This year, the tax filing deadline for your 2019 taxes is extended to June 1, due to the impact of the coronavirus pandemic. While the extra-time is welcome news, it also means that some Canadians put off getting answers to that integral question: What is tax-deductible? Below outlines common tax deductions and credits for many homeowners, investors, and renters in Canada.
In general, what tax deductions can I claim?
While the type and number of deductions you are eligible for as a Canadian vary depending on your situation, for the most part, these deductions fall into some basic categories.
Homeowners, self-employed and those who work from home can expect to accumulate a number of tax-deductible expenses throughout the year.
Real estate investors, contractors, and even those with larger medical bills can also find tax savings in last year’s expenses.
This means that just about everyone, including those with side-hustle and even full-time employees, should be checking expenses and saving receipts.
To help you find all your tax savings, here’s what you need to know as you prepare to file your 2019 tax return by the new June 1, 2020 deadline.
New deadline to file 2019 taxes for individuals and corporations: June 1, 2020
Deadline to file 2019 taxes for the self-employed and their spouses (no change): June 15, 2020
New deadline for taxes owed, based on 2019 tax return: September 1, 2020
Interest charged for late filing: Charged starting the day after your filing due date. Compounded daily interest with a rate that changes every three months. Starts at 6%
Penalties charged for a late return and owed tax: 5% of the balance owed + 1% for each month you are late.
Where to find help: Canada Revenue Agency
What is a tax credit? Tax credits directly reduce the amount of tax you owe, giving you a dollar for dollar reduction on the taxes you pay for that calendar year.
What is a tax deduction? Tax deductions help reduce the tax you owe, by reducing your gross income. A reduction in your gross earnings (your income before taxes) not only reduces the tax you owe but can drop you into a lower marginal tax bracket and this can also help reduce how much tax you owe for that calendar year.
What is a tax exemption? A tax exemption refers to income or transactions that are free from tax. While you may still need to report this income (or these expenses), this sum isn’t included in your gross income (or part of your overall deductions).
What tax deductions am I eligible for as a homeowner?
The federal and provincial governments provide a number of tax incentives to encourage Canadians to become homeowners.
Here are a few of the larger policies and programs for homeowners and first-time buyers:
HOMEOWNER TAX CREDIT #1: According to Gerry Vittoratos, a tax specialist at UFile, one big tax incentive for purchasing your first home is the non-refundable $5,000 tax credit available to first-time buyers. Keep in mind, what you get is really 15% of this amount or about $750 in credit towards income-tax paid.
To qualify, the home buyer must be an eligible first-time buyer and must qualify for the Home Buyer’s Plan program — a federal program that allows each first-time buyer the ability to withdraw up to $35,000 from the RRSP to be used as a down payment on a resale home purchase or on the cost of building a new, principal residence.
When claiming the first-time home-buyer credit, a couple can opt to split the credit, 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. Any credit the higher-income earner can take to reduce their taxable income helps to reduce the overall tax burden for that family.”
HOMEOWNER TAX CREDIT #2: If you’re a homeowner over the age of 65, or disabled and qualify for the federal disability tax credit, then you can qualify for a non-refundable renovation tax credit known as the Home Accessibility Tax Credit. This credit allows you to deduct up to $10,000 of expenses associated with a renovation or remodel that helps you stay in your home.
“The repair needs to be permanent and attached to the residence,” explains Gittens. “You can really maximize your credit if you also claim these amounts as a medical expense.” For example, if you spend $12,000 on a bathroom remodel that includes a new tub, grab bars and other updates, then you can claim the non-permanent updates, such as the grab bars or elevated toilet seat, as a medical expense, and the bathroom remodelling costs as part of the Home Accessibility Tax Credit.
HOMEOWNER TAX EXEMPTION: If you sold your home in 2019, you can shelter the profit earned from that sale — assuming you sold the home for more than you paid for it — using the Principal Residence Exemption (PRE).
This tax shelter is one of the biggest benefits of becoming a homeowner, as it exempts homeowners from paying capital gains when they sell.
