The tax filing and tax payment deadline is almost here. If you’re scrambling to reduce your tax bills, review the available tax breaks from the Canada Revenue Agency (CRA). Tax preparations in 2021 are different than usual because of the pandemic money that counts as taxable income.
Similarly, recipients of the Canada Emergency Response Benefit (CERB) and Canada Emergency Student Benefit (CESB) last year might pay more taxes. The benefits’ proceeds were gross of the withholding tax. You must include the CERB or CESB received together with your regular income when you file your tax return for 2020 taxes. However, three essential tax breaks could save you lots of money or offset tax payables.
1. Enhanced BPA The enhanced basic personal amount (BPA) took effect in 2020. Thus, when you file your return for the income year 2020, the instant tax saving is $931. In 2019, the maximum BPA was $12,298 only. Taxpayers with a net income of $150,473 or less in 2020 can claim the maximum non-refundable tax credit or BPA.
In the ensuing three years until 2023, the maximum BPA will increase to $13,808, $14,398, and $15,000. The CRA will index the 2023 BPA to inflation for 2024 and succeeding taxation years. The difference from previous years’ BPA are your tax savings.
2. RRSP contributions Income tax deductions lower the amount of taxable income. The Registered Retirement Savings Plan (RRSP) is a well-known and widely used tax saving tool. Users derive tax benefits from their RRSP contributions. It’s best to maximize your RRSP when your income is more than $50,000. Your taxable income reduces by the same amount of contribution.
3. Medical expenses You can draw more tax savings from a variety of medical expenses. Private insurance premiums, dental check-ups, and even laser eye surgery, among others, qualify as non-refundable tax credits. Keep your receipts and prescriptions from such expenses in case the CRA requests proof or supporting documents.
4. Union and association fees Most trade union membership fees and professional board dues are eligible expenses to reduce your taxes some more. You can also deduct cell phone bills and office supplies if your employment contract requires you to pay or spend for them.
Tax-exempt dividends Besides the RRSP, maximize your Tax-Free Savings Account (TFSA) if you have an account. A dividend stock held in a TFSA creates non-taxable income. Firm Capital Mortgage Investment Corp. (TSX:FC) fly under the radar, although it’s one of the high-yield dividend stocks on the TSX.
The $433 million company pays a generous 6.67% dividend. Firm Capital Mortgage’s stock market performance is steady, with its 12.19% year-to-date gain. The current share price is only $14.04. For the last 20 years, the total return is 741.75% (11.23% compound annual growth rate).
Firm Capital Investment operates through Firm Capital Corporation, a mortgage banker but a non-bank lender. The company engages in providing construction, equity, and conventional real estate financing. Its clients are primarily builders, developers, and real estate owners.
Other specialized boutique services include loan servicing, asset management, and related investments. While net income in 2020 (year ended December 31, 2020) declined 5.9% to $26.3 versus 2019, Firm Capital’s investment portfolio increased 16.2% to $559 million.
Taxpayers’ motivation The numerous tax breaks available from the CRA should motivate taxpayers. Your efforts to find out which ones apply to you will result in lower tax bills.
The post CRA: 4 Tax Breaks that Could Save You Lots of Money appeared first on The Motley Fool Canada.
Fool contributor Christopher Liew has no position in any of the stocks mentioned.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2021