The Tax Blog for Smart Canadians

What is a deduction?

Before embarking on these deductions, let’s understand how deductions work, and how they reduce your tax bill. A deduction is an amount (usually an expense you incurred during the year) that reduces the income you will be taxed on, or taxable income. For example, if you made $50,000 during the year, and you have a $5,000 deduction, you will be taxed on $45,000 of income instead of $50,000. Your tax reduction from the deduction will be $5,000 multiplied by your tax rate.

RRSP/RPP (pension plan contributions)

Pension plan contributions into your employer’s pension plan, or your own private pension plan such as an RRSP, are the most common deductions on your tax return. Every dollar you contribute to your pension plans will reduce your taxable income by the same amount.

RRSPs are a powerful tool for your financial future. Not only do you get an immediate tax reduction when contributing, your funds also get to grow in a tax-sheltered account. Future withdrawals are taxable; however, it’s likely that at retirement you will be in the same, if not a lower tax bracket when making the withdrawals since you will need less money to live on when you retire. In that case, you will get another bonus of pocketing the difference between that tax rate you contributed to and the tax rate you will pay at withdrawal time.

Employment expenses

If, under your work contract, you are required to pay for certain expenses out of pocket to perform your work duties, you can deduct those expenses under the employment expenses deduction. Examples of expenses you can claim are vehicle expenses, work-from-home expenses, travel, meals, supplies, etc.

Capital Losses (prior years)

If you had capital losses in prior years that you never used, these losses are banked and carried forward to be used in a future year. You can then deduct them against your capital gains in the current year. In order to find out if you have any losses carried forward, consult your notice of assessment or the My account portal of the CRA.

Pension income splitting

If you have a spouse and have eligible retirement income, you can split up to half of that income with your spouse.  The purpose of the split to transfer income to your spouse who would be paying tax in a lower tax bracket than you would. The split itself is a deduction on the tax return.

Child care expenses

You can deduct the child care expenses you incurred that allow you to work, run your business (self-employed) or attend a post-secondary school. You can claim expenses from:

• caregivers providing child care services
• day nursery schools and daycare centres
• educational institutions, for the part of the fees that relate to child care services
• day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school)
• boarding schools, overnight sports schools, or camps where lodging is involved

Moving expenses

The moving expenses deduction allows workers (employees and self-employed) and full-time students to deduct travel expenses they incurred to move at 40 km closer to a new work, or school (post-secondary) location. Students must be attending their schools on a full-time basis in order to claim this deduction.

You can claim travel expenses, including vehicle expenses, meals, and accommodation, to move you and your household members to your new home.

Other expenses you can claim are:

• Accommodations (hotel/motel up to a maximum of 15 days)
• Cost of cancelling your lease
• Maintenance costs for your old home (interest, property taxes, insurance premiums, and the cost of heating and utilities expenses, up to $5,000 total) while it is up for sale
• Costs related to selling your home (advertising, notary or legal fees, real estate commission, and mortgage penalty)
• Costs related to buying a home (legal or notary fees, registration/title change fees)
• Incidental costs (Costs related to changing driver licences, utility connections, changing address, etc.)

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