What are Tax Deductions?
A tax deduction is a business expense that can lower the amount of tax you have to
pay. It’s deducted from your gross income to arrive at your taxable income. It is
sometimes called a tax write-off.
Tax deductions are also a way to reduce your taxable income and, consequently,
your tax bill. You must meet eligibility criteria to claim a tax deduction.
10 Tax Deductions Canadians Often Miss
As a Canadian taxpayer, you’re entitled to various tax deductions that can help
reduce your taxable income and lower your tax bill. However, many Canadians miss
out on these deductions, resulting in a higher tax liability. In this article, we’ll explore
10 tax deductions Canadians often overlook.
1. Medical Expenses
Many Canadians are unaware that they can claim medical expenses on their tax
return. Prescriptions and dental bills are what most people commonly think of when
they consider their medical expenses but they are far from being the only ones,
including:
- Prescription medication
- Glasses or contact lenses
- Dental work
- Full time attendant care for those with severe or prolonged disabilities
- Home renovations for medical purposes (e.g, installing a wheelchair ramp)
- Tutoring for children with disabilities
- Travel expenses if you must travel more than 40km (ne way) in order to receive
medical treatment. - Travel expenses for medical treatment
You can claim medical expenses that exceed 3% of your net income. You will need
to also keep receipts and records of your expenses, and complete Form T1-G,
“Medical Expenses Tax Credit.”
2. Home Office Expenses
If you work from home, you may be eligible to claim home office expenses on your tax return. This includes expenses such as:
– Rent or mortgage interest
– Utilities
– Office supplies
– Internet and phone bills
To claim home office expenses, you’ll need to complete Form T2125, “Statement of Business or Professional Activities,” and calculate the business-use percentage of your home expenses.
You can also claim a portion of these expenses based on the square footage of your home office.
3. Charitable Donations
Donating to charity cannot only benefit a good cause, but also provide a tax deduction. You can claim charitable donations made to registered charities in Canada.
Key Tip:
Donations exceeding $200 qualify for a higher credit rate, so consider grouping donations within a single tax year for maximum benefit.
4. Moving Expenses
If you moved for work or education, you may be eligible to claim moving expenses on your tax return. This includes expenses such as:
– Transportation costs
– Accommodation costs
– Food costs
-Temporary lodging
– Storage costs
You can claim moving expenses that exceed 15% of your net income. And also keep receipts and records of your expenses, and complete Form T1-M, “Moving Expenses Deduction.”
5. Child Care Expenses
If you’re a working parent, you may be eligible to claim child care expenses on your tax return. This includes expenses such as:
– Day-care costs
– After-school program costs
– Overnight camps
– Babysitters
– Summer camp costs
– Educational programs (e.g, tutoring, music lessons)
You can claim child care expenses that exceed 2% of your net income and complete Form T778, “Child Care Expenses Deduction.”
6. Education Expenses
If you’re a student, you may be eligible to claim education expenses on your tax return. This includes expenses such as:
– Tuition fees
– Textbooks
– Supplies
– Equipment
You can claim education expenses that exceed 2% of your net income.
Key Advantage:
Unused education credits can be carried forward or transferred to a spouse, parent, or grandparent.
7. Home Renovation Tax Credit
If you’ve renovated your home to make it more accessible or energy-efficient, you may be eligible for the Home Renovation Tax Credit. This credit provides a 15% refundable tax credit on eligible expenses. Eligible renovations include:
– Accessibility upgrades
– Energy-efficient heating or cooling systems
To claim the Home Renovation Tax Credit, you’ll need to complete Form T1-G, “Home Renovation Tax Credit.”
8. First-Time Home Buyer Tax Credit
First-time homebuyers are eligible for a tax credit of up to $5,000. This can result in a savings of up to $750 on your taxes.
Eligibility:
To qualify, you (or your spouse) must not have owned a home in the past four years.
9. Investment Expenses
If you have investments, you may be eligible to claim investment expenses on your tax return. This includes expenses such as:
– Investment management fees
– Trading fees
– Interest on investment loans
How to Claim:
These deductions apply if the expenses exceed 3% of your net income.
10. Home Buyer Plan (HBP) Repayment
If you withdrew funds from your Registered Retirement Savings Plan (RRSP) under the HBP to purchase your home, repayments can be claimed as a deduction.
Key Tip:
Ensure you repay the required amount annually to avoid tax penalties.
Why You Shouldn’t Overlook Tax Deductions
Claiming all eligible tax deductions can significantly reduce your taxable income, resulting in more money in your pocket. Many Canadians overlook these deductions due to a lack of awareness or understanding of how to apply them.
Pro Tip:
Consult a tax professional to ensure you’re taking full advantage of every deduction available to you.
Frequently Asked Questions
Q: What is the deadline for filing my tax return?
A: The deadline for filing your tax return is typically April 30th of each year.
Q: Can I claim medical expenses on my tax return?
A: Yes, you can claim medical expenses on your tax return, but only if they exceed 3% of your net income.
Q: Can I claim home office expenses on my tax return?
A: Yes, you can claim home office expenses on your tax return, but only if you work from home regularly and have a dedicated workspace.
Final Thoughts
Understanding and claiming tax deductions can save you a substantial amount of money. By being proactive and informed, you can ensure that you’re not overpaying your taxes. Remember to keep all relevant receipts and documentation to substantiate your claims.
Don’t miss out—start maximizing your tax savings today!
Tax deductions can help reduce your taxable income and lower your tax bill. By claiming these often-overlooked deductions, you can save money and keep more of your hard-earned income. Remember to consult with a tax professional to ensure you’re taking advantage of all the deductions you’re eligible for.
I hope you find this article informative and helpful in reducing your tax bill.
About Author
Shanel John is a dedicated Certified Public Accountant (CPA) at G.L.H. Accounting, specializing in Income Tax since January 2012. Based in Brampton, Ontario, Canada, Shanel offers expertise in tax preparation, financial accounting, and advisory services. A certified QBO Pro Advisor, Shanel’s decade-long experience and knowledge make her a trusted figure in the accounting field.
