Many single Canadians have started businesses or side hustles during the pandemic and it's important to understand the full suite of credits and deductions that can be used to offset or soften the impact of taxable revenue.Getty Images/iStockphoto
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Filing taxes as a single person can feel limiting when compared to the benefits that couples can claim, especially when strategies such as income splitting and spousal registered retirement savings plan contributions are considered.
But tax experts say it’s important for single people to claim the full suite of tax deductions available to them to reduce their income as well as to apply credits to reduce the amount of total taxes owed. Furthermore, there are strategies that go beyond maximizing RRSP and tax-free savings account contributions to file taxes efficiently.
Single Canadians with children under the age of 18 can leverage several credits, including the eligible dependent credit if they’re the custodial parent, says Robin Taub, chartered professional accountant at Robin Taub Financial Consulting in Toronto.
While fees for private elementary and secondary schools are not tax-deductible, Ms. Taub says part of the fees paid to a private religious school could qualify for the donation tax credit.
Single people living in Quebec can also claim a non-refundable tax credit of $1,721 if they live alone. This is unique to the province.
If they have one or more children under the age of 18, they can also claim an additional credit of $2,124, says Francois Gagnon, tax expert and spokesperson for TurboTax Canada in Quebec.
Rebecca Hett, vice president, tax, retirement and estate planning, at CI Global Asset Management in Calgary, reiterates that everyone should look to claim beyond the personal basic income tax exemption and dividend tax credits.
“If you are working from home, are you doing all you can to maximize the deductions available to employees?” she says.
That includes the home-office expenses for employees as a result of COVID-19, such as the 2022 temporary flat rate set at $500.
If the single client is self-employed, it’s also key to understand the full suite of credits and deductions that can be used to offset or soften the impact of taxable revenue. That’s especially important as many Canadians have started businesses or side hustles during the pandemic.
Trent Hamans, vice president, private banking and wealth planning at ATB Wealth in Edmonton, says he’s reminding clients to be very vigilant in terms of keeping receipts.
“A lot of people don’t realize how important it is to keep receipts for your new website, record their mileage, or the cost of goods sold and some of the other expenses that they would incur along the way to start up a business,” he says.
Other tax deductions that self-employed people miss include parking costs, yearly association membership fees, and deductions for bad debts or the cost of recovering balances that are owed to you, Ms. Taub says.
Meanwhile, Jamie Golombek, managing director, tax and estate planning at CIBC Private Wealth Management in Toronto, says medical expenses are another deduction that clients should be maximizing.
He points out that unlike other deductions and credits, medical expenses don’t follow the calendar year. Clients can pick the 12-month period that best suits them when they want to claim the expenses – as long as the end of that period falls within the reported taxation year.
“There’s a 3-per-cent limitation [of your income], so maybe you’re looking at which 12-month period during the year works best for you to maximize your claim for medical expenses,” he says.
How to leverage life insurance and donations
After maximizing registered and non-registered savings, insurance is an important asset class to consider, Ms. Hett says.
“There are tax benefits as investible assets inside of certain insurance policies [like whole life insurance] can grow tax-deferred,” she says.
The growth of assets like cash and dividends in such policies are not taxed during the client’s lifetime and the death benefit is distributed tax-free to named beneficiaries.
Plus, this type of insurance gives a client’s beneficiaries money that can be used to offset the capital gains taxes and the income taxes that have to be paid on RRSPs or registered retirement income funds.
Single clients should also look at a donation strategy to not only take advantage of the tax benefits while they’re alive but also to reduce the taxes their estate would have to pay upon death, Mr. Golombek says.
“If you’re making charitable gifts, you’re pooling anything over $200 in one year to get the higher credit,” he says.
Any extra money beyond the annual limit can be carried forward for the next five years. And clients who are in the highest tax bracket can claim a 33 per cent federal credit.
Mr. Golombek says another strategy is for clients to donate appreciated securities like stocks and mutual funds as they pay no capital gains taxes on the appreciation.
Other options include naming a charity as the beneficiary of a life insurance policy. Clients can claim the premium for the donation tax credit and the charity gets the payout upon the client’s death.
At the end of the day, Ms. Hett says it’s important to be organized and have a good understanding of where your wealth is and how it’s taxed.
“It saves money in the long run,” she says.
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