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14 Expenses You May Be Entitled To Deduct - Tax - Canada

14 Expenses You May Be Entitled To Deduct - Tax - Canada

Thousands of Canadians pay more income tax than they should. Bynot taking full advantage of deductions, you may be one of thosegenerous Canadians without even knowing it. Are you aware of all ofthe deductions that are available to you? Do you file your returnon time? Do you pay tax instalments quarterly to avoid interestcharges?

Here is a look at some of the important dates and some of thecommonly missed opportunities that could be contributing to yourlarger than necessary tax bill.

Expenses you may be entitled to deduct

Employment expenses

Employees who are required to use their own automobiles for work(other than for travelling from home to and from their workplace)without reimbursement from their employer can deduct the businessportion of their automotive expenses. If you are reimbursed and theamount of the reimbursement is not "reasonable," you canstill claim a deduction for the non-reimbursed portion. In order toclaim employment expenses, your employer will have to provide youwith a completed form T2200 Declaration of Conditions ofEmployment.

In 2020, the Federal Government announced a temporary simplifiedhome office deduction. Eligible employees could deduct a maximum of$400 relating to home office expenses without needing to track thedetails of the expenses. The Federal Government has announced thatit would extend the simplified home office deduction to the 2021and 2022 tax years, increasing the maximum deduction to $500annually.

The CRA also indicated that there would be relief in 2020 onamounts that would normally be considered taxable employeebenefits. For example, the CRA announced that it will not consideran employer's reimbursement of up to $500 for home officeequipment to be a taxable benefit, as long as the employee requiresthe equipment to perform their employment duties at home.Reimbursements or reasonable allowances received from employers forcertain commuting costs, parking, internet, and cell phone costsrelating to employment purposes would also not be consideredtaxable benefits. At this time, the CRA has not yet updated itsguidance on this relief for 2021.

You may be able to claim additional home office expenses relatedto your workspace and office supplies. Your employer will need toprovide you with a completed form T2200 and you must ensure youmaintain records of receipts and expenses for any eligible homeoffice expenses incurred. The CRA has not yet updated its guidanceon deductibility home office expenses incurred in 2021 due toCOVID-19, however, you should keep records in case you are eligibleto claim these expenses.

Carrying charges and deductible interest

Borrowed funds must generally be used for the purpose of earningincome (e.g. investing) in order for the related interest to bedeductible. Maintaining proper documentation of loans and interestpayments will help support claims for interest deductions.Deductible carrying charges may include investment counsel fees,bank fees, or similar charges.

Childcare expenses

Subject to certain limitations, childcare expenses may bededucted from income by the lower income spouse. These expensesinclude daycare, babysitting, boarding school, and day camps. Notethat you will have to provide the Social Insurance Number of anyindividual you paid for childcare and supporting documentation isfrequently requested by the CRA.

Moving expenses

If you moved during the year to be at least 40 kilometres closerto a new job, to run a business, or to attend a post-secondaryeducational institute full-time then you may be able to deductcertain moving expenses. The amount you can deduct is limited tothe amount you earn at the new location in the year. Unuseddeductions can be carried forward and deducted against the relatedincome in a subsequent year.

Some examples of allowable moving expenses are:

Proper documentation of your expenses, including receipts, iscritical as the CRA generally requests support for movingexpenses.

Tax credits you may be eligible to claim

Charitable donations

Charitable donations made by you or your spouse during the yearshould normally be added together and claimed on the income taxreturn of one spouse. A higher credit is available when totaldonations exceed $200, so it makes more sense to combine thedonations and claim them on one return. If your total donations areless than $200 there is no advantage to claiming them on onereturn. The key to supporting your claim is to keep the officialtax receipts.

If you are donating certain publicly-listed securities, yourdonation credit is based on the fair market value of thosesecurities. Furthermore, you will not pay tax on capital gains onthe donated securities.

Donations can also be carried forward up to five years, so ifyou find a donation receipt that was not previously claimed, bringit in to review with your Crowe MacKay tax advisor.

Medical expenses

You may claim a non-refundable tax credit on medical expensesfor yourself, your spouse, and dependent children. While eitherspouse can make the claim, as with charitable donations, medicalexpenses should usually be added together and claimed on the incometax return of one spouse (usually the lower income spouse) in orderto maximize tax savings. You are not restricted to claiming on acalendar year basis as you can claim medical expenses for any12-month period that ends in the year. The most commonly missedexpenses are dental bills, eye glasses, private medical insurance(including certain travel medical insurance premiums), and certaintravel costs such as travel to regional or provincial centres fortreatment.

14 Expenses You May Be Entitled To Deduct - Tax - Canada

You may also claim certain expenses in respect of an animalspecifically trained to perform specific tasks to assist withpost-traumatic stress disorder.

