For many Canadians, the arrival of spring rhymes with tax refunds. In 2022, the federal government paid out an average of $2,092 to taxpayers in tax refunds. Discover the deductions and credits that can help you optimize your tax situation.
Deductions
Deductions are amounts that reduce your taxable income, giving the impression that you earned less money in the year. Reducing your income allows you to lower your marginal tax rate, which leads to a decrease in your average tax rate.
- RRSP Contribution: Contributions to a Registered Retirement Savings Plan are tax-deductible. However, RRSP withdrawals are included in your annual income.
- Moving: If you moved to be closer to your new school or workplace, you are entitled to a deduction for expenses incurred, provided your new home is at least 40 km closer to your new school or office.
- Childcare: Childcare expenses can be deducted if you paid for childcare to work, run a business, or attend an educational institution.
- Pension Income Splitting: Transferring part of your pension income to your spouse can reduce your taxable income and lower your marginal tax rate.
Tax Credits
- Medical Expenses: Necessary health expenses entitle you to a tax credit. Make sure to keep receipts for medication, dental care, and other medical expenses.
- Charitable Donations: Donations you made during the year provide you with a tax credit.
- Tuition Fees: Post-secondary students can benefit from a tax credit for tuition fees paid.
- Home Purchase: First-time buyers can obtain a non-refundable tax credit of up to $1,500.
- Don't forget to consult our checklist for your tax return, especially regarding deductions related to working from home since COVID-19.
Once your tax refund is maximized, use this money wisely by placing it in your TFSA, RRSP, or by paying off debts. Make an appointment with a financial security advisor to make the most of your refund.
