In 2020, it’s more important to keep on top of your taxes than ever. With the economy contracting, and job losses becoming widespread, every penny counts.
If you’re like most Canadians, you probably get some basic tax deductions every year: RRSP contributions, childcare, tuition, etc. However, there are actually many more that you can take advantage of. If you’re out of work, it’s in your best interest to get every penny you’re entitled to in your tax refund.
With that in mind, here are three tax deductions and credits you can claim in 2020.
Business investment loss
The business investment loss credit is a credit on 50% of any small business losses you incur. That includes selling a small business or disposing of a small business debt you’re owed.
If you’re a small business owner, you probably know that business losses are tax deductible. What you may not know is that disposing of small businesses at losses can reduce your personal taxes too. The business investment loss credit reduces your personal income tax. This means it’s an extra tax credit on top of any credits or deductions your business got prior to disposal.
RRSP contributions
Contributing to your RRSP is a great way to get a tax deduction that can increase the value of your tax refund.
Every dollar you contribute to an RRSP up to a certain limit reduces your income by that amount. So, if you contribute $5,000, that’s $5,000 you won’t be paying taxes on. At a marginal tax rate of 30%, it could save you $1,500 in a year!
But the tax benefits of RRSPs don’t end there. They also provide tax-deferred growth and dividends. So, if you own units of an ETF, like the iShares S&P/TSX 60 Index Fund (TSX:XIU) in your RRSP, you can defer paying income taxes until you retire.
XIU is an index ETF that holds the 60 largest Canadian companies by market cap. The fund has a 3.05% average yield, so you get $3,050 a year on every $100,000 invested. That can result in a significant amount of tax. But if you hold the fund in an RRSP, you won’t pay any taxes on the dividends or capital gains until you retire. At that point, if you’re not earning any income other than RRSP payouts, your tax rate should be much lower.
Digital news subscription tax credit
A final tax credit that many Canadians don’t know about is the digital news subscription tax credit.
This is a federal tax credit that you get if you subscribe to a digital news service. It was introduced recently and saves you 15% of up to $500 worth of digital news subscriptions each year. The news sources need to be “qualified Canadian news organizations,” which means Canadian publications reporting on issues of public interest. This credit can only save you a maximum of $75 a year, but in times like these, every penny counts.
