Feb 24, 2023
Tax credits and deductions for Canadians to consider
Tax consequences of getting a divorce
Canadians are gathering their T4s and receipts as tax slips arrive and the May 1 deadline approaches, but many people may not know what credits and deductions are available to them.
People can reduce the taxes they pay over moving, medical and child-care expenses, charitable donations and even some news subscriptions.
Sun Life financial advisor Mark Coutts said tax season is an opportunity to think about life changes over the last year, find out what tax options apply and how to access them.
“It’s important to look back and reflect on what happened in 2022,” he said in an interview with BNNBloomberg.ca.
“If you had a major event in your life last year, like you changed jobs, you bought a home, you got married, you had a baby, you should check in with both your tax professional and your financial advisor to discuss how that may have changed your financial situation and your needs going forward.”
Here is a look at some available tax credits and deductions, and an explainer on the difference between them.
TAX CREDITS VERSUS TAX DEDUCTIONS
There are tax credits and deductions available at federal, provincial and territorial levels, but many Canadians often confuse the two.
Michael Callahan, a certified financial planner with Edward Jones, explained the difference in an email to BNNBloomberg.ca.
Tax deductions lower the amount of a person’s income that is subject to tax, he said, meaning a person with an annual income of $60,000 with a $5,000 tax deduction would see $55,000 of their income taxed.
Tax credits are then applied against the determined taxable income amount – so a $500 credit would reduce the total amount a person has to pay by $500.
“Notice that a tax deduction lowers your income before your tax owing is calculated, whereas a tax credit then applies after your tax owing is calculated,” Callahan said. “A fun way to remember is that it's like in the movies – the credits are at the end!”
FAMILY AND HEALTH-CARE EXPENSES
Many child-care expenses are deductible, and there is also a caregiver tax credit for people who support dependents with physical or mental disabilities.
People can claim tax credits for eligible medical expenses – a list that expanded in 2022 to include fertility treatments -- as well as for adoption fees.
The disability tax credit reduces income tax for people with mental or physical impairments and their families.
Coutts said families should make sure they are looking closely into all tax options that apply to save as much as possible.
“All of these should be taken into account because you start adding up a couple of $100 here, $300, $400 there, it can be meaningful to a family at the end of the day.”
HOMEBUYERS AND OWNERS
A federal tax credit for first-time homebuyers increased to $10,000 for homes purchased in 2022.
Prospective homebuyers also have the option of the registered First Home Savings Account to save tax-free for the purchase of their first home.
There are a lot of options related to home purchases, and Coutts said people involve in the housing market in particular should seek financial advice, “as it's going to get complicated, especially if you're buying your first home because you've got different vehicles you can use to do that.”
WORKERS AND STUDENTS
People who moved to a new home for work or education can deduct moving expenses like the costs of travel, storing your belongings and temporary accommodations.
The new home must be at least 40 kilometres closer to a person’s new job or school, and Coutts said more people may be taking advantage amid the ongoing “great migration” of people out of big cities during the pandemic.
Generally, Coutts advised people “put your COVID thinking cap back on and remember that there were several pandemic- related tax incentives that were introduced over the past couple of years that still apply for 2022.” That includes a deduction of up to $500 on work-from-home expenses for people who worked remotely due to the pandemic for at least half the time of four consecutive weeks in 2022, when many people were working at home during the early waves of the Omicron virus variant.
Another refundable tax credit, the Canada workers benefit, is available to working people with low incomes, with a basic amount and disability supplement.
The Canada training credit is applicable for people who took eligible occupational, trade or professional courses or exams in 2022.
For students and graduates, there is a federal tax credit on student loan interest, and other options related to tuition amounts and student fees.
OTHER CREDITS AND DEDUCTIONS
People can claim the tax credit for chartable donations and gifts over the past year, and up to $500 on eligible digital news subscriptions as part of a relatively new federal tax credit.
Provinces and territories also have tax credits residents should look into. For example, Ontario offered a “Staycation Tax Credit” in 2022 to boost local tourism, allowing people to claim expenses for stays at campgrounds, hotels, cottage rentals and other accommodations.
CHECK IN WITH FINANCIAL PROFESSIONALS
Callahan and Coutts both recommended that people discuss their tax plans with financial professionals.
While he sees tax season as a chance to look back on the past year, Coutts said it’s also an opportunity to plan ahead for 2023 if offers were missed.
“Use it as a learning moment,” he said. “Talk to your financial advisor and make sure that you're not missing out.”