate or update. Various reports suggest a considerable number of younger Canadians have no will -somewhere between 60-75% for the 18–45-year-old age group. This number improves dramatically for those over 55-year-old, yet depending upon the report, 20-30% of this cluster still do not have a will. So, it is as good a time as any to get your will drafted. In addition, most people who do not have wills also do not have powers of attorney (“POA”) for property and personal care in place. These vital documents should be drafted at the same time as your will.

If you have a will and POA’s already in place, then January is the perfect time to review whether your will reflects your current circumstances and/or current wishes. POA’s for personal care now may contain clauses for medical issues such as extraordinary measures or assisted death. You may want to consider whether your POA needs to be updated.

Where you have family obligations (spouse and/or children) whom you would wish to support if you died unexpectedly, then it is also time to investigate purchasing insurance (likely term or convertible term insurance if you want the lowest cost insurance).

If you already have insurance in place, you should review your policy to determine if the death benefit is still sufficient to support your family based on their current and expected lifestyle needs (including funding tuition for post-secondary school etc.).

 

2023 Tune-up

As noted above, for your estate affairs, your tune-up likely means initiating the drafting of wills and POA or updating these documents.

The reality of drafting a will or POA is that it usually takes many months to arrange appointments, fill out questionnaires and finalize these documents. So, making an appointment to start the process is a great first step for 2023. The same holds for insurance, the process usually takes several months, so contact your insurance advisor if you need insurance or want to increase your death benefit.

Year-end financial clean-ups are not much fun and are time consuming. But they can be extremely helpful in understanding your cash-flow, budgeting and retirement & estate planning. 

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.