Optimizing your tax refund

In 2024, the federal government paid out an average of $2,293 in tax refunds to eligible individuals. Here are the deductions and credits you can claim on your tax return, plus a few ideas for how to use your refund, if you get one.

Deductions

Tax deductions are amounts that lower your taxable income, making it appear as if you earned less money during the year. When you lower your income, you can sometimes move to a lower tax bracket, 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. But be careful, 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 at least 40 km closer to your school or work, you are entitled to deduct your moving expenses.

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.

Tax credits

Credits directly reduce the amount of tax you owe. Some are refundable (you receive money even if you have no tax to pay), while others are non-refundable (they reduce or cancel the tax you would have paid, without exceeding that amount).

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.

Tax refund: It can pay off even more
if you reinvest it!

Make it happen

Medical expenses

Eligible health care expenses (prescription drugs, dental care, eyeglasses, etc.) may entitle you to a tax credit, as well as contributions to a drug insurance plan. However, the amounts reimbursed by your insurance are not deductible. Subtract those from your amounts declared and save your receipts.

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.

Make it happen: what to do with your tax refund

Once your deductions and credits have been applied, you may receive a refund. You probably have lots of ideas for how to use it, but there are some things you can do that will help it pay off even more:

• Invest in plans that offer tax deductions like an RRSP or FHSA.
• Put it into a tax-free savings account (TFSA) to reduce your financial worries: your money will be accessible at any time so you’ll be able to deal with the unexpected.
• Pay off your bad debts (credit cards, for example) and feel better about your finances.
• Consider a Registered Education Savings Plan (RESP) for your loved ones' education and maximize government grants of up to 30%.
• Protect your savings and your life goals by taking out disability or critical illness insurance.

But don’t forget to spoil yourself a little! It’s all about balance.

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.

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!