While the pandemic has impacted tax filing deadlines in the past, this year, tax filing deadlines have returned to normal. This year you’ll need to be proactive in getting your tax questions answered to ensure you know what you can deduct from your taxes before the April 30th deadline.
Whether you are a first-time homebuyer, investment property owner, renter, work-from-homer or contractor, it’s important to claim every possible tax deduction to reduce your tax liability and keep more money in your pocket.
Tax Deduction Versus Tax Credit – What’s the Difference?
While the type and number of deductions you can claim vary depending on your unique situation, first, let’s clarify some important terms.
First, what is a tax deduction?
A tax deduction helps reduce your total tax owing by lowering your gross income. For example, if you earn $60,000 per year and claim $10,000 worth of tax deductions in Canada, your taxable income is $50,000. If your employer automatically deducted enough taxes for a $60,000 income, but your taxable income is only $50,000, you’ll likely receive a refund!
A tax credit, on the other hand, functions differently.
A tax credit directly reduces the taxes you owe, giving you a dollar-for-dollar reduction in the amount of taxes you’ll pay this year. However, a tax credit is non-refundable, which means it won’t increase your refund. Instead, it will only reduce your taxes owing.
Deadlines for Canadian Taxes in 2022
The government extended the tax deadline in the past, but that isn’t the case this year. Here are the important dates that you need to keep in mind for your taxes in 2022:
- The deadline to file your taxes is April 30th, 2022. Note: this is a Saturday. Your taxes are on time if filed by May 2nd, 2022
- For self-employed individuals, you’ll have to file your taxes by June 15th, 2022
- If you have a balance owing, your payment deadline is also April 30th, 2022
If you file your tax return late, you’ll incur a penalty of 5% of your balance owing. You’ll also pay 1% for each full month that you file late.
You’ll also pay interest if you file your tax return on time but don’t pay your balance owing.
Top Real Estate Tax Deductions and Credits To Claim in 2022
Tax Deductions for Homeowners
The federal and provincial governments provide several tax incentives to encourage Canadians to become homeowners. If you’ve recently purchased a home, here are the tax deductions and credits that will impact your taxes.
Home Buyers’ Tax Credit
- What: $5,000 non-refundable tax credit
- Who: First-time homebuyers
According to Gerry Vittoratos, a tax specialist at UFile, one of the most significant tax credits available to first-time homebuyers is the Home Buyers’ tax credit, a $5,000 non-refundable tax credit. However, keep in mind that you’ll only deduct 15% of this amount or about $750.
To qualify, you must be an eligible first-time buyer. In addition, you must qualify for the Home Buyer’s Plan program. This federal program allows each first-time buyer the ability to withdraw up to $35,000 from the RRSP. This money can be used as a down payment on a resale home purchase or on the cost of building a new principal residence.
When claiming the Home Buyers’ tax credit, you can opt to split the credit with your spouse. But Lisa Gittens, a tax expert with H&R Block, suggests allowing the higher-income earner to claim the full tax credit. “This isn’t money you are getting back,” explains Gittens. “It’s a credit, which means the $5,000 is used to reduce your overall taxable income. So any credit the higher-income earner can take to reduce their taxable income helps to reduce the overall tax burden for that family.”
Home Accessibility Tax Credit
- What: Deduct up to $10,000 of expenses related to accessibility renovations or remodels
- Who: Homeowners over the age of 65, those who are disabled, or caregivers with eligible dependents
If you’re a homeowner and you’re over the age of 65 or are disabled and qualify for the Disability tax credit, then you can write off renovations or remodels that make your home more accessible. You’ll write these expenses off under the Home Accessibility Tax Credit. This credit lets you claim $10,000 in accessibility-related home improvements or repairs.
“The repair needs to be permanent and attached to the residence,” explains Gittens. “You can maximize your credit if you also claim these amounts as a medical expense.” For example, spending $12,000 on a bathroom remodel includes a new tub and grab bars. You can claim the non-permanent updates like grab bars as a medical expense. The bathroom remodelling costs can be claimed under the Home Accessibility Tax Credit.
Principal Residence Exemption
- What: Shelter profits from the sale of your primary residence
- Who: Anyone who sold their residence in 2021 for a profit
If you sold your primary residence in 2021, you don’t have to pay tax on the profit. The Principal Residence Exemption lets you keep 100% of those profits. This tax exemption is not available for rental properties or second homes.
