It’s tax time and we’re answering your burning tax-related questions, such as deductions for locked-in retirement, pension income, and medical expenses, filing your taxes before receiving all of your slips, and declaring income generated from a hobby business.
Here we go:
Q. The money in my locked-in retirement income fund (LRIF) came from an employer pension plan after first being transferred to a LIRA. I am 62. Does the income from this LRIF qualify for the $2,000 pension income deduction for this year’s taxes?
A. Sorry, the LRIF payments do not qualify for the $2,000 pension income credit until age 65. If you had kept the employer pension plan, you would have been eligible for the credit. It no longer falls under the “qualified pension income” definition.
Q. I lost my job and my pension was transferred to a LIRA. Can I deduct this amount on my tax return like a regular RRSP contribution?
A. Your contributions to the pension plan were already deducted from your taxes by your employer in the year you contributed them. The transfer to a LIRA can’t be deducted again.
Q. I want to do my tax return now so I get my refund more quickly. What do I do if I don’t have all my information slips?
A. You should have received your T4 and other tax slips by the end of February. The exceptions are T3’s and T5013’s which don’t have to be sent out until the end of March. If you haven’t received (or have lost) a slip, you should ask your employer – or other issuer – for a copy.
If you still don’t receive it, use your pay stub or statements to estimate the income you need to report. Even if you don’t have all your information slips, you still have to file your return on time.
Q. My family had major medical expenses that started at the end of 2014 and went well into 2015. How do I claim the amounts as a deduction on my income tax?
A. Many taxpayers expect to receive a deduction for all their medical expenses. However, medical expenses are a tax credit (not a deduction from income) that is meant to assist people who have significant expenses in a year.
Only a portion is eligible based on your income – the amount in excess of the lesser of $2,208 or 3% of your income. So, if your net income is $60,000 and your medical expenses total $2,000, only $200 will be applied as a credit.
Medical expenses don’t have to follow a calendar year. You can pick a 12-month period that is advantageous to you, as long as the end falls within the tax year you are reporting. For example, you can choose the period between November 2014 and October 2015 to maximize your credit.
One spouse can claim the total medical expenses for the family. Usually the lower earner will get the biggest benefit because of the lower threshold for the 3% rule.
Q. I earn a bit of extra money from my craft projects which I sell online. Since this is just a hobby and not actually a business, do I have to declare the income?
A. Maybe. The general rule according to CRA is whether you are making a profit from your hobby (or have a reasonable expectation of making a profit in the future). Then it’s considered business income even though you don’t think you’re running a business.
If you declare your income, it could work to your advantage. If you have other income, your hobby expenses coud be deducted from your total income so your overall tax bill will be lower.
Q. What investment expenses can I claim?
A. In general, claiming your investment expenses can reduce all of your other income for the year, reducing your taxable income.
If you use a professional financial adviser to buy and sell your investments, you can claim the fees you pay for that service, as well as any administration costs. You can also claim some of the fees you pay your accountant and tax specialist for helping you with your tax filing, as long as the fees directly relate to your investment earnings.
If you borrow money to invest, you can make a claim if (1) the interest costs were paid during the taxation year and, (2) the investments have earned (or have the potential to earn) active business income or income from property such as dividends or rent.
Related: Taxes and your investment income
You are not allowed to claim commissions incurred from buying or selling your investments, fees for general financial planning services, or interest on loans to buy investments for your registered accounts (RRSP,RESP,TFSA). You used to be able to claim the cost of a safety deposit box, but not any more.