The deadline for most Canadians to file their taxes is quickly approaching. Nicole Ewing, Director of Tax and Estate Planning at TD Wealth, speaks with Greg Bonnell about tax strategies to keep in mind.
* Tax season is upon us once again. There are plenty of considerations before you file your returns. Joining us now with some of the things we need to keep in mind-- Nicole Ewing, Director of Tax and Estate Planning at TD Wealth. Nicole, always great to have you with us. This is the season for talking taxes, so let's get into it. What do we need to be mindful of?
* Oh, gosh, everything. Well, firstly, be mindful of the due date. So we are coming up against it now. And we want to make sure that we're not filing our taxes late. But we also want to be thinking about what credits and deductions might be available to us and think more broadly, as well, into our family unit. So what sorts of credits might be able to be shared between spouses or children or even parents, for that matter-- some interesting things that we can do there in terms of sharing our charitable expense, our charitable donation credits, and sharing our medical expenses, our tuition expenses. So there's a lot of opportunity there that if you haven't yet sat down and looked at some of this with your family, you might be leaving some money on the table.
* Because obviously, when you're doing that kind of planning, when you think about charitable donations, medical expenses, it does matter between family members, I guess, based on their income and who can get the better bang for their tax return by claiming certain things.
* That's exactly. So when we're thinking about a charitable giving, for example, [AUDIO OUT] our contributions and have those used by our-- by the higher income-earning spouse. So the higher income-earning spouse is going to be able to reduce their income more significantly than somebody who's in that lower tax bracket.
Similarly, when we think about medical expenses that we need to meet certain thresholds. So this is a 3%-- your income threshold in order to be able to claim your medical expenses. And that can be done for the family. So between you and your spouse, if you're combining your medical expenses, you really only need to meet that threshold once.
Now, I will caveat that by saying that if you are sharing a medical expense with a family member, like a parent, for example, than it is actually their 3% limit that needs to be met. But there's definitely some math that can be done in figuring out which spouse is actually going to be able to get the best after-tax result by claiming those expenses or the credits or deductions.
* Here's an interesting one that you brought to my attention-- gifting money to fund TFSAs as a tax play. Walk me through that one.
* Well, this is a really great strategy, because typically speaking, we are not able to gift funds between ourselves and our spouse without having the attribution rules apply. And what that means is when I gift those funds over, even though they are now owned by my spouse, they're going to be taxed in my hand because I gave them, and I did not pay the prescribed rate, or we didn't have a loan at a prescribed rate. And so that the income is going to be attributed back to me.
What you can do with the TFSA, because there is no income tax being triggered, you are able to gift those funds to your spouse, have them invest them in their TFSA, and they're not going to be attributed back to you. So this is a great play when we think about maybe we get a refund back. Maybe our children are filing for the first time. Maybe they're over 18 and being able to now contribute to their TFSA.
It's a great vehicle to be using. And it's an incredible tax effective because you're not paying tax on any of the income that is being earned within that vehicle. So certainly, if you've got children that are filing for the first time or for the first time able to contribute to a TFSA, have that conversation with them as between spouses. If one of you [AUDIO OUT]. When you can gift that money into the hands of your lower income-earning spouse, then it's not going to be-- the income won't be taxed in your hands going forward and instead, can be in their TFSA tax-sheltered.
* And Nicole, this next one makes you think about what for a while they were calling the "sandwich generation." I'm at the stage now where my youngest is going to turn 18 in the spring. I guess that makes them an adult in the eyes of law and all kind of stuff. The older ones are well beyond that. So I don't have those dependents like I used to when they were younger. But then if you start caring for elderly parents, there's things you need to keep in mind.
* There are. And even if your children are infirm and require your-- are still dependent on you, as that's defined under the Tax Act, then you may still be able to access some of that sharing with your children. But with parents, some things we think about-- if I'm caring for my parents, and I'm funding some of their expenses, I might actually be able to claim those on my taxes. So a good example of this might be a medical expense that I'm providing for a parent who's dependent on me for support. I would be able to claim their medical expenses that I have paid for on my taxes.
Now, we need to be cautious here because there was actually a recent decision where-- say, the administrative concession by CRA that allows spouses to share the medical expenses even if-- regardless of which one paid for them, so regardless of whose money was actually used to fund that. With parents, that concession does not extend to if my spouse paid for their parent's medical expenses, I cannot claim that. My spouse might be able to, but I'm not able to claim those. So we need to be really careful when we're thinking about the parent's expenses. But if I'm funding those, I can certainly write those off.
You would also want to be thinking about things like the caregiver credit. So if I'm providing that support to my family, look into that. The disability tax credit that, unfortunately, it used to be very, very difficult to navigate. And so some people may have been turned off the idea of applying for the-- to be qualified for the disability tax credit. But I would recommend looking into that if that's an option for you and seeing how you can maximize that, because to the extent those amounts aren't used by your dependent family member, you might be able to have them transferred over to you as well.
And then you mentioned your children. They might still-- they might be adults in the eyes of the law. But if you are still funding them, for example, for school or for tuition, you're having that conversation with them and seeing if they can transfer that unused tuition amount over to you to reduce your taxes, as well.
So we do need to be thinking about who in our family are we supporting, whether or not they meet the definition of a dependent for that particular purpose. So there's different definitions, sometimes, depending on what particular deduction or credit we're speaking about. But looking into those and seeing if you can't access some of those credits and deductions that are available either from your parents or from your children.
* Yeah, I recently said to my son, dig up your tuition slip for me. He's like, why do you need this? Because I paid it. You didn't pay it. So guess who's going to get the tax benefit?
* That is not an unusual conversation.
* Guess who paid it, son? Who continues to pay it? Before we end our conversation, specifically to provinces, I know that coming out of the pandemic, some provinces, including the one we're in here, Ontario, had some very specific tax credits. What do you need to be mindful of here?
* So as much of the news that we might be hearing about the tax season coming up, very often, we're speaking only about federal taxes and deductions and credits that might be available. But each province does have its own list of credits and deductions that might be available to you. In Ontario, for example, we had that "staycation" tax credit that, fingers crossed, will extend into 2023, but was there for 2022. So if you're in Ontario and you traveled within the region, that might be something that you can avail yourself of and reduce your taxes that way.
Each province is going to have these unique programs available to them. If you look for this online, the government websites are usually very proud to let you know about what sorts of programs they are offering. And it shouldn't be too hard to find that information for the-- for your local provincial credits. And, of course, tax planning software-- if you're using that-- those will usually autopopulate as well. So just keep in mind that the federal credits that we talk about are not the only ones that might be available to you.
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