ImageTax deductions are expenses you incur during the year that you can subtract from your actual earnings to arrive at taxable income. They differ from tax credits, which are percentages of specific allowable amounts that you subtract from the taxes you owe.

Deductions often have a maximum amount you can claim and some may be split with your spouse. In other cases, such as the childcare deduction, the lower earning spouse or common-law partner generally must use the deduction. Your accountant will help you determine which you can take and how to use them to your best advantage.

Here are some of the most common tax deductions available:

 
Spousal support: You can claim spousal support paid periodically under a written agreement. If you separated during 2013, claim either the payments or the estranged spouse's personal tax credits, whichever provides the best tax advantage.

Investments: You can deduct interest on money borrowed to earn investment income; fees for the management or safe custody of investments; accounting fees for recording investment income, and investment counsel fees.

Childcare: If you, your spouse, or common-law partner pay childcare in order to work, go to school or do research, the expenses are deductible. These include the costs of daycare and boarding school, as well as summer camp. With some exceptions, the deductions must be taken by the lower-income earner. For Quebec, the higher income earner may be able to benefit from them.

Moving expenses: You can deduct many of the costs of moving at least 40 kilometres to be closer to a new job or to start a new business. Students can also deduct moving expenses under certain circumstances.

Tools: Qualified trades people can deduct as much as $500 of the cost of tools purchased during the year. Apprentice mechanics can deduct some of the cost of their tools as well.

When it comes to federal tax credits, the federal government as well as the provinces and territories have their own system of rates applying to the tax credits, which can lower your tax liability even more. Some credits can be transferred between people in the same family to optimize their use.

The amount of tax savings with a credit is not dependent on the rate the taxpayer pays because it is calculated by multiplying a dollar amount by the lowest federal tax rate in effect. Unused tax credits are not refundable.

Among the most common tax credits are:

 
Basic: This is the amount you can earn each year before you have to pay any federal income tax. The amount changes every year.

Spousal: If you support a spouse or common-law partner whose income was less than the basic personal amount, you can claim a tax credit. Spouses and partners cannot claim the credit for each other in the same year. The credit declines as the spouse's income increases and is eliminated when income reaches a certain level. Special rules may apply if your status changed during the year.

Equivalent-to-Spouse: This benefit is calculated in the same manner as the spousal credit for any time during the year that you were single, divorced or separated and supported a relative who lived with you. But there are restrictions, such as:

  • The dependent, other than a child, must be a Canadian resident.
  • A dependent child must be either under 18 at any time in the year, or any age if dependent by reason of mental or physical infirmity.
  • The claim may be used only for one dependent.

Child: You can claim tax credits for each child under the age of 18. If the child lives with both parents throughout the year, either parent can claim the credit. If the child does not live with both parents throughout the year, the parent who claims the amount for an eligible dependent gets to claim the credit.

Adoption: You may claim a credit for adoption expenses if you finalized your adoption in 2013. Eligible expenses include:

  • Fees paid to a federally or provincially licensed adoption agency;
  • Court, legal and administrative expenses;
  • Reasonable and necessary travel and living expenses of the child and the adoptive parents;
  • Document translation fees;
  • Mandatory fees paid to a foreign institution;
  • Expenses related to the immigration of the child, and
  • Other reasonable expenses required by a provincial or territorial government or an adoption agency.

If any of these were paid prior to 2013, they can be claimed from the time an application is made for registration with a province or with a Canadian court.

Pension Income: You may claim federal, provincial and territorial credits on certain pension income. The credit is non-refundable but any unused portion may be transferred to a spouse or common-law partner, although the unused amount may not be carried forward or back.

CPP and EI Premiums: If you pay premiums for Canada Pension Plan and Employment Insurance, you can claim the credit on the amount paid. If you are self-employed and pay both the employee and employer CPP premiums, you can claim a credit for half the amount (the employee portion) and a deduction for the employer's half.

Disability: The credit applies if a Canadian medical doctor certifies that you suffer from severe and prolonged mental or physical impairment. Other professionals may certify specific disabilities: An optometrist can certify sight impairment or an audiologist can certify a hearing disability.

Caregiver: You can trim your tax bill if you are 18 or older and care for an ailing, dependent relative, parent or grandparent including an in-law, who is at least 65 years of age. This credit is not available on behalf of an individual for whom the equivalent-to-spouse credit or infirm dependent credit has already been claimed.

Medical: You can claim a credit for any non-reimbursed medical expenses on your own behalf or for your spouse or common-law partner. You can also claim expenses for other dependents, but the total may have to be reduced by a portion of the dependent's income.

Child Fitness Amount: You may claim a certain amount in fees paid to eligible programs of physical activity for children under the age of 16. An additional amount may be claimed for children with disabilities under the age of 18. In Quebec, this credit is refundable.

Child Art Amount: You can claim a maximum of $500 per child in fees paid relating to the cost of registration for your or your spouse's or common-law partner's children, under the age of 16, in a prescribed program of artistic, cultural, recreational, or developmental activity. In Quebec, this credit is refundable.

Public Transit: You can claim the cost transit passes of monthly and longer durations. You can also claim shorter-duration passes if each allows unlimited travel for at least five consecutive days and you purchased enough of these passes to cover 20 days in any 28-day period. You may claim electronic payment cards when they are used to make at least 32 one-way trips within 31 days.

The credits may be claimed by either the taxpayer or the taxpayer's spouse or common-law partner for transit costs incurred by themselves and their dependent children under the age of 19. Keep your passes and receipts so that you can substantiate your claim.

Tuition and Textbooks: You can claim tuition fees exceeding $100 for post-secondary courses at a college or university or, if you are 16 years of age or older, for courses at approved institutions to improve your occupational skills. Keep an official income tax receipt in case the CRA asks for it, but it does not have to be attached to your income tax return.

For textbooks, post-secondary students can claim a tax credit calculated for each month the student qualifies for the full-time education amount and the part-time education amount. Proof of purchase is not necessary.

Student Loan Interest: The credits are calculated by multiplying the lowest tax rate by the amount of the interest. The exception is Quebec, which uses a fixed rate. Unused interest amounts can be carried forward for five years, so if your taxes are zero in a particular year you can save the credit to use later. To be eligible, the loan must have been obtained under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial or territorial laws. The credit can be claimed only by the student even if someone else paid the interest.

Remember to claim the corresponding provincial or territorial non-refundable tax credits to which you are entitled on your provincial or territorial form. Consult with your professional advisor for more details on these credits and to help ensure you get the most advantage from them.