Medical cannabis can be claimed as a medical expense. However,individuals can only claim purchases from specific registeredsellers. Purchases from other retailers may not beeligible.

Attendant care and nursing home expenses

For persons who qualify for the disability amount, attendantcare expenses may be claimed for:

Attendant care expenses can be claimed as medical expenses to amaximum of $10,000 per year if the disability tax credit isclaimed. However, there is no maximum amount if the disability taxcredit is not claimed.

When the expenses are for full-time care in a nursing home thereis no limit on the total attendant care expense that can be claimedas medical expenses, however, the disability tax credit cannot beclaimed. It is recommended you get a detailed fee statement fromlong term care facilities to ensure appropriate expenses areclaimed.

Disability tax credit

This credit is available to a person with a severe and prolongedimpairment in physical or mental function subject to certaincriteria. To qualify, the CRA must approve an application signed byyour doctor or nurse practitioner. Areas that may apply include thefollowing:

The 2021 Federal Budget proposed broadereligibility requirements which should make the credit moreaccessible to those with an impairment to performing the mentalfunctions necessary for everyday life. The Budget also proposed areduction in the eligibility requirements for individualsundergoing life-sustaining therapies, reducing the frequency oftherapy to two times each week; however, an individual must stillreceive therapy for a duration averaging not less than 14 hours aweek. The changes apply to DTC certificates filed on or after July6, 2021.

The disability tax credit can be claimed retroactively for up to10 years. A T1 adjustment can be filed to claim the credit for anytax years that have lapsed since the time that impairment began, ascertified by your doctor.

Once a person with a disability has applied for and is deemedeligible for the disability tax credit, they may also be eligibleto participate in a Registered Disability Savings Plan, which willbe discussed later in this newsletter.

Other credits may be available to those supporting certainfamily members who are dependent on them due to a physical ormental infirmity:

Teacher and early childhood educator school supply taxcredit

The Teacher and Early Childhood Educator School Supply taxcredit is a refundable tax credit. Traditionally this creditallowed an employee who is a teacher or early childhood educator toclaim a 15% refundable tax credit on up to $1,000 of purchases ofeligible teaching supplies during the year; it has been proposed bythe Federal Government to increase this tax rate to 25% effectivefor the 2021 tax year. Refer to the Major Canadian Tax Changes in 2022 formore details.

Student loan interest

Interest paid on student loans obtained under the Canada StudentLoans Act, the Canada Student Financial Assistance Act, or similarprovincial or territorial government legislation for post-secondaryeducation can be claimed as a tax credit. If you do not use thecredit for the year in which the interest is paid, the unusedamount can be carried-forward for up to five years.

Home buyers' amount

If you are a first time home buyer, you may be eligible to claima 15% non-refundable tax credit on $5,000. Generally speaking, youmay be considered a first time home buyer if neither you nor yourspouse or common-law partner owned and lived in another homeanywhere in Canada in the calendar year of the purchase or in anyof the four preceding calendar years.

Home accessibility tax credit

The Home Accessibility tax credit is available for seniors (age65 and older) and individuals who qualify for the disability taxcredit. This credit allows these individuals to claim a 15%non-refundable tax credit on up to $10,000 of expenses incurred toperform a "qualifying renovation" on their home. Therenovation must allow the individual to gain access to, be mobileor function within the home, or reduce the risk of harm to theindividual within or gaining access to the home. Such expenses mayalso be eligible for the medical expense tax credit, providing adouble tax benefit from claiming these expenses.

Digital news subscription tax credit

For the years 2020 to 2024, individuals can claim a 15%non-refundable tax credit on amounts up to $500 spent on a digitalnews subscription with a qualified Canadian journalismorganisation. Note that only the cost of a standalone digitalsubscription will be eligible. If your subscription provides youwith access to content in digital and non-digital form, then onlyone-half of the amount paid will be eligible for the credit.

Canada training credit

This refundable tax credit aims to help workers between the agesof 25 and 64 and encourages them to pursue professionaldevelopment. Individuals can accumulate $250 of credit room peryear, up to a lifetime maximum of $5,000. The amount that anindividual can claim as a credit in a particular tax year is equalto the lesser of 50% of eligible tuition and fees paid in a yearand the accumulated room at the beginning of the year.

What to do next?

File your taxes on time

The normal deadline for filing an income tax return in Canadafor the previous year is April 30. This filing deadline is extendedto June 15 if you or your spouse are self-employed. However, incometaxes payable are still due on April 30. Similarly, the informationreturn for "Specified Foreign Property" having anaggregate cost over $100,000 CAD at any time during the year (FormT1135) must be filed by the individual's filing deadline.