Tax Deductions for Renters
Sadly, there are no specific federal income tax credits or deductions for renters in Canada. That said, some provinces do offer tax credits and benefits for lower-income residents. These credits include:
- Trillium Benefit (Ontario)
- Education Property Tax Credit (Manitoba)
- Solidarity Tax Credit (Quebec)
- Home Support Services for Seniors (Quebec)
Principal Residence Exemption
- What: Renters who own a primary residence can claim an exemption even if not living in the home
- Who: Renters who sold a property that was previously their primary residence
According to Gerry Vittoratos, there is one particular set of circumstances where a renter who owns a primary residence can claim the Principal Residence Exemption (PRE) on the sale of that property. As Vittoratos explains, this loophole is for homeowners who changed their use but do not own another property (that would automatically be designated as their primary residence).
However, the renter must mail a letter to the Canada Revenue Agency to claim this credit — it cannot be emailed or faxed. In this letter, the renter should state that, under Article 45(2), they are electing to continue to designate their property as their primary residence even though it is currently rented out.
While it won’t save the renter/homeowner all taxes owed, it will defer them. You won’t need to claim or pay capital gains taxes for up to four tax years following the change of use, explains Vittoratos.
Tax Deductions for Rental Properties
Real estate investors cannot shelter their investment property from capital gains taxes. That said, landlords and property investors can still claim several rental property tax deductions in Canada.
Operating Costs
- What: Claim expenses associated with maintaining a rental property
- Who: Property owners with operating expenses
Landlords reduce the taxes they pay by deducting all costs associated with maintaining their rental properties. Some of these costs include:
- Maintenance costs
- Property taxes
- Mortgage interest
- Repairs
- Upgrades like appliance purchases
- Accounts and bookkeeping
Rental property owners can even deduct mileage for using their vehicle when going to and from the property. Keep in mind that this requires proper records.
These deductions are also applicable for homeowners that rent out suites in their homes. Just be sure to claim the portion of the cost associated with the rental suite. For example, if you end up paying to repair your roof on a 2,500 square foot home you live in but rent out the 900 square foot basement suite, you could claim 36% of the roof repair cost (36% of 2,500 is 900).
Other types of operating expenses that rental property investors can claim include:
- Loan interest: Investors that borrow money to invest in property, bonds, or stocks can deduct interest charges on those borrowed funds.
- Brokerage Fees: Investors can also deduct fees paid to a broker or brokerage for managing their investments (other than Registered Retirement Savings Plans).
- Legal and Accounting Costs: If you hold bonds, another type of debt instrument (such as a debenture) or a mortgage, you can deduct legal and accounting costs associated with that investment.
Tax Deductions for Work from Home Employees
Can you write off expenses when you work from home for an employer? Absolutely. While claiming the cost of working from home used to be a demanding process, the federal government has recently changed this tax deduction. It’s now easier for employees to deduct the cost of working from home.
Work from Home Tax Deduction
- What: Claim up to $500 of home office expenses
- Who: Employed Canadians who worked from home
Anyone working from home more than 50% of the time for at least four consecutive weeks in 2021 can claim $2 per day worked. This credit is available up to a maximum claim of 250 eligible days, or $500. This simplified calculation method means that employees do not need a form signed by their employer.
Tax Deductions for Self-Employed and Contract Workers
Regarding income taxes, running a home-based business in Canada is just like running any other company. You’ll earn an income and incur expenses. Every year, you’ll report both to the CRA and pay tax on the net profit. There is a wide variety of costs that you can claim. Here are some expenses that most self-employed Canadians will incur:
Home Office Tax Deductions in Canada
- What: Partially deduct expenses related to running your home-based business
- Who: Self-employed business owners with a home office
If you use your home to conduct business, you can write off a portion of the expenses related to maintaining your home. The amount you can claim depends on how much of your home is used to conduct business. For example, if you have a 2,500 square foot home, and your home office is 600 square feet, you can deduct 24% of the expenses we’ve listed below.
- Internet: If you need internet to do business, you can deduct a proportional amount from your taxes
- Rent: Your rent payments on the home or apartment where you maintain a home office can be claimed
- Mortgage Interest: If you own a home, you can deduct a portion of your mortgage payment towards interest charges. Remember, you can only deduct a portion of the interest.
- Property Taxes: You can deduct your home’s property taxes as part of your business use of your home
- Utilities: You can expense water, electricity, heating oil and natural gas as part of the cost to run your business
- Home insurance: Make sure you carry the right home insurance for a home-based business and make sure you expense it
The Final Word
To claim a tax credit, rebate, or deduction, you must understand the rules. If you aren’t sure, it’s essential to keep receipts. “Documented proof is always your number one safeguard,” says Gittens. “If you have documented proof of expenses and use, the CRA, under the Income Tax Act, is obligated to go with your documented proof,” explains Gittens. Without proof, you’re at the mercy of the CRA’s assessment and obligated to either accept their judgment or pay to appeal. When in doubt, seek out help from a tax specialist.
