Often-overlooked tax deductions and credits

Use every tax break you’re entitled to

This year, the tax-filing deadline is May 1 (since April 30 is a Sunday). There are no extensions or exclusions or delays as there were over the past couple of years when government-ordered lockdowns and mandates pretty much wrecked everyone’s schedules. This year, it’s back to normal, and if you miss filing, you’ll pay a penalty. To get you off on the right foot preparing your tax return for 2022, here are some tax deductions and credits that are often overlooked.

Employment expenses. You can deduct certain expenses (including any GST/HST) you paid to earn employment income, but only if you were required to pay expenses under the terms of your employment contractand did not receive an allowance to cover them. You cannot deduct the cost of travel to and from work or any other expenses.

Employed tradespeople may be eligible for the Tradesperson’s Tools Deduction which applies to the cost of eligible new tools over $1,287 purchased in 2022 to earn employment income. A maximum claim of $500 applies.

First-Time Home Buyers’ Tax Credit. The most recent federal buget upped the amount used to calculate the credit to $10,000 from the previous $5,000 amount. This would provide a tax credit of up to $1,500 to eligible home buyers. You can claim the credit if you purchased a qualifying home in 2022 and did not own a home in the preceding foukr years. The credit is also available to existing homeowners who qualify for the Disability Tax Credit and who purchase a more accessible home.

A qualifying home must be properly registered and must be located in Canada. Both existing homes and homes under construction qualify, and include single and semi-detached family houses, townhouses, mobile homes, condominiums, and apartments in duplexes, triplexes, fourplexes, or apartment buildings.

Medical expense deductions. You may claim eligible medical expenses if you or your spouse or common-law partner paid for the medical expenses in any 12-month period ending in 2022, were not reimbursed for, and did not claim in 2021. Generally, you can claim all amounts paid, even if they were not paid in Canada.

Canada Caregiver Credit. You may be able to claim the CCC if you support your spouse or common-law partner, child, grandchild, parent or other relative with a physical or mental impairment. The amount you can claim depends a variety of factors, including your relationship with the person, your circumstances, the person’s net income, and whether other credits are being claimed for that person.

Moving expenses. You can claim eligible moving expenses if you moved to a new location for employment or business purposes, or you moved to attend college or university as a full-time student. To be eligible for the deduction, your new home must be at least 40 kilometres (by the shortest usual public route) closer to your new work or school than you were before.

Interest on student loans. Interest paid on your student loan in 2022 or the previous five years may be claimed as a credit by you or a related person. If you have no tax payable for the year, you can carry the interest forward for five years and claim it when you do have tax payable.

Tuition credit. This is applicable for tuition fees totalling $100 or more paid to a post-secondary institution. If there is any amount remaining after a student reduced their own tax owing, they may transfer it to a parent, grandparent, spouse, or common-law partner. Note that amounts for transfer cannot be carried forward from previous years and cannot exceed $5,000, less the amount the student used to reduce their own tax owing. Only one person can claim this transfer from the student, and it can be a different person each year.

Childcare expenses are deductible from income where one or both parents are working or where one spouse is attending school for all or part of the tax year. Childcare expenses can include daycare fees, boarding school, hockey school, or summer camp fees. You can claim a maximum $8,000 childcare deduction in 2022 for each child under age seven at the end of the year, and $5,000 for each child over seven and under age 16. The deductions cannot exceed two thirds of your earned income.

Legal fees. Some legal fees can be claimed, include fees paid to respond to or object to or appeal a CRA assessment, legal fees paid to collect a retiring allowance or pension benefit, and fees incurred to try to make child support payments non-taxable. You cannot claim fees you paid to get a separation, divorce, or establish custody of or visitation arrangements for a child.

Charitable Donations Tax Credit. This can be worth up to 29% of your donation on federal tax and up to 24% depending on your province. Federally, the credit is calculated as 15% of the first $200 of donations and 29% for donations above that. Provincial credits range between 4% and 24%. Check the CRA website for more detail on what is eligible and how to calculate your credit.

RRSP deduction. RRSP contributions are easy to overlook, especially if you’ve been making them through automatic contributions through your payroll or your bank account. Make sure you have the contribution receipts from your RRSP sponsor (bank, brokerage, firm, mutual fund, etc.) and make sure it includes the full amount you’ve contributed through the year. TFSA contributions are not tax deductible.

Interest charges. Interest on money borrowed for investment purposes is deductible. “Investment purposes” means you’re using the borrowed money to try to earn investment income, including interest and dividends. However, generally you may not deduct interest if you use borrowed funds only for the purpose of generating a capital gain.

Interest on funds borrowed to contribute to an RRSP, a pooled RPP, a specified pension plan, a Registered Education Savings Plan (RESP), a Registered Disability Savings Plan (RDSP), or a Tax-Free Savings Account (TFSA) is not deductible, with one rather complicated exception. If you had previously borrowed money to invest in a non-registered account and then transfer the investment to an RRSP after you’ve repaid the loan in full, you may still deduct the interest.

Financial advice

Claiming a deduction for fees paid for financial advice is quite restricted. You may deduct fees paid for certain investment advice related to buying or selling a specific investment, or for recording investment income. According to CRA Interpretation Bulletin IT238R2, “The fees must be paid to a person whose principal business is advising others whether to buy or sell specific shares or whose principal business includes the administration or management of shares or securities.”

However, CRA will not allow the deductibility of administration fees paid for your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) or Tax-Free Savings Account.

The CRA will also not let you deduct the management fees charged to a mutual fund (that is, the management expense ratio). Because the MER is charged directly against the fund, it is not reported on individual income tax slips and so cannot be claimed as an investment management expense.

If you trade securities yourself through a broker, whether full service or online discount, you may not deduct brokerage fees or commissions paid to buy and sell securities. Instead, you may be able to use these costs when you calculate your capital gain or capital loss.

Investors who pay fees directly for separately managed accounts (SMAs) or wrap accounts may deduct those fees as carrying charges on their tax return.

As for general financial advice, there’s a fine line between what constitutes advice related to selling specific securities and what doesn’t. In its Interpretation Bulletin IT-238R2, the CRA attempts to make the distinction: It says fees paid for advice such as “general financial counselling or planning” are not eligible, even though fees paid to the same advisor for advice on buying and selling investments are. However, it doesn’t actually specify what “general financial counselling or planning” is, but allows that fees paid for an advisor providing the following services generally qualify: the custody of securities; the maintenance of accounting records; the collection and remittance of income; and the right to buy and sell on their own judgement on behalf of some clients without reference to those clients (that is, discretionary portfolio management).

Subscription fees paid to financial publications or advisory services, whether digital of physical, are not deductible. In additiion, safety-deposit box charges are not deductible.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management and an independent financial planning consultant.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.