Taxpayers who do not file their income tax returns on time facesignificant late-filing penalties: 5% of the balance due plus 1%per month to a maximum of 12 months for the first offence, plusapplicable interest on the penalty. The penalty can more thandouble where the taxpayer fails to file on time for a second timein three years and if a formal demand for filing has been issued bythe Minister.

Interest and penalties are not tax deductible and add up quicklyat the rates charged by the CRA. Even if you cannot pay the amountof taxes due, ensure that you file on time.

Penalties for failing to report income

If you have income from several sources, make sure that you donot miss reporting any of it. By failing to report income on yourreturn in the current year and in any of the three preceding years,you could be subject to federal and provincial/territorialpenalties based on 10% of the unreported income in addition topaying the understated tax liability on the unreported income.Interest applies on the unpaid amounts. We recommend that youensure that you have information on all of your income when havingyour return prepared.

Disclosing the sale of principal residence

Many Canadians are aware of the fact that they will likely notpay tax on the sale of their home as a result of the principalresidence exemption. However, what some taxpayers are not aware ofis that this does not relieve them of the requirement to disclosethe sale to the CRA. If you sold your home during the year, youmust file your personal tax return, completing Schedule 3 and FormT2091(IND). Failure to do so will result in penalties.

Failure to pay income tax instalments

Failure to pay quarterly income tax instalments when requiredmay result in interest charges. It is possible to make catch-uppayments and reduce or offset the interest charges. Contact yourCrowe MacKay tax advisor if you are unsure if you are required tomake tax instalments.

The importance of filing a tax return

Even if you do not have income to report, failing to file yourreturn can put you at a financial disadvantage. Several benefitsand social programs are available to individuals based on theincome (or lack thereof) reported in their filed tax return. Forinstance, the Canada Child Benefit is a tax-free monthly paymentfrom the Government to assist eligible low income families with thecosts of raising children. In order to be considered for thebenefit, you and your spouse must file your return every year.Guaranteed Income Supplement (GIS), GST/HST credit, and the CanadaWorkers Benefit are other benefits that are assessed and paid basedon personal income tax filings.

2020 Tax Year Deductions

Employment expenses

Employees who are required to use their own automobiles for work(other than for travelling to and from their workplace) withoutreimbursement from their employer can deduct the business portionof their automotive expenses. If you are reimbursed and the amountof the reimbursement is not "reasonable", you can stillclaim a deduction for the non-reimbursed portion. In order to claimemployment expenses, your employer will have to provide you with acompleted form T2200 Declaration of Conditions ofEmployment.

With millions of Canadians working from home in 2020 in light ofCOVID-19, the Federal Government recently announced theintroduction of a simplified home office deduction. Eligibleemployees may deduct a maximum of $400 relating to home officeexpenses and will not require the need to track the details ofthese expenses. This measure is intended to ease the reportingburden for both the employees, who may not be familiar with theexisting home office rules, as well as employers, who may not befamiliar with the existing form T2200. Due to the pandemic, CRA hasalso indicated that there will be some relief this year on amountsthat would normally be considered taxable employee benefits. Forexample, CRA announced that it will not consider an employer'sreimbursement of up to $500 for home office equipment to be ataxable benefit, as long as the employee requires the equipment toperform their employment duties at home. Reimbursements orreasonable allowances received from employers for certain commutingcosts, parking, internet and cell phone costs relating toemployment purposes would also not be considered taxablebenefits.

You may be able to claim additional home office expenses relatedto your work space and office supplies. Your employer will need toprovide you with a completed form T2200 and you must ensure youmaintain records of receipts and expenses for any eligible homeoffice expenses incurred.

Carrying charges and deductible interest

Borrowed funds must generally be used for the purpose of earningincome (e.g. investing) in order for the related interest to bedeductible. Maintaining proper documentation of loans and interestpayments will help support claims for interest deductions.Deductible carrying charges may include investment counsel fees,bank fees, or similar charges.

Childcare expenses

Subject to certain limitations, childcare expenses may bededucted from income by the lower income spouse. These expensesinclude day-care, babysitting, boarding school, and day camps. Notethat you will have to provide the Social Insurance Number of anyindividual you paid for childcare and supporting documentation isfrequently requested by Canada Revenue Agency (CRA).

Moving expenses

If you moved during the year to be at least 40 kilometres closerto a new job, to run a business, or to attend a post-secondaryeducational institute full-time, then you may be able to deductcertain moving expenses. The amount you can deduct is limited tothe amount you earn at the new location in the year. Unuseddeductions can be carried forward and deducted against the relatedincome in a subsequent year.

Some examples of allowable moving expenses are:

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.