In the context of Canadian taxes, writing off refers to deducting eligible expenses from your taxable income or reducing your tax payable through either deductions in taxable income or non-refundable tax credits. By doing so, you can lower your tax liability. Common write-offs include medical expenses, public transit passes, RRSP contributions, and child care expenses. It’s essential to understand which expenses qualify and how they impact your overall tax situation. Remember that maximizing your write-offs can lead to significant savings when it comes to paying taxes.
As mentioned earlier, there are two categories of write-offs :
Write offs which reduce your taxable income and potentially shift you to a lower tax bracket, and
Non-refundable tax credits.
Common examples of write-offs which reduce your taxable income are:
Business expenses:If you’re self-employed or a business owner, you can deduct expenses related to your business operations, such as salaries, professional fees, insurance, bank and interest charges, repairs and maintenance, office supplies, travel costs, and advertising.
Home-Office Expenses:If you are self-employed and use a portion of your home as your office, you may be eligible to deduct a percentage of your home-related expenses (e.g., rent, utilities, internet) as a business expense. If you work for an employer and want to claim home-office expenses in Canada, you are required to present a signed T2200 form provided by your employer to support your claim.
Registered Retirement Savings Plan (RRSP):Contributing to an RRSP allows you to deduct the amount contributed from your taxable income. Let’s look at an example. Assuming the tax bracket for tax year 2024, Roger had a total income of $59,000 for the year. He contributed $5,000 to his RRSP account. The RRSP contribution reduces Rogers taxable income to $54,000 (59,000-5,000). The RRSP contribution resulted in shifting Roger from Tier II 20.5% tax bracket ($55,867 up to $111,733) to Tier I 15% tax bracket (less than 55,867).
hild Care Expenses:If you pay for child care services, you can claim a deduction for those expenses.
Moving Expenses:If you moved for work or school, certain moving expenses are deductible.
Investment Carrying Charges:If you borrowed money to invest (e.g., margin loans), the interest paid on that loan is deductible. This applies if you use the borrowed funds to acquire investments that generate income (e.g., dividends, interest). Fees paid to a financial advisor for investment advice may also be deductible.
Support Payments:If you make support payments (e.g., alimony), they may be deductible.
Non-refundable tax credits are write-offs that lower the amount of tax you owe. Unlike income deductions, which correlate with your income tax bracket, non-refundable credits don’t directly depend on your income level or tax rate. Some examples of these write-offs are:
Medical Expenses:Eligible medical expenses can be claimed, including costs related to prescriptions, dental care, and travel for medical purposes.
Home Accessibility Expenses:These are costs incurred for qualifying renovations to an eligible dwelling. Examples include installing ramps, widening doorways, or adding grab bars.
Tuition Fees:In Canada, tuition fees can be considered for a tuition tax credit. The tuition tax credit generates a non-refundable reduction in your taxable income. While it’s not a dollar-for-dollar write-off, it helps lower the amount of income subject to taxation.
Adoption Expenses:You can claim an amount for eligible adoption expenses related to the adoption of a child who is under 18 years of age at the time the adoption order is issued or recognized by a government in Canada.
Student Loan Interest:You can claim the interest you’ve paid on your student loan as a non-refundable tax credit. If the loan was received under either The Canada Student Loans Act, The Canada Student Financial Assistance Act, or The Apprentice Loans Act, the interest on the loan can be claimed.
Donations:When you make eligible donations to registered charities, you can claim a charitable tax credit. The eligible amount of your donations is determined by the type of gifts and the organizations you donate to.
For further information please contact Taxtron Support at 416-491-0333 or visit www.taxtron.ca
