Nothing says ‘holiday cheer’ quite like talking about our taxes, right?
The stockings are hung by the chimney with care and the end of this tax year soon will be here. So, while we are gearing up to lean into the most wonderful time of the year, let’s take a pause to discuss everyone’s favourite topic - taxes.
But instead of dwelling on the expensive inevitability, we’re going to take a look at how you can optimize your taxes as a homeowner, lower your obligation and leave more money in your pocket come tax season. It’s a festive conversation, after all!
Tax season doesn’t have to be feared
As we wrap up the end of another long year of financial turmoil and question marks, it's human nature to see dollars flying out the door. From holiday spending to skyrocketing heating bills, snow tires and new winter gear for the kids. And, of course, the knowledge that our dear old friend the CRA sits atop the mountain like the Grinch himself, waiting to collect their toll come spring only adds insult to already expensive injury.
For most Canadians, another impending tax season feels like anything but a gift when it comes to our household cash flow. But it doesn’t have to be that way. With the right strategies in place and by leveraging the programs available, homeowners and property investors can also use tax time as an opportunity for greater liquidity and flexibility. And, since we are just wrapping up the tax year itself, starting to consider how we can make use of these opportunities now will help us to take full advantage, maximize the value we get back and start planning for a more financially sound 2024 and beyond!
Don’t leave anything on the table
Statistics tell us that each year, nearly half of all personal tax filings in Canada fail to cash in on the returns they are entitled to. While there is no way to know for sure, we can assume that these opportunities get missed thanks to anything from complicated forms to simply not knowing what is available. Whatever the reason, the missed savings are rampant and are leaving hundreds of thousands of dollars on the table every year. And, of course, given the tumultuous few years we are coming out of, and with so many questions left ahead, we could definitely all use a bit more money in our pockets.
But tax savings are about more than just numbers on a cheque - learning how to maximize refunds and lower your taxable income obligations can have exponential benefits to your financial well-being in the long term as well.
Specialized programs are there for you
If you are able to increase your tax return and put more money in your pocket this spring, you could be giving yourself the key to unlocking more financial freedom that will compound as you grow! But before you can dive in, you have to arm yourself with knowledge about everything that’s available. So here’s a run-down.
Key Homeowner Credits
Tax credits directly reduce balances owed, generating bigger refunds or lowering overall tax liability. Credits that are specially designed for homeowners/buyers include:
Home Accessibility Tax Credit: If you completed any renovations or additions to make your property accessible, you could be eligible for a refundable credit
First-Time Home Buyer's Tax Credit: If you purchased your first home this year, you could be eligible for up to $5k relief to put towards closing/down payment costs
Home Buyers’ Plan: While this isn’t technically a tax time credit, it’s important to remember that under this program, first-time buyers can withdraw $35k from their RRSP, tax-free.
Top Homeowner Deductions
Mortgage Interest Costs: If you are generating rental income from your property, you may be able to claim part of your mortgage interest as deductions from your personal taxes.
Home Office Spaces: Hello, work-from-home crowd! Make sure you chat with your accountant to deduct the maximum for your percentages of rooms used for work
Major Renovations/Repairs: Kitchen overhauls, new roofs over $1k and other green home renovations may be eligible for deductions - your accountant or tax specialist will be able to tell you more.
Note that if you own a rental property, you may also have the opportunity to write off expenses like appliances, furniture, accounting fees and more through Capital Cost Allowances, because in the eyes of the CRA, your rental property is a business.
Building Flexibility for the Future
Understanding how these savings opportunities apply to your family’s situation can help you to practice smarter money management now to prepare you for any unpredictable times that may be ahead.
If you are facing stressed cash flow in the coming year as your mortgage renewal rate jumps, you may be able to redirect tax refunds into lump sums to pay down your principal faster or to contingency savings in case cash flow becomes an issue. As a first time buyer, you can also benefit from maximizing returns in order to start rebuilding your cash savings after making a sizeable down payment, and setting yourself up for long term success as a new homeowner.
Financial fitness begins with self education, and a large part of that come tax season is knowing what credits or deductions are available to help your personal financial situation thrive. Armed with the knowledge you need and a team that support your goals, you can begin building a plan for redirecting cash flow savings back into key priorities - whether rapid debt reduction, investment portfolio growth or simply amassing reserves to counter economic volatility sure to come.
If you are concerned about cash flow for your family as we head into the end of this year, please remember that our Flare team is always here for you! Head to the link below to connect with a mortgage professional who can help you get on track to meet and exceed your goals in 2024 and beyond!
