December 31 determines many factors influencing how much tax you pay.
New Year's Eve. Champagne toasts and countdowns. Kisses at midnight and Auld Lang Syne. It's a time to look forward to the year ahead, and reflect on the one just past. Especially your taxes.
Sorry to rip you out of the reverie, but taxes never sleep. And on December 31, Canada's tax laws set in stone a number of factors that influence your personal tax return.
The most significant of these may be your marital status. Were you a married person on December 31? Then you file as a married couple for the entire tax year, whether you were wedded before midnight at a New Year's Day gala or at a preface to New Year's Eve celebrations. Even if you've only been married a single day in 2013, you're treated as if you've been married the whole year. You do not get to choose.
Likewise, if you separated in a Christmas spat, you'll be treated as separated for the entire year. The exception is common-law couples, who must be apart for 90 days before they're considered separated.
This distinction can affect a number of tax-related issues, particularly where children are involved -- the Canada Child Tax Benefit, GST/HST credits, eligible dependant claims and more are affected when a couple separates. Use a Marital Status Change form (RC65) to advise the Canada Revenue Agency (CRA) of your standing.
This can happen in reverse, too, and the consequences could cost you money. For example, a single parent who marries or enters into a common-law relationship must now report his or her household income based on both spouses' earnings. This does not affect the amount of tax you pay but it can impact benefits if your household income increases.
The month after your union, the CRA reassesses for Canada Child Tax Credit and HST/GST credit purposes. You could end up repaying the CRA based on your new household income. If on December 31 you're married or in a common-law relationship that began in March, you could be on the hook for excess payments from April onwards if you didn't let the CRA know about your change of status.
December 31 is also the day that determines your province of residence. If you moved from Alberta to Nova Scotia in December, Nova Scotia's where you live for tax purposes.
This primarily affects your provincial tax return, which is filed with your federal tax return. Provinces have varying tax rates, so if you are moving from a province with a higher tax rate to one with a lower rate, that should be beneficial on your tax return. If the reverse is true, though, you might have a higher tax bill, since less money has been withheld at source than would have been in your new home province.
If you do a little work on the side, that income is declared in the year you received it, not the year you invoiced it. So don't include that long-outstanding invoice from August on the Self-Employment Income lines of your 2013 tax return if you haven't received your cheque by December 31.
Medical expenses are also claimed in the calendar year, so December 31 is the last day for eligible medical expenses. You could once claim your best 12 months of medical expenses, provided one of those months was in the tax year. For example, you could claim medical expenses from March 2011 to February 2012 on your 2012 return if those were the months with the most medical expenses. But that's not the case anymore.
Charitable donations must be dated in 2013 to claim them on your return this year. You can't catch up by making more donations between January and when you file your taxes; those receipts have to wait for your 2014 return. And while you do have a window from January 2014 to March 2014 to top up your Registered Retirement Savings Plan (RRSP), your contribution limit is defined by your income from 2013.
Ring in the New Year with gusto, by all means. And here's hoping that those life changes in 2013 will affect your tax bill in a way worth celebrating.
