For many Canadians, the arrival of spring rhymes with tax refunds.
In 2022, the federal government returned an average of $2,092 in tax refunds to taxpayers. Here are the deductions and credits to bet on to optimize your tax situation.
Deductions
Deductions are amounts that reduce your taxable income. They somewhat give the illusion that you earned less money during the year. When you decrease your income, you can reduce your marginal tax rate, which thereby reduces your average tax rate.
RRSP Contribution
Amounts paid into a registered retirement savings plan are tax-deductible. However, if you withdraw an amount from your RRSP, it will be included in your income for the current year.
Moving
If you had to move to get closer to your new educational institution or new workplace, you are entitled to a deduction for expenses caused by this move, provided your new home is at least 40 km closer to your new school or new office.
Childcare
If you had your child looked after to hold a job, run a business, or attend an educational institution, childcare costs can be considered in your deductions.
Pension Income Splitting
Another way to lower your taxable income consists of transferring part of your eligible pension income to your spouse if their income is lower than yours. This transfer can allow you to change income brackets, resulting in a lower marginal tax rate.
Tax Credits
Refundable tax credits are granted to you even if you have no tax to pay for the year, while non-refundable tax credits only reduce the tax you must pay for the year. Some non-refundable tax credits are transferable between spouses, parents, or grandparents, or carry-forwardable to subsequent years if the current year's tax payable is not sufficient to use them fully.
Medical Expenses
Taking care of oneself can be expensive. Fortunately, amounts you pay during a year for necessary healthcare entitle you to a tax credit. At your pharmacy, ask for the receipt of the total amount paid for your prescription drugs during the year. You can add most of your expenses for dental care, purchase of glasses or contact lenses, contributions to a drug insurance plan, etc. However, remember to subtract the amount reimbursed by your insurance company; the latter issues a summary of claims and amounts granted upon request. The amount of medical expenses eligible for the tax credit is then adjusted based on your income; the medical expense tax credit can therefore be zero in some cases.
Charitable Donations
Generosity pays off! Donations you made during the year entitle you to the tax credit.
Tuition Fees
Post-secondary students can benefit from a tax credit for tuition fees they paid. Educational institutions produce a tuition fee statement just before tax season to facilitate calculation in the tax return.
Home Buyers' Amount
Did you buy a house in the last year? To help new buyers access the real estate market, the federal and provincial (Quebec) government grants a non-refundable tax credit of up to $1,500.
Possible Deductions Due to Remote Work During the COVID-19 Pandemic
If you mainly worked more than 50% of the time from your home for at least four consecutive weeks in 2022, know that some of your expenses related to this situation could be deducted from your tax return.
To learn more, consult our tax return checklist.
Long-awaited Tax Refund
Once you have sought the maximum of your tax refund, use this money smartly. It is not a gift, but the return of a part of your income that was over-collected throughout the year. For example, deposit this amount in your TFSA or RRSP, invest it in a placement, or take the opportunity to pay off a loan or debt.
Make an appointment with a financial security advisor who can guide you and help you make the most of this money.
Visit the Canada Revenue Agency website to consult the detailed list of deductions and tax credits.
Very Important Information:
After finishing your tax return, keep all your receipts, documents, and forms used for your calculations. In case of a tax audit, these supporting documents could be requested up to six years after the tax year in question.
Happy tax season!
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