Tax Planning Season FAQ

 

Every year as the tax season comes and goes, our team can field a lot of the same questions. Taxes are supposed to be that one certainty in life – everyone is to pay their fair share, but everyone has a different situation and therefore everyone has a different tax minimization strategy.

Here are some of the most common questions that we are asked every tax planning season:

1. What kinds of medical expenses can I claim, and is there a maximum I can claim?

You can claim eligible medical expenses on your tax return if you, or your spouse or common-law partner:

  • Paid for the medical expenses in any 12-month period ending in 2017
  • Did not claim them in 2016

Generally, you can claim all amounts paid, even if they were not paid in Canada.

For more information on medical expenses and how they can affect your taxes, click here.

2. What happens if I can’t afford to pay my taxes owed? Can I pay them late?

If you can’t pay the balance owing on or before April 30th, the Canada Revenue Agency may work with you and accept a payment arrangement after you’ve reasonably tried to get the needed funds.

Even if you can’t pay all of the balance owing, it’s important to file before the filing due date to avoid late-filing penalties.

3. Can my spouse or dependents claim some of my income?

If your partner’s (spouse or common-law partner) net income was less than $11,635 – you can claim a spousal credit that is equal to $11,635 or $11,635 less your partner’s net income (whichever is less).  This credit can help reduce your taxes.

You may be able to claim for an eligible dependent if, at any time in the year, you met certain conditions.

4. What tax bracket do I fall in and what does that mean?

Federally, your taxable income (you total income minus allowable deductions and exemptions) falls into one of five tax brackets each of which has a different tax rate.  However, the tax rate is only applicable to the income in that bracket.  :

2017 Federal income tax brackets

 

$45,916 or less

$45,916 to $91,831

$91,831 to $142,353

$142,353 to $202,800

More than $202,800

2017 Federal income tax rates

 

15%

20.5%

26%

29%

33%

For Albertans, the provincial tax brackets look like this:

  • 10% on the first $126,6255 of taxable income, +
  • 12% on the next $25,325, +
  • 13% on the next $50,650, +
  • 14% on the next $101,300, +
  • 15% on the amount over $303,900

So for example, if a person earned $150,000 in taxable income, here’s how it would break down:

Federally, they would owe 29% only on the income that was within that $142,353 to $202,800 bracket or $7,647 ($150,000 – $142,353).  They would also owe 15% on the first $45,916, 20.5% on the next $45,915 ($91,831 – $45,916) and 26% on the next $50,522 ($142,353 – $91,831).  This means they will owe a total of $31,653.63 federally.

Provincially, they would owe 10% on the first $126,625 – $126,625*10% = $12,663 and then the remaining $23,375 owe at 12% – $23,375*12% = $2,805.

So in this example, the person would owe $47,121.63 in taxes.

5. I took out some RRSPs recently, how does that affect my taxes?

If you withdraw funds from an RRSP, your financial institution withholds the tax, and the rates are dependent on your residency and the amount you withdraw. For Canadian residents, the rates are:

  • 10% (5% in Quebec) on amounts up to $5,000
  • 20% (10% in Quebec) on amounts over $5,000 up to including $15,000
  • 30% (15% in Quebec) on amounts over $15,000

Note though, that the tax that was withheld may not always be enough to account for the tax you owe at your tax bracket. You may have to pay more tax on the withdrawal when you include the withdrawals on your income tax and benefit return for that year.

Again, it’s important to stress that every individual’s tax planning strategy is unique to their situation, and because of that, it’s important to talk to a trusted financial advisor like us, at JMHCA.

Let our team Shed Some Light on your tax portfolio. Book Today.

*Every case is different and unique, and should be reviewed by a professional or one of our trusted financial experts. The information contained on this site is for general guidance on matters of interest only. We hope you find it useful*

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