What is a Tax Deduction in Canada?

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Every year Canada’s federal and provincial governments offer opportunities for you to reduce your tax payable through tax deductions.  These are often either to help reduce the tax for some taxpayers or to encourage certain activities that the government considers to be beneficial.

There are more incentives and deductions for business owners and the self-employed than there are for employed individuals, but knowing what deductions you can access, and making sure you are maximizing them each year is important.  You want to make sure you aren’t overpaying on your taxes each year, and maybe even increase your tax refund.

Deductions Reduce Your Taxable Income

Simply put, a tax deduction is an amount that you can claim against your income in order to reduce your final taxable income.

To clarify a little more – when filling in your tax return you first calculate your total income on line 15000.  You then work your way through any potential deductions you can subtract, for example, RRSP contributions, Employment expenses, child care expenses, etc.  These deductions are subtracted from your total income before arriving at your net income amount for line 236000 of your tax return.

On top of that, there are additional deductions (for self-employed business owners in particular) that you may be able to add, such as losses from previous years, before finally arriving at your taxable income on line 26000 of your tax return.

Tax deductions are not to be confused with tax credits (which are also important for reducing your tax payable and increasing your tax refund).  You can see more detail on tax deductions vs tax credits here (link to other article)

What Tax Deductions Can You Claim?

The number of possible deductions you can claim may surprise you, and, as stated above, it’s important to be clear on what you can deduct in order to not overpay.

We have listed them for you here so you can quickly determine which you may be able to claim for before diving deeper into the eligibility criteria.

Available tax deductions in Canada

RPP Contributions (Line 20700) – Contributions to your RPP (Registered Pension Plan) can be deducted if you contribute through your employer.  Note that only your contributions can be deducted, not your employers contributions.

RRSP contribution (Line 20800) – If you contribute to an RRSP (Registered Retirement Savings Plan) then you can deduct your contributions (up to a certain limit) on your return.

Elected Split-Pension Amount (Line 21000) – If you have registered to split your pension with your spouse or common-law partner then you can deduct the elected split pension amount.

Annual union, professional, or like dues (Line 21200) – You can deduct any amount you pay in dues for memberships in a trade union or an association of public servants, professional dues required under provincial or territorial law, professional or malpractice liability insurance premiums, parity or advisory committee dues required under law, if these costs are related to your employment.

Child Care Expenses (Line 21400) – If you have to pay for childcare in order to work or for your own education then you can deduct these costs.

Disability support deductions (Line 21500) – If you have paid for medical expenses for any physical or mental disability in order to be able to work or for education you may be able to deduct some of these expenses.  For more information on eligibility and what expenses you can claim see here.

Business Investment Loss (Line 21699 and 21700) – If you have invested in a small business corporation and you made a loss through either selling shares, or the company owes you debt then you can deduct 50% of the loss from your income.

Moving Expenses (Line 21900) – You can claim moving expenses if you moved at least 40 miles to either work at or run a business or to study courses as a full-time student in tertiary education.

Support payments made (Line 21999 and 22000) – Paying child support or support to an ex-spouse can be claimed.

Exploration and development expenses (Line 22400) – If you have invested in energy (clean energy, neutral gas, mining) or in energy conservation ventures, then you may be able to claim these.

Other Employment Expenses (Line 22900) – these are expenses that you can claim if your employer requires you to cover your own expenses for work or the expenses you incur for your self-employed work.

There are other tax deductions that you can claim for very specific job roles, or if you run your own business (or for simply living in the northern regions).  These are:

Clergy Residence Deduction (Line 23100) – Members of the clergy may be able to claim a deduction for their residence.  This will require eligibility clarification from your employer.

Canadian Forces Personnel and Police Deduction (Line 24400) – Some members of the Canadian forces and police services may be able to claim if they were deployed outside of Canada on high or moderate risk operational missions.

Security Options Deductions (Line 24900) – You may be able to claim for securities that were disposed of which you previously deferred taxable benefits.

Limited Partnership Losses of Other Years (Line 25100) – You may be able to claim part of your losses if you had limited partnership losses in previous years that you have not yet claimed.

Non-capital losses of other years (Line 25200) – You may be able to claim for non-capital losses incurred from employment, property, or a business.

Net capital losses of the other years (Line 25300) – You can use your net capital losses from previous years to offset your capital gains.  If you still have a capital loss then these may be deductible.

Capital gains deduction (Line 25400) – If you have disposed of certain properties that resulted in capital gains you may be eligible to claim for the cumulative capital gains deduction.

Northern Residents Deductions (Line 25500) – there are two northern residents deductions; a deduction for having lived in a prescribed zone, and a deduction for travel benefits you received for employment in a prescribed zone.

Knowing the tax deductions you can apply for, and taking the time to fill in your tax return fully and correctly will allow you to minimize your tax and keep more of those hard-earned dollars in your pocket.

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.