Tax season is officially on us, and although it is your responsibility to file your return by midnight April 30, it also is your right to arrange your finances in a way that you pay the least amount of taxes.

That means taking a hard look at the deductions and tax credits you may be eligible for. Deductions are amounts taken off your gross, taxable income. They arise from various expenses you incur during the year.

Because they reduce your taxable income, they can lower your marginal tax rate.

Tax credits are subtracted directly from the amount of tax you owe to the federal or provincial government. The value of the credits depends on what they are for, and some are granted to individuals in specific locations or under certain classifications.

Take Every Possible Deduction

 
Many deductions are overlooked. Some of the most commonly forgotten deductions include those related to:
Health: Deduct premiums for medical coverage, including private insurance and amounts deducted for employer plans.

Childcare: Working parents or students can claim childcare costs for babysitters or nannies. You don't have to file receipts, but keep them in case Canada Revenue Agency (CRA) tax departments ask for verification.

Self-Employment: Deduct expenses for the part of your home you use for business. If you own your home, you can claim part of your mortgage interest, property taxes, and capital cost allowance. If you rent, deduct part of your monthly rent.

Deduct utilities, insurance and business-related home maintenance expenses for the percentage of your home or apartment used for business. Claim the cost of supplies, travel and client entertainment.

Interest and Carrying Charges: Several expenses related to financing or investment can be deducted, including:

  • Interest on loans for investments or to purchase income-producing assets;
  • Interest on the purchase of Canada Savings Bonds through a payroll deduction plan;
  • Rent for safety deposit boxes associated with investments; and
  • Fees paid to accountants, financial advisers, investment advisers, lawyers, unions, and professional organizations.

Moving Costs: If you changed jobs and location, you may be able to claim expenses for moving, travel, accommodations, temporary living arrangements, and selling your previous residence.

Tax Credits Add Up

Be sure your accountant knows about any tax credits that may apply to you. Your eligibility can change on an annual basis. Here are some of the more common tax credit areas:

Medical benefits: If you are married, you can maximize the medical credit by pooling non-reimbursed expenses on the tax return of the lower-earning spouse or common-law partner.

Claim expenses for any consecutive twelve-month period that ends in the year of the tax return. Your accountant can help you choose the period to maximize the benefit of this credit.

The list of medical expenses eligible for the credit is extensive and includes costs incurred outside Canada. Most provinces and territories also offer non-refundable medical tax credits. When an insurance plan reimburses expenses, only those not covered by the plan can be claimed.

Here is a partial list of costs eligible for the federal tax credit:

  • Medical practitioners and hospitals.
  • Care of individual with mental or physical impairment.
  • Transportation and travel expenses of a patient and accompanying individual.
  • Artificial limbs, aids and other devices and equipment.
  • Eyeglasses.
  • Guide and hearing-ear dogs and other working animals.
  • Bone marrow or organ transplants.
  • Renovations and alterations to a dwelling.
  • Preventive, diagnostic and other treatments.

 
Disability: You can claim substantial credits, provided you expect the disability to last 12 months. A qualified medical doctor, optometrist, audiologist, occupational therapist, psychologist or speech language pathologist must sign Disability Tax Credit Certificate (Form T2201 and its Quebec equivalent).

If you missed taking the disability amount in the past, you can amend filed tax returns. If you don't need to use some or all of the tax credit because you have little or no income, you may be able to transfer all or part of it to your spouse, common-law partner or other supporting person.

Equivalent-to-Spouse: Claim this credit if you were single, divorced or separated and supported a qualified relative.

Donations: There is a credit for charitable donations that increases the more you give. Keep these details in mind when calculating a donation credit:

  • The first $200 of donations gets a credit calculated at the lowest marginal tax rate; Credits for donations of more than of $200 are calculated at the highest marginal tax rate.
  • The annual general donation claim limit is 75 per cent of your net income. Donations exceeding that may be carried forward and claimed in any of the following five years. Carry them forward and you may be able to get a more generous tax break.
  • Spouses and common-law partners can pool donations and claim them on one tax return.
  • The donation limit in the year of death is 100 per cent of net income.
  • Gifts of Canadian Cultural Property and Ecologically Sensitive Land are exempt from the general donation limit.

 
Education: Many people miss the chance to transfer credits when their children attend college or university. Make sure students file their own tax returns. If they don't need all their tuition or education credits, they can transfer them to parents, grandparents, a spouse, or common-law partner.

Pensions: If you receive eligible private pension income, you can claim a credit equal to the lesser of your pension income or $2,000. Depending on where you live, this can add up to between $440 and $720 in tax savings. The pension income tax credit is non-refundable and may not be carried forward.

Canada Pension Plan (CPP), Old Age Security (OAS), or Guaranteed Income Supplements (GIS) are not eligible for the credit, but you can transfer the credit to your spouse or common-law partner.