In 2022, the federal government paid out an average of $2,092 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 contributions
Money paid into a registered retirement savings plan is tax deductible. However, if you withdraw money from your RRSP, 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.
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 during the COVID-19 pandemic
If you worked from home more than 50% of the time for at least four consecutive weeks in 2022, 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 or your RRSP, invest it or use it to pay a loan or debt.
Schedule an appointment with a financial security advisor, who can guide you and help you make the most of your money.
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!