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According to Statistics Canada's Labour Force Survey for March, unemployment in Canada sits at 6.7 per cent, the lowest rate in about two years. This is all well and good – unless you're one of the unemployed, of course.
Having said this, unemployment may actually be better than certain types of employment. A friend of mine, for example, was recently hired as an odour tester. No kidding – such a job exists. Apparently, odour testers can test the odours of anything from new perfumes, soft drinks or cooked frozen foods, to armpits. Count me out. I know that someone has to test the effectiveness of that deodorant you purchased last week, but (much) better someone else than me.
If you happen to be collecting employment insurance benefits, don't tell them you turned down a job as an odour tester, since you're expected to accept any reasonable employment. You could, I suppose, argue that the work is unsafe. But I digress.
Today, I want to share 10 tax tips for those who are currently unemployed, or were unemployed at some point in 2016. There could be tax savings for you, even as you file your 2016 tax return.
1. Defer RRSP deductions
You can deduct your 2016 contributions to your registered retirement savings plan in 2016 or any future year. If you expect to be in a higher tax bracket in 2017, consider saving your RRSP deduction for 2017. It'll save you more tax.
2. Deduct moving expenses
If you had to move in 2016 to take up new employment, you may be able to deduct moving costs. Your new home must be at least 40 kilometres closer than your old home to your new work. Use Form T1M to report moving expenses and claim them on line 219.
3. Deduct legal costs related to compensation
As a general rule, you're able to deduct legal costs incurred to collect or establish a right to salary or a retiring allowance owed to you. Be sure to deduct these costs on line 232 if you qualify.
4. Deduct clawbacks of EI benefits
If you collected employment insurance benefits in 2016 and are facing a clawback of those benefits because your income is too high, deduct that clawback at line 235. A repayment of EI that may have been paid to you in a prior year is deducted on line 232.
5. Deduct rollovers of retiring allowances
If you worked for your employer prior to 1996 and received a retiring allowance upon your departure from your employer, you may be able to roll a portion of that amount to your RRSP, tax free. If you made this rollover, be sure to use Schedule 7 of the tax forms and deduct that amount on line 208 of your tax return.
6. Claim tuition, education and textbook amounts
If you went back to school in 2016, don't forget to claim a credit for your tuition, education and textbook amounts on line 323 of Schedule 1. If you don't need the credits to reduce your taxes to zero, you can transfer up to $5,000 to a spouse, parent or grandparent, or carry the amounts forward for use in a future year.
7. Ensure your spouse claims a spousal credit
If you were out of work in 2016, your income may be low enough (it must be less than $11,474) that your spouse may be entitled to a spousal amount. Your spouse can claim the credit on line 303 of Schedule 1.
8. Report your spouse's Canadian dividends
It may be possible to transfer all your Canadian dividends to your higher-income spouse. You can make this transfer only where it will increase the spousal amount (see Tip 7) that your spouse can claim. This can save the family tax by allowing your spouse to use the dividend tax credit, which may not be helpful to you.
9. Go back and get a signed T2200
If you incurred deductible employment expenses at your last job, you may be able to deduct those costs, but you'll need your old employer to sign Form T2200 and keep it on hand in case Canada Revenue wants to see it. Report the expenses on Form T777 and claim them on line 229.
10. Make withdrawals from a registered plan
If you need the cash because you're not currently working, withdrawing funds from your RRSP or tax-free savings account can help. Your TFSA is a better option since you won't face tax at all on the withdrawals, and you can recontribute those dollars to the plan later.
If you've filed your tax return for 2016 already and missed one of the ideas I've discussed here, you can simply file form T1-ADJ, T1 Adjustment Request (available online at cra.gc.ca), to make a change to your return.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and founder of WaterStreet Family Offices.
Tim Cestnick