Ultimate Canadian Tax Recovery Guide 2024
December 4, 2023 Andrew AdolphAudits
Ultimate Canadian Tax Recovery Guide
If you’re a small business or just an individual, you’re probably leaving a lot of unclaimed cash on the table. Tax recovery is a complicated concept, but in this blog, I’ll be teaching you how to claim as much money as possible.
Understanding Tax Recovery
Tax recovery is the pursuit of reclaiming overpaid taxes or identifying missed opportunities for credits and deductions. It involves a review of the sales tax side of your business. Opportunities exist to recover overpaid sales tax and income tax. In this blog, we will focus just on income tax recoveries.
The process involves a careful review of your tax records using the same specialized software as CRA auditors do, in conjunction with years of sales tax experience being the dousing rod telling us where to look.
Types of Tax Recovery
Tax Recovery For Losses
It has been a tough year economically speaking for Canada and if your business or you yourself have been facing financial losses, you can use them to offset your taxable income. I’ll break down both processes for individuals and businesses below.
Here are a few ways tax recovery works for individuals.
1. Identify Capital losses
Look over your investment portfolio and see if you can find any investments that have decreased since you purchased them. These count as capital losses
2. Make Sure You are Eligible:
Losses must meet eligibility criteria. For you to be eligible, investments must be considered capital property.
3. Calculate Net Capital Gains or Losses:
To calculate your capital gains or losses, subtract your total capital losses from your capital gains.
4. Review Previous Tax Returns:
If you have capital losses available for carryback, review your previous tax returns to identify the years in which you reported capital gains. In Canada, you can carry back your capital losses for up to three taxation years.
5. Complete Schedule 3 – Capital Gains (or Losses):
When filing your current year’s tax return, complete Schedule 3 to report your capital gains and losses. This form is part of the T1 General Income Tax and Benefit Return.
6. Complete Form T1A – Request for Loss Carryback:
If you want to carry back your capital losses to previous years, complete Form T1A and attach it to your current year’s tax return. This form allows you to ask the CRA for a reassessment of your previous year’s tax returns to apply the loss carryback.
7. Almost done! File an Amended Return:
If the CRA approves your request for loss carryback, file an amended return for the year you’re carrying the loss back to. This involves completing a T1-ADJ form, a request for an adjustment to your tax return.
8. Monitor CRA Correspondence:
Keep an eye on any correspondence from the CRA regarding your amended return. Never ignore CRA mail. If you get it, and you don’t know what it means, please email it to firstname.lastname@example.org and book yourself a free appointment HERE.
All forms for Tax Recovery can be found on the official CRA website.
Tax Recovery For Small Businesses:
1. Keep Record of Business Losses
Make sure to keep track of any losses. Accurate record keeping includes financial states and supporting documentation.
2. Understand Tax Recovery Eligibility
Ensure that the losses are eligible for carryback. Business losses, including non-capital losses, may be carried back against income from the previous three years.
3. Complete a Corporate T2 tax return
Report the business losses on the T2 corporate tax return for the current year.
4. Review Previous Corporate Tax Returns
Look at years in which your business reported income and assess if carrying back the losses would be beneficial.
5. Complete Form T1A
Complete Form T1A and attach it to the T2 corporate tax return for the current year. This form asks the CRA for a reassessment of previous years’ corporate tax returns.
6. File an Amended T2 Return:
File an amended T2 corporate tax return for the years to which you’re carrying back the losses.
7. Monitor CRA Correspondence
Keep track of any correspondence from the CRA regarding the amended corporate tax returns.
Personal Tax Credits
Tax credits are powerful tools that can significantly reduce your tax liability. However, a lot of tax credits are overlooked. Below I’ll list some popular tax credits along with some lesser-known ones.
Basic Personal Amount
Every Canadian taxpayer is eligible for the basic personal amount, which allows you to earn a certain amount of income tax-free.
Canada Child Benefit
The CCB provides tax-free monthly payments to eligible families to help with the cost of raising children under 18.
Medical Expense Tax Credit
You can claim a tax credit for eligible medical expenses paid by you or your spouse, including certain medical supplies, prescription medications, and medical services.
Child Care Expenses Deduction
If you pay for child care to allow you or your spouse to work or attend school, you may be eligible for this deduction.
Home Buyers’ Tax Credit
First-time homebuyers may qualify for a tax credit for eligible home purchasing costs. Every situation is unique so to see if you’re eligible you’ll have to speak with me directly.
Pension Income Tax Credit
Individuals aged 65 or older may be eligible for a tax credit on eligible pension income.
Potentially Overlooked Tax Credits:
Tuition Tax Credit:
Students need to save all the money they can. If you’re attending an eligible post-secondary institution, you might be able to claim a credit for tuition fees paid.
Digital News Subscription Tax Credit:
Introduced in 2020, this credit allows you to claim a 15% non-refundable tax credit for digital news subscription expenses.
First-Time Donor’s Super Credit:
This credit provides an extra 25% federal tax credit for first-time donors on up to $1,000 of monetary donations.
Disability Tax Credit:
Individuals with a severe and prolonged impairment in physical or mental functions may be eligible for this credit.
Eligible volunteer firefighters may claim a non-refundable tax credit for their service.
Interest on Student Loans
You can claim a tax credit for interest paid on qualifying student loans.
Canada Employment Amount:
This credit is often criminally overlooked. It allows you to claim a credit on employment income to offset work-related expenses.
Overpaid Taxes and Refunds
If you’ve paid more in taxes throughout the year than you owe, you’re always entitled to a tax refund. Filing an accurate and comprehensive tax return is crucial in ensuring you get back every dollar you deserve.
Maximizing Your Tax Recovery
Stay on the Ball
Tax laws change constantly! Staying informed about these changes can uncover new opportunities for recovery. Regularly check for updates from the CRA and seek professional advice if needed.
Consult With Me If You Have Questions About Tax Recovery!
My specialty is finding unclaimed cash. If I don’t find anything, you don’t pay! If you simply have questions about your tax situation, feel free to book a free consultation with me.
Make sure to Review Your Tax Returns
Periodically review your past tax returns to identify any missed opportunities for tax recovery. Filing amended returns when necessary can result in additional refunds.
Tax Recovery: The Bottom Line
When you understand tax recovery, your financial situation becomes easier. Take control of your tax situation, and you might find yourself with a welcomed boost to your bottom line. If you have questions, feel free to search my blog for additional resources or contact me.
Book Free Consultation
Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.