Tax season can be stressful, but it can also be an exciting time for your wallet.
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The official deadline to file your Canadian personal income tax return for 2020 and pay any taxes owed to the Canada Revenue Agency (CRA) is April 30, 2021. For Quebecers only: You can file your return up to May 30, 2021 and you will not be penalized. You can read more about this here. |
There are a string of tax deductions and credits you may qualify for that when applied can reduce or eliminate the amount of tax you owe. This means less money going to the taxman and more money in your pocket.
You may also end up being one of the millions of people receiving a tax refund, that is, a direct payout from the government, with the average amount per return reported at $1,858.
A tax professional will know which deductions and credits you are eligible for. In the case you’ve decided to forego any help altogether and brave the tax system yourself, continue reading to find out the most common tax deductions and credits you or your family may be eligible for.
Note that unlike the basic personal amount, which is automatically applied when you file online, you will most likely have to manually enter the amounts to receive the deductions and credits listed.
On that note, let’s dig in…
1. [NEW] Home Office Expenses for Employees
Type: Deduction
The form required for this is Form T2200 or T2200s. Quebec residents require a TP-64.3-V.
Did you work from home during 2020 due to COVID-19? Chances are, yes. If so, you may be able to claim certain out-of-pocket expenses related to your job on your tax return, provided you have not been reimbursed already by your employer. You can calculate your home office expenses by using the CRA’s online calculator.
The CRA also offers a temporary flat rate method as an alternative to simplify your claim. But the maximum amount you can claim with this method is $400, which may not cover all your expenses. More information on this flat rate can be found here on the CRA website.
2. Age Amount
Type: non-refundable tax credit
You may be entitled to the age amount tax credit if you are 65 years of age or older at the end of the taxation year. If your income is less than $38,508, you are eligible to receive the full age amount deduction of $7,637.
The higher your income, the less you will receive. If your income is higher than $89,421 for 2020, then you are not eligible for the age income amount deduction.
3. Pension income amount
You may be able to claim up to $2,000 if you report eligible pension or annuity payments on your tax return. Income from your Registered Retirement Income Fund (RRIF) qualifies for the $2,000 pension income amount.
For a detailed list of eligible pension and annuity income, click here if you’re 65 or younger and click here if you’re 65 years or older.
4. Medical expenses
Type: non-refundable tax credit
Through taxes, you are paying for medical services, but there are many medical expenses that you’ll have to pay out-of-pocket. Tally up receipt totals for the medical expenses made over the 12-month period ending in 2020, which you have not been reimbursed for. You may be able to claim eligible medical expenses up to $2,397 or 3% of your net income, whichever is less, to count toward a credit.
One of the most common medical expenses you can claim is prescription medication and dental services that are not for cosmetic purposes. You can also claim medical expenses for your spouse, common-law partner, your children, or other dependents.
5. [NEW] Digital news subscription
Type: non-refundable tax credit
You can get a digital news subscription for a year as low as the cost of a sandwich, but it can also set you back $100 or more per year. If you are an avid news consumer and have multiple subscriptions, the costs can add up.
Luckily for you, this is the first tax year you will be able to claim any expenses up to $500 that you paid over the past 12 months for a digital news subscription.
The only caveat is that the subscription needs to have been purchased from a qualified Canadian journalism organization, or QCJO. Qualifying digital news subscriptions include The Globe and Mail and the Toronto Star Newspapers. Here is a full, up-to-date list of qualifying digital news subscriptions.
6. Foreign tax credit
Type: non-refundable tax credit
You are required to complete Form T2209.
You may have money abroad that is generating income, which is the likely case of persons such as expats and international students. This income you will have to report on your tax return, but you may be able to claim this credit depending on tax treaties. For more information, view the CRA website.
7. Disability tax credit (DTC)
Type: non-refundable tax credit
You must fill out and have the CRA approve Form T2201 if you are applying for the DTC for the first time.
Although you may not consider yourself as disabled, if you have significant health problems that affects your daily life, you may be eligible to receive financial relief in the form of the disability tax credit (DTC). Hundreds of thousands of individuals claim DTC each year, with the government distributing over $1.3 billion dollars in relief.
For 2020, you will be able to claim up to $8,416 should you qualify. First, you must meet the CRA criteria of disability and receive an attestation from a medical professional.
Thousands of medical conditions fall under the scope of DTC. You can find out if you’re eligible for the DTC here.
8. [NEW] Canada caregiver credit (CCC)
Type: non-refundable tax credit
Those caring for a dependent with a physical or mental impairment may be able to claim up to a maximum of $7,276. To learn more about this, view the CRA website here.
9. Tuition, education, and textbook amounts
Type: non-refundable tax credit
You must have received Form T2202, TL11A, TL11C, or TL11D from your educational institution.
It’s no secret that education is costly. Thankfully, you may be able to write off costs related to your education, such as tuition fees or textbook costs, on your tax return.
The amount you are eligible to claim depends on the amount set by your province or territory. Unfortunately, the federal education and textbook tax credits were eliminated back in 2017.
10. Registered Retirement Savings Plan (RRSP)
Did you contribute in 2020 to your RRSP? If so, you can deduct the total amount contributed from your taxable income. You can read more about RRSPs here.
In Conclusion…
Claiming deductions and credits is one of the best ways to reduce the total amount that you’ll pay in taxes. When you reduce your taxable income, you lower your effective tax rate. You may also enjoy a sizeable payout from the government, otherwise known as a tax refund. To keep more money in your pockets, you’ll want to claim as many deductions and credits as possible.