People love to brag about being good negotiators, and won’t hesitate to tell you they’ve never left money on the table. Yet Canadian taxpayers consistently fail to claim deductions that could put money in their pockets.
Making strategic use of available deductions is something wealth managers call ‘generating tax alpha,’ because it creates positive returns—even though it technically has nothing to do with investments. Much like portfolio management, tax alpha generation is a careful process, and it starts with a review of household expenses to determine whether they match eligible deductions.
We’ll skip the simple ones like charitable donations, deductions for eligible child dependants, and the pittance you can write off for using public transit (this tax credit will be phased out as of July 1).
Here are some that taxpayers often miss:
Car expenses—Does your boss make you drive your own car to work appointments but not provide a tax-free allowance or reimbursement to cover gas, parking, and wear and tear? If not, you can deduct those costs from your own taxes by asking that she or he sign a T2200 form. It essentially deems the employer ineligible to claim those expenses and hands them off to the individual taxpayer.
Business losses—Employers are ramping up the rate at which they ‘eliminate risk’ by reducing their full-time workforces. That’s led many to start up their own consultancies or other companies. And many of the things people do to set up businesses, buying a computer and using your car to go and meet clients, can be written off. More lucrative, though, is the fact that any losses can be claimed against the money the business makes in its first few years; and in most cases, losses you don’t use in a given year can be carried forward.
Costs for medical treatments—Sometimes the way a deduction line is worded can cause you to miss a benefit. That’s the case with “Medical Expenses for Self” on the T1. It looks as if the line item pertains only to the person filing but in fact allows deduction of expenses for dependant children and spouses. Plus, if your doctor has prescribed that you take specific nutritional supplements, follow a special diet or use a cane, knee-brace or other over-the-counter medical equipment, that counts toward the amount you can deduct.
Support of eligible dependants—Usually, people will take aging parents or other relatives into their homes out of a desire to help. And, while such altruism is commendable, there also are tax advantages. Single people, which in CRA’s eyes includes those who are widowed, separated, or divorced, can claim a tax credit if they support a parent, child, stepchild, or other eligible dependant. The person being supported has to live in your home, and you have to bear all the costs of maintaining that home to claim the credit.
Disability tax credit—Many taxpayers miss this credit because they don’t understand the breadth of CRA’s interpretation of what’s eligible. In addition to more well understood disabilities, the tax credit covers autism, attention deficit hyperactivity disorder (ADHD), and many other conditions. Further, if you’re providing care for someone with a physical or mental impairment, you likely qualify for Family Caregiver Amount on your return.
Costs related to investing—A whole raft of semi-related expenses that the Canada Revenue Agency (CRA) describes as ‘carrying costs’ can add up to sizable write-offs. They include things like investment management fees, other fees paid to investment counsellors and custodians, and fees for tax preparation and the recording of income from investments.
Moving costs—This another one the CRA consistently wins on because the majority of people claiming these expenses are those who’ve relocated for work. Most don’t realize full-time students who relocate to study also qualify.
Spousal capital losses—Canada’s tax regime is very focused on the individual taxpayer. In that sense, it differs from the U.S. and many other countries which base taxes largely on household incomes. CRA does, though, allow a person with capital gains to transfer capital losses from a spouse to offset those gains. It’s an uncommon scenario, but if you’ve experienced it, then use it to save yourself some tax.
The bottom line
Normally, the annual federal budget brings forth a plethora of tax-saving opportunities. Not so this year. But there are plenty of deductions left on the books to help you avoid leaving too much money on the CRA’s table.
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