After filing your 2008 income tax return Canada Revenue Agency sends you a Notice of Assessment. The Notice of Assessment is essentially a summary of the amounts entered on your tax return. Keep your Notice in a safe place and be sure to bring a us a copy next spring with your other income tax slips and documents. The Notice contains a lot of additional information that your tax preparer requires in order to do the best job possible on your tax return. Failing to bring the Notice to your preparer can cost you some real dollars. So what is included in the valuable information??
The Notice outlines your RRSP contribution room which is the amount that you can contribute to an RRSP and obtain a tax deduction. This figure is important because if you undercontribute you can miss out on some valuable tax deductions. Conversely, should you overcontribute (in excess of your limit plus a $2,000 “overcontribution limit”) you will be subject to a harsh penalty tax of 1% per month. For example, if your limit is $10,000 and you contribute $20,000 then you are $8,000 overcontributed (your $10,000 limit plus the $2,000 “overcontribution limit”). You will be subject to a monthly penalty of $80 or $960 per year!!
The Notice also outlines the amount of required payment for an RRSP Homebuyers Plan withdrawal or Life Long Learning Plan withdrawal. Should you fail to make a required repayment the amount is added back to your taxable income thus increasing your tax bill for the year.
If you have Capital Losses or Non Capital Losses available for future use this too will be outlined on the Notice. For example, if you have $5,000 in Capital Gains income in the current year and have $5,000 available losses from past years you will be able to apply those past losses against the current gains and therefore wipe out the tax otherwise payable on your current gain. If you do not bring the Notice to your tax preparer, he or she will not be aware of these available losses unless they have prepared your tax returns in past years. So the Notice is particularly important if you are going to a new tax preparer for the first time.
Another extremely important piece of information on the Notice is the carryforward of federal and provincial unused tuition credits. Most post secondary students have high tuition fees and very little income in their years of study. The result is that they carry forward unused tuition credits; sometimes in the thousands of dollars. These unused credits can save the client hundreds or thousands of dollars when they start entering their earning years and have some income against which they can apply these credits. If you have unused tuition credits and you do not bring in your Notice these credits and the valuable tax savings can be lost forever.
In future years the Notice will also contain information on the amount which you can put into a Tax Free Savings Account (TFSA). You will earn an amount limit of $5,000 per year.
So be sure to keep your Notice and bring along a copy at next year’s tax preparation time. Doing so can save you a lot of tax dollars!!