Optimizing your tax refund

In 2023, the federal government paid out an average of $2,282 in tax refunds to eligible individuals. Here are the deductions and credits you can claim to optimize your tax situation.

Deductions

Tax deductions are amounts that lower your taxable income. They give the illusion that you have earned less money during the year. When you lower your income, you can lower your marginal tax rate, which then lowers your average tax rate.

RRSP and FHSA contributions

Money paid into a registered retirement savings plan or a first home savings account is tax deductible. However, if you withdraw money from your RRSP or FHSA (for anything other than the purchase of a first home), it will count as a source of income for the current year.

Moving expenses

If you were required to move to be closer to your school or work, you are entitled deduct your moving expenses provided that you are moving at least 40 km away from your school or work.

Childcare expenses

If you are required to make childcare arrangements to go to work, operate a business or go to school, childcare costs can be deducted from your income.

Pension income splitting

Another way to lower your income to transfer a portion of your eligible pension income to your spouse if your spouse’s income is lower than yours. This transfer may drop you into a lower tax bracket, which is translated by a lower marginal tax rate.

Tax credits

Refundable tax credits are granted even if no income tax is payable for the year, whereas non-refundable tax credits only lower the income tax payable for the year. Certain non-refundable tax credits can be transferred between spouses, parents or grandparents, or carried over to subsequent years if the income tax owing is not high enough to use the entire credit.

Everything you have in mind is possible, thanks to RRSPs, TFSAs and FHSAs.

Enter the contest

Medical expenses

Taking care of one’s self can be expensive. Luckily, healthcare expenses incurred during the year entitle you to a tax credit. Ask your pharmacist for a receipt for the total amount spent on your prescriptions during the year. You can also add most dental care costs, costs for purchasing glasses or contact lenses, contributions to a prescription drug insurance plan, etc.

But, remember to deduct the portion paid by your insurance company. The insurance company will issue a summary of all claims and the amount paid, upon request. The medical expenses that entitle you to a tax credit is then adjusted based on your income. This means that, in some cases, the medical expenses tax credit may be null.

Charitable donations

Generosity can pay off! The donations you make in a year entitle you to a tax credit.

Tuition fees

Post-secondary students may receive a tax credit for their tuition fees. Schools produce a tuition fee statement right before tax season to help students prepare their income tax return.

House purchase costs

Did you buy a house last year? To help first-time buyers access the real estate market, the federal and provincial (Quebec) government offers them a tax credit of up to $1,500.

Possible tax deductions due to telework

If you worked from home some of your work-related expenses can be deducted on your tax return.

To learn more, see our income tax quick reference.

The much-anticipated tax refund

Once you have received as big of a refund as you can, use this money intelligently. It’s not a gift, but rather, a refund of the portion of your income you overpaid during the year. Deposit this money in your TFSA, your RRSP or your FHSA, invest it or use it to pay a loan or debt.

Visit the Canada Revenue Agency website to see a detailed list of deductions and tax credits.

Attention – important information:

Once you complete your income tax return, keep the receipts, documents and forms used for your calculations. If you are audited, you may be asked for up to seven years’ worth of supporting documents.

Happy tax season!