By Myles Leva
Last Updated: April 22, 2023
As you get ready for tax season in Canada, you may be wondering about how to go about maximizing tax deductions.
There are quite a few deductions available, some of which most Canadians can claim. Then there are a few niche ones that many Canadians can still claim.
In this article, we will be focusing on the tax deductions that most, or at least many Canadians can claim. Taxes may be high, but if you know how to claim the right deductions, the burden is at least a little lighter.
US Taxpayers: Read our article on IRS Tax Deductions
Unfortunately, there is no universal answer we can provide.
A lot depends on your individual circumstances. But you should always be claiming at least a few deductions.
This is a common question.
But the thing is that there is no such thing as “too many” tax deductions. There are deductions that you are eligible for and deductions that you are not eligible for. That’s all.
If you claim many, many deductions that you meet the requirements for, that’s completely fine. The only limits are the eligibility requirements and the total number of deductions available.
Of course, there are consequences for claiming deductions that you don’t qualify for.
Those consequences range depending on the severity of your mistakes or cheating. That means intent matters, too. You can get away with some minor mistakes; an audit may result in you having to pay more money to the CRA.
However, extreme and clearly deliberate claims to deductions you should not claim may have severe consequences.
You can feasibly get away with mistakes and/or cheating to a large extent.
But if the CRA audits you, which isn’t as unlikely as you may think, then the trouble will start.
First, the CRA may audit you and assess that you be disallowed the deductions you claimed. In these cases, you must pay the additional taxes you are determined to owe as a result. This may include the addition of interest and penalties, which themselves vary significantly.
If you are believed to be intentionally deceiving the CRA, you may face penalties as high as 50% for:
If your infractions are very severe, the CRA may launch a criminal investigation for tax evasion or fraud. This can result in much more significant penalties and even imprisonment.
The CRA understands that mistakes happen and that not everyone is a full-fledged tax accountant. However, you are expected to be honest and to personally verify the information on your tax returns.
Make sure you understand each deduction you claim and keep the verifying documents on-hand. If you have any doubts, seek professional tax advice.
Maximizing tax deductions starts with the basics.
There are some deductions that the majority of Canadians are eligible for or are easily capable of becoming eligible for.
RRSP contributions are the easy winner.
If you’re not contributing to an RRSP, you most likely should try to do so as soon as you can. Individual situations vary, but most Canadians are able to contribute to an RRSP account of one kind or another. In the very least, a regular savings RRSP is in order.
Once you’ve contributed to your RRSP, you just need to remember to get the tax deduction. Just add it on Line 20800.
Charitable donations net you a tax deduction. The more you give, up to the set limit, the more you can deduct on your tax returns.
The CRA enables you to deduct various childcare expenses. There are a few categories with different criteria.
The common examples are:
The corresponding requirement is that you must have paid these expenses in order to be able to keep working. For example, daycare payments can qualify because paying for daycare enables you to complete your regular working day.
This is a broader category that includes:
The latter is a very broad category that can reasonably demand its own article. But the basic requirement is that the expense incurred was a necessary one for enabling you to do your job.
There are some less well-known tax deductions in Canada.
While Canada is known for its single-payer healthcare system, we Canadians know that far from all healthcare expenses are actually free. Depending on your individual circumstances, you may pay a lot for healthcare services out of pocket.
Common examples include:
If you have moved over 40km to attend any tertiary educational institution, you should be eligible.
You must be a full-time student and have specific expenses to claim, for which you should of course collect receipts. Examples include transportation, storage, and living costs.
If you pay for management services for your investment accounts, this is an easy one to claim.
The qualification is that you paid the fees to an investment manager or advisor for help earning income.
Most of us Canadians live down south where it isn’t quite so cold during winter. But in some provinces, the mere act of living in a northern or remote area makes you eligible for a tax deduction.
The deduction is meant to make it easier to afford basic necessities when living far away from most modern amenities.
There are many deductions to claim during tax season.
There are a few which most people qualify for that we haven’t covered. But then there are also many more niche deductions available to those who meet well-specified requirements.
Make sure you collect receipts to back up any deductions you claim in case you are audited for them. If you are confused about eligibility requirements, consult a tax professional to make sure you aren’t biting off more than the CRA wants you to chew.