What Women, In Particular, Should Know At Tax-Filing Time
The traditional, permanent full-time job is dying a slow death in Canada, and precarious work in the new "gig economy" is taking its place. This story is part of Precariously Taxed, a HuffPost Canada series that looks at how gig economy and contract workers can optimize their finances when it comes to tax time.
If you're a woman filing taxes in Canada, your experience of the country's complex tax system could be considerably different from that of a man.
For one thing, you are still navigating a system that was not designed with women in mind. A recent study from the Canadian Centre for Policy Alternatives found the benefits of the tax system skew towards men — some 62 cents of every dollar the government forgoes on tax breaks goes to male tax-filers.
That's a reflection of the fact that Canada's tax breaks disproportionately help the wealthy, and men still dominate jobs at the upper end of the income ladder.
But there are many benefits that women — given the social roles they often inhabit — can take advantage of at tax time. Many of these have to do with the fact that women are more often in precarious work than men; they are by and large the primary single parents in Canada (some 81 per cent of them); and that they are more often caregivers to the elderly as well.
Watch: 10 U.S. states that have eliminated the "pink tax" on menstrual products. Story continues below.
To be sure, there are no gender-specific tax deductions, credits or benefits, though there are some that benefit women more than men. The vast majority of the Canada Child Benefit is paid to women, the result of it being paid by default to the female parent (or just one parent in a same-sex couple).
Here is some advice from financial experts for people who find themselves in roles more frequently occupied by women.
The single (or divorced) parent
First and foremost, make sure any children you are raising are listed as a dependant on your tax forms. Make sure you file for the Canada Child Benefit, one of the most generous such benefits in the developed world and one that evidence suggests has seriously reduced child poverty and helped parents re-enter the workforce.
You can deduct child care expenses such as daycare or babysitting, so long as you keep your receipts. You can deduct those costs even if you paid a family member to care of your kids, so long as that family member declares the income on their taxes.
For divorced parents, one important thing to know is that the child support your receive from your ex is not taxable. That is, your ex paid the taxes on that money, so you don't have to. Receiving child support won't increase your taxable income, or reduce the amount of the child benefit your receive.
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That's one reason why divorced moms should seek out child support — something they don't always do, said financial blogger Bridget Casey, founder of Money After Graduation.
"I know women sometimes don't pursue child support but it's worth it in terms of increasing your household income without increasing your taxes," she said. "Any lawyer fees or legal fees you spend to get child support are also tax deductible."
All the same, Canada Revenue Agency wants to know about those support payments — you have to declare them. Alimony (paid to you, not your child) is taxable income, and in cases of joint custody, the parents have to decide which one receives the tax breaks. Be careful here: If you can't agree, CRA can simply choose not to offer the tax breaks to either parent.
Another thing to consider (and not only at tax time) is whether to set up a registered education savings plan (RESP) for your child. The RESP is an opportunity for free money, financial strategist Lisa Zamparo says. The government will add an additional 20 per cent to the money you stash in an RESP, up to $2,500 per year (meaning a donation of up to $500 from the government).
It actually costs more to send a child to day care than to send them to university, but you don't get 20 years to save up for daycare.Bridget Casey, Money After Graduation
"That might not sound a lot, but the government is giving you 20 per cent of your investment back to you. If you got a six to eight per cent return in the market, you'd get almost triple the investment return for free," Zamparo said.
But for lower-earning parents, the RESP may not be the most strategic choice, Casey said. That's because RESP money is trapped in that account until your child is ready to go to school, meaning that it can't be used in emergencies. So it may make more sense to put money in a tax-free savings account TFSA instead and save that way for education, or retirement, or a rainy day. Money in TFSAs can be withdrawn at any time, and any profit on those investments is tax-free.
"It actually costs more to send a child to day care than to send them to university, but you don't get 20 years to save up for daycare," she noted. "At the end of the day your kid will be able to take out student loans, but you won't be able to take out retirement loans."
The caregiver
If you or someone you are taking care of, such as a child, gets sick for a prolonged period, you can apply for the disability tax credit, a non-refundable credit that can reduce your taxable income. You will need statements from medical practitioners, and CRA's process for approving disability benefits can be vague, as the agency is trying to assess not whether someone is sick, but whether they are actually disabled as a result of the sickness.
"I've seen situations where CRA has denied cancer as a disability, but accepted it for ADHD (attention deficit hyperactivity disorder) because it's inhibiting (a person's) ability to function as an adult," noted Warren Orlans, a former CRA collector and a blogger and advisor For TurboTax.
Health Canada has a list of legitimate medical expenses that can be either deducted from your taxable income, or credited towards the tax you owe, depending on the expense.
You can also apply for the Canada caregiver credit, if the people you're taking care of are listed as dependants. You can claim up to $6,986 for a dependant over the age of 18 and up to $2,182 for someone under 18.
The long-living widow
Women live longer than men, which changes the strategy a little when it comes to retirement.
One thing to decide upon when nearing retirement age is when to start drawing Canada Pension Plan and Old Age Security payments. The default is age 65, but you can choose to start drawing as early as 60, at a reduced rate, or as late as 70, at an enhanced rate.
If you expect to live long in retirement, you may want to delay the start of CPP and OAS payments in order to collect higher payments. Zamparo figures if you do live long, you'll collect more that way.
"If you have the cash flow, it may make sense to make the deferral as long as you can," she said.
When thinking retirement, Canadians tend to default to the long-popular registered retirement savings plan (RRSP). But financial advisors are increasingly saying RRSPs may not be the best savings vehicle, especially for people with lower incomes.
This has particular implications for women who tend to outlive their male spouses, and often earned less than them during their working years.
Everyone should max out their TFSA first.Bridget Casey, Money After Graduation
RRSPs allow you to shelter some of your income from taxes by placing them in an account that you can access in retirement, paying taxes on that money at that time, when (the tax system presumes) you will be earning less and paying lower taxes.
But for many women who end up drawing on a spousal RRSP, that's not the case. Those women could easily find themselves paying higher taxes on that money than they would have paid in the first place.
"Everyone should max out their TFSA first" before putting money in an RRSP, Casey says. She sees it as a better investment vehicle not only because you can withdraw without penalty (unlike an RRSP) but because "tax free is better than tax deferred."
That's particularly useful for women who may leave the workforce to have or raise children, or to take care of ailing relatives, Casey said.
The confidence gap
Finally, Zamparo believes we need to address the elephant in the room: That people don't like doing taxes. And that may be especially true for women, raised in a society that doesn't particularly value women's number-crunching skills.
Tackling taxes and extracting the most benefits possible should be seen as a way for women to empower themselves, she says.
"The confidence gap is a real thing for women," she says. Filing taxes is seen as "boring and stressful ... I really encourage women to shift their thinking on that."
Zamparo suggests thinking of tax-filing time as an opportunity to get organized, or to set a simple goal for the process, such as learning about a particular tax issue, such as RRSPs or child benefits.
"I think that can do wonders for your experience," she said.