What tax deductions am I eligible for as a renter?
Sadly, there are no specific federal income tax credits or deductions for tenants.
RENTER TAX CREDIT: However, some provinces do offer provincial tax credits and benefits for lower-income individuals or families. For instance, if you qualify for the Ontario Trillium Benefit, the Manitoba Education Property Tax Credit, or Quebec’s Solidarity Tax Credit or Home Support Services for Seniors, then you may be able to claim the rent you paid.
RENTER TAX EXEMPTION: According to Gerry Vittoratos, there is one very specific 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 those homeowners that changed the use of a property but do not own another property (that would automatically be designated as their primary residence). However, to claim this credit, the renter must mail a letter to the Canada Revenue Agency — 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 the need to claim or to pay capital gains taxes for up to four tax years following the change of use, explains Vittoratos.
What tax deductions am I eligible for as an investor?
INVESTOR TAX DEDUCTION #1: Real estate investors will not be able to shelter their investment property from capital gains taxes, but landlords and property investors can reduce the annual taxable income earned from the property by claiming expenses associated with their property.
For instance, landlords can deduct maintenance costs, property taxes, mortgage interest, repairs and even the cost of appliance purchases. If proper records are kept, property investors may also deduct a mileage allowance for the use of their vehicle when going to and from the property, as well as accountant, bookkeeping and property maintenance charges.
These deductions are also applicable for homeowners that rent out suites in their home, just be sure to claim the portion of the cost that is 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, but rent out the 900-square-foot basement suite, then you could claim 36% of the roof repair cost (36% of 2,500 is 900).
INVESTOR TAX DEDUCTION #2: Investors that borrow money in order to invest (whether it’s property, bonds or stocks) can deduct the interest charges on those borrowed funds.
INVESTOR TAX DEDUCTION #3: Investors can also deduct fees paid to a broker or brokerage for managing their investments (other than RRSPs).
INVESTOR TAX DEDUCTION #4: If the investment is a bond, another type of debt instrument (such as a debenture) or a mortgage, then the investor may also deduct legal and accounting costs associated with that investment.
INVESTOR TAX DEDUCTION #5: Investors can reduce the taxes owed in the current calendar year by contributing to their Registered Retirement Savings Plan (RRSP).
INVESTOR TAX EXEMPTION: Investors who use a Tax-Free Savings Account can watch their investments grow knowing that these earnings will not be taxed.
What can I write-off if I work from home, I’m self-employed or a contract worker?
Can you write off expenses when you work from home? Absolutely. There are a number of costs associated with running a home office and all of these expenses offer you a chance to reduce your taxable income. And these deductions are not solely for the self-employed or contract workers. Employees can also claim home-office deductions, as long as their employer agrees and signs Form T2200.
In general, using an office or running a home-based business in Canada is just like running any other business when it comes to income taxes. You have a number of deductions that you can take, assuming you have an income to write it off against. Here are some of the more common deductions you can claim:
Can I write-off my Internet if I work from home?
HOME-BASED TAX DEDUCTION: Since an Internet connection is technically a necessity if you work at home, you can deduct some or even all of the expense when it comes time for taxes. You’ll enter the deductible expense as part of your home office expenses. Keep in mind, your Internet expenses are only deductible if you use them specifically for work purposes or you can deduct a percentage of these costs, based on the size of your home office. For instance, if your home office is a basement room that is no more than 500-square-feet and your home is 2,000-square feet, then you could deduct 25% of your annual Internet costs as a business expense.
Can I write-off my rent (or my mortgage) if I work from home?
RENT OR MORTGAGE TAX DEDUCTION: If you make regular rent or mortgage payments on your home where you have a home office then you can claim a portion of the rent paid or a portion of the mortgage interest paid, under business-use-of-home expenses. Just be sure your home-based office meets the requirements for business-use-of-home deductions, which dictates that your home-based workspace is your principal place of business or that the space you use is only used to earn your business income and that you use it on a regular and ongoing basis.
