Tax Deductions & Credits

Many of us have our taxes taken from us “at source” (that is, deducted from our paycheques). It is possible for the amount of tax withheld to exceed the actual amount we will pay in taxes for the year. This could necessitate tax planning to take advantage of the deductions and credits offered by the federal government in the Income Tax Act.

  • Deductions enable us to reduce the amount of income that is taxable, thus cutting down on taxes paid.
  • Credits directly reduce the amount of tax paid. They are a refund of taxes paid or owing.
  • You may be eligible for both federal and provincial tax credits in any given year.
  • Ensure you take advantage of all tax credits for which you qualify; receipts or other proof of payment may be required.

If you regularly receive a sizable refund at tax-filing time, it could be a signal that the amount of tax withheld from your paycheque may be too high. This mismatch could occur if you make monthly RRSP contributions or large charitable contributions. Instead of making what is essentially an interest-free loan to the Canada Revenue Agency, you can reduce the amount of tax withheld from your paycheque. To do this, you should:

  • Contact the CRA for the appropriate forms to reduce your taxes at source.
  • Identify and provide any supporting documentation that will be required (such as, a copy of your RRSP receipt or a history of charitable contributions).
  • Take the authorization to reduce tax withholdings to the payroll department at your place of employment.

 

Deductions

Carrying Charges and Interest Expenses

Carrying charges are expenses associated with making investments. For example, if you pay an annual fee to an investment counsellor to manage your non-registered investment portfolio, you can claim the fee as a deduction. If you take out a loan to make an investment, the interest you pay on this loan is tax-deductible.

Interest on loans to make RRSP contributions is not tax-deductible. Investment fees, including administration fees, paid for your registered accounts are not tax-deductible.

Moving expenses

If you move more than 40 kilometers closer to a new job, keep a record of your expenses. You may be able to claim some of the cost at tax time, including:

  • Transportation and meals
  • The cost of selling your old home
  • Moving cost of household goods
  • Legal fees for buying a new home
  • Lease cancellation fees
  • Temporary accommodation (such as motel accommodation for up to 15 days)
  • Storage

Similarly, a student who moves away from home to attend a post-secondary institution may claim travel costs to school and back home to summer employment against any taxable portion of eligible scholarships, fellowships, bursaries, prizes and research grants. You don’t have to submit receipts to justify your costs but you must supply them if requested. It can include mileage, out-of-pocket meals and accommodation upon arrival.

 

Credits

Refundable Tax Credits 

Refundable tax credits are actually another form of government payment to you. They can be applied to reduce tax owing, create a tax refund or provide a payment even if you don’t owe any tax. You have to file an income tax and benefit return in order to claim them. Federal refundable tax credits include the GST/HST tax credit and the working income tax benefit.

Non-Refundable Tax Credits

The non-refundable tax credit only gives you back some of the tax you owe. Once your income tax is at zero, you won’t receive any more. Any additional unused credits are forfeited. Federal non-refundable tax credits include the basic personal amount, medical expenses, charitable donations and the caregiver amount.

Q: What’s the difference between a tax credit and a tax amount? 
A: That’s a good question. The amount, such as the basic personal amount or Canada employment amount, refers to the base amount upon which the tax credit is calculated, i.e., base amount x tax rate. Most, but not all non-refundable tax credits, use the lowest federal tax rate to determine the actual tax credit. Provincial and territorial governments may offer tax credits but will apply their own tax rates. 

Canada Employment Amount/Credit

The Canada employment amount is designed to help employees with expenses that are required for their employment, such as uniforms, home computers or supplies needed to perform their jobs. Details are as follows:

  • Anyone who is employed full-time may fill out line 363 of their income tax and benefit return to apply for this non-refundable tax credit in recognition of work-related expenses such as home computers and supplies.
  • There are further credits for tradespeople for the cost of tools.
  • Self-employed individuals are not eligible for the Canada employment credit.

Disability Tax Credit/Disability Amount

The federal government allows a non-refundable tax credit to help Canadians with a disability, or those who support them. The disability amount is one of a number of tax deductions or credits available to those with disabilities. Once the eligibility requirements are met, individuals may apply for other programs such as the registered disability savings plan (RDSP) or child disability amount. Details are as follows:

  • Available for those suffering from severe, prolonged physical or mental impairment.
  • The disability amount may be transferred allowing a taxpayer to claim it for a dependant, including a spouse or partner, on his or her income tax and benefit return.
  • The disability tax credit can be applied retroactively. When provided with supporting documentation the CRA will include the disability amount in up to ten previous years’ tax returns.  

Canada Caregiver Amount/Credit

In 2017, three existing caregiver tax amounts/credits were combined to form the Canada caregiver amount/credit. This tax credit will help Canadians who take care of dependent family members with severe and prolonged physical or mental impairments. Both caregivers and their dependants must meet eligibility criteria. The dependant must be an infirm child under 18 years of age or a low-income adult, such as a dependent adult child, spouse or common-law partner or a parent/grandparent, 65 years of age or older.  

Dependants no longer need to live in the same residence as the caregiver, but the credit will be reduced dollar-for-dollar, once their income exceeds an annual threshold. 

 

Government Pension Plan Contributions

You are entitled to a credit for a portion of your payments to the Canada Pension Plan, Québec Pension Plan or Employment Insurance.

To see a list of all available deductions and credits go to the website of the Canada Revenue Agency, Revenu Québec or your provincial or territorial government, or contact your local government office.

For more information on deductions and credits, please see: First-Time Home Buyers’ Tax Credit, Deductions & Credits for Spouses/Partners and Deductions & Credits for Children.