Synopsis
There are various deductions and credits available to professionals to help manage their personal tax liability.
It’s that time of the year again when you start thinking about your personal taxes. To ensure that you are well-prepared for this tax season, below are some of the commonly overlooked tax deductions and credits.
Moving Expenses
If you moved to be closer to your workplace or school in 2021, you may be able to deduct part of your moving costs for moving yourself, your family, and your household items. To qualify, your new home must be at least 40 kilometres closer to your new work location or school. The moving expenses may include deductible amounts that are not commonly known and can make a significant difference on your taxes. Below are the items you may be able to deduct for moving:
- Transportation and storage costs: packing, hauling, movers, in-transit storage fees for household items.
- Travel expenses: accommodation costs, meals, and vehicle expenses. A choice of the detailed (actuals per receipts) or simplified (allowance based on the Canada Revenue Agency (CRA) flat rate) method is available for claiming meals and vehicle expenses.
- Temporary living expenses: these costs can be deducted for a maximum of 15 days for meals and temporary lodging near the old or new home.
- Some other costs related to your move: changing address on legal documents, replacing driving licenses fees, and utility hook-ups and disconnections.
- Cost of cancelling your lease for your old home.
- Certain costs to maintain your old home when vacant (maximum of $5,000) after your move: interest on mortgage, property taxes and utilities.
- Cost of selling your old home: advertising, legal fees, real estate commissions and mortgage penalty for paying off before maturity.
- Cost of buying your new home if you sold your old home because of the move: property transfer tax, and legal fees.
The deduction for moving expenses is limited to the income earned at the new location, however the unused amounts are carried forward to be used in the following year.
Professional dues
Professional dues and memberships paid to professional organizations are a tax deduction which can be claimed in the year the fees are paid. For physicians along with other medical professionals, in addition to annual membership fees, the cost of malpractice insurance is also a tax-deductible expense.
Carrying charges
A commonly missed tax deduction is carrying charges which include fees related to financing and investments, such as the fees paid to your financial advisor to manage non-registered investments and fees for investment advice. Note that commission fees or embedded fees such as management expense ratio (MER) are not eligible for the deduction, nor are fees on your registered accounts (such as Registered Retirement Savings Plan accounts or Tax-Free Savings Accounts).
Interest on money borrowed to earn investment income
If you borrowed money and invested it in non-registered accounts, the interest that is paid on the debt is considered a tax-deductible expense against investment income.
Childcare expenses
If your child attends a childcare facility so you can work, run a business, or attend school, then the childcare expenses are considered tax deductible. In addition to daycare or day home fees, the following fees may also be considered childcare expenses for tax purposes:
- Day camps and day sports schools where the primary goal of the camp/school is to provide childcare
- Boarding schools, overnight sports schools, or camps where lodging is involved
Generally, childcare expenses must be claimed by the spouse with lower income (some exceptions apply).
Charitable donations
Charitable donations over the course of the year can add up quickly.
A federal tax credit equal to 15 percent on the first $200 and 29 percent on the remainder of the donated amount to a qualified Canadian registered charity can be claimed in addition to a provincial credit which varies across provinces. If you’re subject to the highest tax rate, your federal credit could be as high as 33 percent. The donation credit can be shared between yourself and your spouse and is maxed out at 75 percent of net income (except Quebec where there is no limit). Any remainder can be carried forward and used for up to 5 years.
You could also consider donating investments instead of cash, as donations of certain non-registered securities are not subject to capital gains tax while allowing the donor to claim a tax credit equal to the fair market value of the donated property.
Canadian political contributions
This tax credit can provide over 50 percent in relief on political contributions made during the year up to a maximum of $1,275 for federal contributions and varying limits for various provincial contributions.
Medical expenses
Medical expenses may include everything from your routine dental visit to a specialized product that you had to buy for your health conditions. Even expenses that you thought were not claimable (for example, purchasing a replacement furnace, fees for massages) may be eligible for this credit if prescribed by a doctor. Some of the other claimable expenses under this credit include travel expenses, meals expenses for your medical trip if you had to travel over 40 km one way, and even accommodations and parking if travelling over 80 km one way.
Note that only medical expenses exceeding a certain threshold (the lesser of 3 percent of your net income and $2,421 for the 2021 tax year) qualify for the credit. Expenses that were covered by a health benefits plan are not eligible for this credit.
For a greater impact on your taxes, consider claiming all medical expenses for yourself, your spouse, and minor children on a single tax return with smaller net income.
Student loan interest
Paying off student loans can be draining in the initial years of your career. CRA allows for a tax credit on the interest paid on provincial and federal student loans, which is available to be used on a future tax return (up to five years) if not claimed in the year paid. However, the interest paid on loans from private financial institutions (such as a student line of credit) is not eligible for this credit.
Disability tax credit
The disability tax credit helps persons with disabilities, or their supporting persons reduce the amount of income tax burden. This tax credit can result in tax savings of up to $1,500 for an adult and even more for a minor. There is a wide range of physical and mental impairments such as children with ADD, ADHD, anxiety disorders, autism, diabetes (type 1 or 2 in certain cases), epilepsy, learning disabilities and much more that are often overlooked but are covered under this tax credit if certain eligibility criteria are met.
Home buyers amount
If you purchased a home in 2021 and have not lived in a home owned by you or your partner in the last four years, you may be eligible to claim this tax credit worth up to $750 in tax savings.
Northern travel
If you lived in either a prescribed (Zone A) or intermediate (Zone B) northern zone in 2021 for a continuous period of six consecutive months, you may be eligible to claim the new northern travel tax credit of up to $1,200 per individual in your household.
If you have missed significant tax deductions or credits you may still be able to make the claim by amending past tax returns — discuss with your tax or business advisor.
This report is provided by MNP. It is for informational and educational purposes only as of the date of writing. This information should not be considered investment, tax or legal professional advice. For specific advice about your situation, please consult a tax, accounting, legal or financial professional. The information contained in this report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. CDSPI, CDSPI Advisory Services Inc., MNP and our affiliates are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.