Can I write-off gas or parking on my taxes in Canada?
VEHICLE TAX DEDUCTIONS: Yes. Even though you may work from home, any use of your personal vehicle for business use will, from a tax standpoint, be considered a legitimate business expense. Those expenses can include fuel (gas, propane or other) as well as oil, license and registration fees, maintenance and repair costs, as well as supplemental insurance (remember, you’ll need to pay for business-use on your vehicle or run the risk of voiding your policy).
If you lease your vehicle, this is also a tax-deductible expense, as is the interest on any money you borrowed in order to finance the purchase of the vehicle.
Parking is another deduction, so keep your parking receipts.
Finally, you can deduct the depreciation of your vehicle as a tax-deductible expense. Known as the capital cost allowance, the Canada Revenue Agency has rules and limits on how much you can deduct each year. Go to the CRA site for more information.
Like your home office, you can only deduct a portion of your vehicle expenses and this portion must be limited to business use. The CRA will require you to keep a record of the total kilometres you drive and the total amount that you drove to earn an income. The easiest way to keep this information is through a vehicle logbook or through an online app.
Can I write-off insurance premiums?
TAX DEDUCTION: You can deduct insurance premiums for buildings, machinery, equipment and even your vehicle as long as you use these items to earn business income. You can also write-off a portion of your homeowner (or tenant’s) insurance if your home-based business meets the CRA’s conditions for claiming business-use-of-home expenses, along with your insurance provider’s requirements.
Can I write-off preschool or childcare costs on my taxes in Canada?
CHILDCARE TAX DEDUCTION #1: The higher income earner in the family can claim preschool or childcare costs if the childcare costs were incurred because you were earning income (from employment or a business), or attending a recognized school (such as a trade school or post-secondary institution). The total amount you can claim per child does range, based on circumstances, from $5,000 to $11,000, and there are restrictions and requirements. For instance, you can only claim the portion of fees from an educational institute that relates to childcare services, not educational programs plus you cannot claim this cost if the person you are paying is related to you. For more details, see the CRA site.
CHILDCARE TAX DEDUCTION #2: Keep in mind that any legal fees you may need to pay in order to track down, obtain, force payment of or increase in spousal or child support payments are also tax-deductible.
Can I write-off my car on my taxes in Canada?
As explained above, you can write off the depreciation of your car as well as expenses that were incurred when you were earning (trying to earn) income for your business (or as part of your job or contract). There is also another, quite substantial rebate if you purchased a qualifying electric vehicle.
ELECTRIC-CAR TAX REBATE: If you are self-employed and you purchased a zero-emission vehicle after March 18, 2019, for use in your business, you can expense the full cost of the vehicle against your business income. This includes battery-electric, hydrogen fuel-cell and longer-range plug-in hybrid vehicles. To learn more, go to Transport Canada.
Can I write-off work boots or clothes on my taxes in Canada?
“The minute you close the business shop or you’re not working, if that same outfit is what you’re wearing to go to a club afterwards with your friends, it is no longer a business expense,” explains Gittens.
TAX DEDUCTION: To keep your clothing, make-up and even work-boots as tax-deductible expenses, it’s best to keep these as part of a work-only kit — when you are not working put clothing, shoes and make-up and other accessories away in this ‘kit’.
Can I write-off my cannabis products?
MEDICAL TAX CREDIT: Now that cannabis and certain cannabis products are legal in Canada, these products may now be eligible for the medical expense tax credit. Under the new Canadian laws, marijuana, marijuana plants or seeds, cannabis or cannabis oil purchased after October 16, 2018, can be eligible for the medical expense tax credit if used for personal medical purposes and in accordance with the Access to Cannabis for Medical Purposes Regulations or section 56 of the Controlled Drugs and Substances Act.
What else do I need to know?
To key to claiming any tax credit, rebate or deduction is to understand the rules and 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 and you’re at the mercy of the CRA’s assessment and obligated to either accept their judgement or pay to appeal.
When in doubt, seek out help from a tax specialist.