Use tax credits and deductions to the max!

Get every tax break you are entitled to

Tax-filing season is upon us again. The deadline to file your 2021 tax return is April 30. But because that’s a Saturday, the Canada Revenue Agency (CRA) considers your return to be filed on time if they receive it on or before May 2 or if it is postmarked on or before May 2. If you are self employed, you have until June 15 to file your return.

Every year, clients ask us about ways to cut their tax bill as they prepare their returns. The simplest way is to use every tax credit and deduction that applies to you. And there are plenty of them, around 400 at last count. Most off-the-shelf tax preparation software and tax preparation businesses (which use the same or similar software) will look for these and apply them automatically based on the information you input.

If you’re preparing your own return, even with an app, be sure to check that you’ve captured all the tax breaks you are entitled to. Here are some of the key deductions and credits to watch for.

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 contract, did not receive an allowance for them, or if an allowance was included in your income. This deduction typically will not apply to most employees, and you cannot deduct the cost of travel to and from work or any other expenses, including tools and clothing. In addition, you can deduct any legal fees paid to collect salary or wages.

Work from home expenses. This credit was introduced in 2020 to offset expenses employees incurred if they were required to work from home as a result of Covid-19 lockdowns. It has been extended to 2021 and 2022 tax years. Employees can apply a flat rate of $2 per day to a maximum $500 for 2021. Or they may be able to claim more by filing CRA Form T2200-s – Declaration of Conditions of Employment for Working at Home Due to COVID-19. (The CRA provides details of eligible expenses you can claim on its website.) The form must be signed by your employer.

GST/HST credit. This refundable credit is available to families and children with low or modest income. The credit is paid out quarterly if you are eligible. But you have to file a tax return to get it, even if you are not reporting any income.

RRSP deduction. Don’t forget to deduct your RRSP contributions made for 2021. 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. Note that there is no deduction for TFSA contributions.

Home Buyers’ Tax Credit. You can claim $5,000 for the purchase of a qualifying home in 2021 if you or your spouse or common-law partner acquired a qualifying home and you did not live in another home owned by you or your spouse or common-law partner in the year you bought the home or in any of the four preceding years (first-time home buyer). The maximum tax savings generated by the non-refundable tax credit will be up to $750 (that is, $5,000 x 15%). This is also available to existing homeowners who qualify for the Disability Tax Credit and who purchase a more accessible home.

Home Accessibility Tax Credit. If you have made renovations to your home for the purpose of making it more accessible to seniors or the disabled, you may be able to claim up to $10,000 in expenses. Check for similar provincial credits.

Medical expense deductions. You may claim only eligible medical expenses if you or your spouse or common-law partner paid for the medical expenses in any 12-month period ending in 2021 and did not claim them in 2020. Generally, you can claim all amounts paid, even if they were not paid in Canada. You can find a list of common medical expenses at the CRA website.

Age amount. If you are over age 65, make sure you claim the age amount tax credit. For an income of $38,508 or less, you can claim $7,637 for 2021. For income above that amount, a separate calculation applies.

Canada Caregiver Credit. You may be able to claim this credit 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.

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. The maximum you’re allowed to claim under the childcare deduction in 2021 is $8,000 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.

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%.

Political Contribution Tax Credit. This credit is calculated as 75% of the first $400 donation and 50% of amounts between $400 and $750, declining to 33.3% of amounts over $750. The credit is capped at $650.

Climate Action Incentive (CAI) Payment. This is a payment designed to offset the federal carbon tax in Saskatchewan, Manitoba, Ontario, and Alberta. It consists of a basic amount and a 10% supplement for residents of small and rural communities. Only one person per family (you or your spouse or common-law partner) can claim the CAI payment.

Keep in mind that if you owe taxes, you still have to send CRA your payment by April 30. Always file a return, whether you owe taxes or not in order to get certain credits and payments if you are eligible. If you have a balance owing, the penalties for late filing can be stiff – 5% of your 2021 balance owing, plus an additional 1% for each full month you file after the due date, to a maximum of 12 months.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

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.