It is amazing how much your life can change in the span of a year. Perhaps you graduated and are now working full-time after moving to a new place. Or you bought your first home. Or you may have welcomed a new addition to your family in 2012. All these events are exciting but they can also make tax time a little more complicated. Understanding how they affect your taxes is the key to maximizing your savings.
Starting a career
If you started working full-time this year after being a student, you may get a pleasant surprise at tax time. Your 2011 Notice of Assessment should include any tuition or education credits you have carried forward. If you earned enough money in 2012 to pay tax, you should be able to use some or all of your carried-forward credits. This can mean a nice refund when you file your return.
Unfortunately, commuting costs are not an eligible employment expense. As a general rule, most salaried employees cannot claim employment expenses. The $1,095 Canada Employment amount is meant to help with the costs of having a job and it translates into $164 of tax savings. However, if your contract specifically requires you to pay certain job costs, you may be able to claim some of them at tax time. Your employer must provide a signed T2200 Form (Declarations of Conditions of Employment) and you must have receipts.
Moving for work
You are allowed to claim moving expenses if you move more than 40 kilometres and you have employment income in your new location. You do not have to have the job lined up before you move, but you have to get one once you arrive in the new place. You are allowed to claim expenses like mileage, movers and real-estate fees if you sell your home as well as up to 15 days temporary accommodation at either your old or new location. You cannot claim trips prior to your move made to find a new place.
Moving expenses can add up to significant tax savings because they are a deduction against income, rather than being a tax credit. It means the amount you spend is deducted from your income before you calculate your taxes. But they are also one of the most commonly reviewed deductions, so make sure you keep your receipts and documents to prove your expenses.
And depending on when you moved, you may not be able to use all your moving expenses on your 2012 return. You can only claim the deduction against income in your new location. For example, if you moved from Ontario to Alberta in November 2012, you may not have earned enough income in two months to deduct all your expenses. But you are allowed to carry forward your moving expenses to 2013, so you just have to wait a year to take full advantage of the savings.
First-time home buyers can claim the $5,000 credit, which translates into $750 in tax savings. If a couple are both first-time home buyers, they can split the $5,000 credit between them. If you borrowed money from your RRSP for your down payment, you begin to repay your First Time Home Buyers loan after two years. If you fail to repay your annual instalment to your RRSP, it will be considered income and you will need to report it accordingly.
Starting a family
If you welcomed a new member to your family in 2012 -- congratulations. No matter when the child was born during 2012, you will be able to claim the full child amount of $2,191, which means $328 in tax savings. Either parent can claim the child. But remember, maternity leave income is taxable and needs to be reported on your return, so the mother might want to claim the child to help lower her tax obligations.
You should also start receiving $100 per month for the Universal Child Care Benefit. You do not have to spend this money on childcare but, remember, it too is taxable and you will receive a slip so you can report the income on your return. The UCCB has to be claimed by the lower-income spouse.
Childcare expenses are another deduction that can lead to big tax savings. However, you need to have receipts to make the claim, since they are also commonly reviewed by the CRA. If you have an individual who cares for your child, your receipt needs to include the person's Social Insurance Number (SIN) to ensure the CRA will accept it.
Usually child care expenses must be claimed by the lower-income spouse, although there are a few exceptions such as when he or she is attending school or incarcerated. And you can only claim childcare expenses against earned income, such as employment or business income. So if you were on maternity leave and kept one of your children in daycare, you may be the lower-income spouse but childcare expenses cannot be deducted against maternity-leave income.
Life changes and taxes
If your life went through changes in 2012, you should notice a difference in your tax return. Make sure you understand what you should claim. In most cases, taxes become more complicated as your life changes and you earn more income. We taxpayers just have to accept the irony that younger people have more time and simpler deductions, while older people -- with kids and demanding jobs -- have less time and more complex tax issues. That's life.