I know, I know. It’s not December or April, so why am I talking about taxes now!? Well in order to take advantage of a number of tax savings opportunities, you need to actually plan ahead of time, and sometimes have extra money available!

In today’s post, I’ll be outlining some of the common tax saving opportunities available to young professionals.

1. Tuition Carryforward

If you recently graduated from a post-secondary institution, you can use any leftover tuition, education and textbook credits carried forward to reduce your taxes. You have to use it against all taxable income and cannot save any for future years if you have enough income to use the whole amount. If you took courses to further your education or certification courses, these might also be eligible to claim against your income. As of January 1, 2017, the federal government has eliminated the education and textbook credits, but you can still use any amounts you accumulated in the past against your income.

2. Interest from student loans

No one likes student loans, but the interest from federal or provincial student loans can reduce your taxes. You will receive a 15% tax credit on the interest you paid during the tax year or in any of the five preceding years (if not already claimed).

3. RRSP Contributions

Making a contribution to an RRSP has two benefits. The first is that you will be saving money for your retirement, and don’t have to pay taxes on investment income, you only pay tax when you withdraw. The second benefit is that you can deduct the amount you’ve contributed to an RRSP (or the amount you and your employer has contributed to a defined contribution plan) from your taxable income. I outline the RRSP in more detail in a number of videos {here}. If you’re in a lower tax bracket, you also have the option to carry forward your contribution to use in years when you are earning more money. Be sure to look at the tradeoffs of adding your tax refund to your RRSP and having it able to grow tax free (until you take it out in retirement or under the home buyers plan) sooner compared to getting a larger tax break when you’re in a higher tax bracket. I outline this in more detail in my video: RRSP Deduction Limit vs. Contribution Room. Tax refunds as a result of contributing to the RRSP should not be considered a windfall and instead should be reinvested right back into the RRSP.

4. Charitable Donation Tax Credit

If you contribute to a registered charity, you will receive a tax receipt which you can use to reduce your taxes owing. You will receive a tax credit of 15% on the first $200 donated and 29% on excess amounts. If you have income above $202,800, you’ll get a 33% tax credit on amounts above $200. You can carry forward donations for up to 5 years if you don’t want to use them in the current year. If you’ve been thinking about making donations and haven’t done so yet, now is the time to do it! The First-Time Donor’s Super Credit allows you to deduct an additional 25% for your donations if you haven’t deducted donations before (not exceeding $1,000), but donations have to be “paid” before the end of this year!

5. Medical expenses

If you don’t have a health plan with your employer, you have large expenses that have exceeded your coverage, or you have lots of expenses and the co-insurance amount you’ve paid (think the 20% you had to pay personally for drugs or massages) you might be able to use medical expenses to reduce your taxes. The tax credit of 15% is on the amounts above 3% of your income or $2,237 (whichever is less). You can select any 12-month period ending in the year for which you are completing your tax return (2017 for example), to maximize your expenses. Just make sure you don’t claim the same expense twice!

6. Transit Pass Credit

If you took public transportation to work and bought weekly or monthly passes, you may be able to claim a non-refundable credit. The government has eliminated this tax credit going forward, but you can still claim passes for the period of January to June 2017. Make sure you keep all your passes and receipts in case you’re audited. You cannot claim individual transit trips on your tax return and you need four consecutive weekly passes to qualify.

7. Moving expenses

If you have relocated for a new job or education, you can claim some of your moving expenses, as long as your new residence is 40km closer to work/educational institution than your previous home. What’s included? Moving and travelling expenses, meals and temporary accommodation, breaking your lease, having utilities connected and/or disconnected, real estate commissions and legal fees if you sold your home, to name a few. Mortgage interest, property taxes, insurance premiums and costs associated with a vacant former residence (to a maximum of $5,000) are also deductible. Expenses are deductible only from employment or business income earned at the new location and can be carried forward to another year.

8. First-Time Home Buyers’ Tax Credit

If you recently purchased your first home, you can claim a credit of $5,000. The rules to qualify are similar to those under the Home Buyers’ Plan, which is outlined in this video.

9. Ontario Energy and Property Tax Credit

You may be able to receive a tax credit if you paid rent or property taxes for your principal residence. There is also an additional credit for those living in Northern Ontario as well as low income earners to help with sales taxes; these combine to make the Ontario Trillium Benefit. This benefit depends on your taxable income. I’ve included a link to a calculator that helps you estimate the amount you might receive in the description below.

10. Stop loaning the government money for free!

If you find you are constantly getting tax refunds from the government, you can complete a T1213 form to get your employer to reduce the taxes withheld on your income. Tax refunds are just money that you have overpaid to the government throughout the year, and are basically loaning them money for free. The average tax refund in Canada for the 2016 tax year was $1,735. If you invested that money every year for 40 years (assuming you started working at 25 and retired at 65) earning a 5% return, you’d be almost $10,500 richer if you had that money available at the beginning of the year, rather than at the end of the year after your taxes are completed. One cautionary note though: be careful that you don’t reduce it too much (especially if you used credits that you won’t receive in the future: like tuition carryforward, moving expenses, student loan interest, etc.) since you don’t want to get hit with a big tax bill you’re not expecting.

 

These are just some of the common tax credits/deductions that young professionals should be aware of so that they aren’t paying more tax than they need to. Are you utilizing any of these tax benefits? Are there any tax credits or deductions that you think should be added to this list?