20 popular Canadian tax deductions and credits in 2023

To read more chapters, click below:

Chapter 1: Tax breaks for newcomers in Canada

Chapter 2: Are you required to file an income tax return?

Chapter 3: Taxes for new Canadians: Step-by-step guide for filing your taxes

Chapter 5: How to apply for GST/ HST credit in Canada?

Chapter 6: All you should know about Canada Child Benefit (CCB)

The taxation system of each country is different. If you have just moved to Canada and are still figuring out the tax system, then this chapter will be really helpful for you. You will understand in detail about the 20 most popular Canadian tax deductions and credits relevant in 2023.

The Canada Revenue Agency (CRA) has outlined more than 400 tax deductions and credits. It is nearly impossible to remember all of them, that’s why we have summarized the 20 most popular ones. The three main points that you need to remember are –

1. Tax deductions serve to decrease your income prior to the application of any credits.
2. Non-refundable tax credits decrease the amount of tax you owe but cannot independently generate a refund for you.
3. Refundable credits have the potential to lead to a tax refund, even in cases where you owe no tax.

What is the difference between deductions and credits?

1. Tax deductions

Tax deductions in Canada are expenses that you can subtract from your total income to arrive at your taxable income. This means that your income is reduced before calculating the tax you owe. Deductions are often related to specific expenses, such as contributions to Registered Retirement Savings Plans (RRSPs) or employment expenses. The resulting lower taxable income generally leads to a reduction in the amount of tax you are required to pay. The more deductions you have, the less income is subject to taxation.

2. Tax credits

Tax credits, on the other hand, are direct reductions of the amount of tax you owe. They are applied after your tax liability has been calculated. Tax credits are generally categorized into two types: non-refundable and refundable.

• Non-Refundable Tax Credits: These credits can reduce the amount of tax you owe to zero, but they cannot create a tax refund on their own. If the total credits you're eligible for exceed your tax liability, you won't receive the excess as a refund. Common non-refundable tax credits in Canada include the Basic Personal Amount, the Medical Expense Credit, and the Charitable Donation Credit.
• Refundable Tax Credits: Refundable credits, as the name suggests, can lead to a tax refund even if your tax liability is already zero. If the total of your refundable credits is greater than your tax owing, you may receive the excess as a refund. The Canada Child Benefit (CCB) is an example of a refundable tax credit.

20 popular Canadian tax deductions that you should know of

1. GST/ HST Credit

The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) credit is a tax-free payment made by the Canadian government to help individuals and families with low to modest incomes offset the impact of the GST and HST. These taxes are added to the cost of most goods and services in Canada. The GST/HST credit is designed to provide financial assistance to those who may be disproportionately affected by these consumption taxes.

To be eligible for the GST/HST credit, you need to meet certain criteria, including being a resident of Canada and at least 19 years old. Additionally, you must have filed your income tax return for the previous year, even if you had no income. The Canada Revenue Agency (CRA) uses the information from your tax return to determine your eligibility and the amount of the credit.

The amount of the GST/HST credit is calculated based on your family income, marital status, and the number of eligible family members in your household. The credit is calculated and paid quarterly, usually in January, April, July, and October.

2. Ontario Trillium Benefit

The Ontario Trillium Benefit (OTB) is a financial assistance program provided by the government of Ontario, Canada, to help eligible individuals and families with low to moderate incomes offset some of the costs associated with energy expenses, property taxes, and sales taxes. The OTB combines three different tax credits into a single payment, making it more convenient for recipients. The three components that make up the Ontario Trillium Benefit include –

• Ontario Energy and Property Tax Credit (OEPTC)

This component provides financial assistance to eligible individuals and families to help offset the cost of energy expenses and property taxes. The amount of the credit is based on your household income, energy costs, and property taxes.

• Northern Ontario Energy Credit (NOEC)

This credit is specifically targeted at residents of northern Ontario to help them with the higher energy costs associated with living in the northern parts of the province.

• Ontario Sales Tax Credit (OSTC)

The OSTC is designed to assist individuals and families with the sales tax they pay on purchases. This credit is calculated based on your family income and the amount of sales tax you paid.

Like the GST/HST credit at the federal level, the Ontario Trillium Benefit is also income-tested, which means that as your income increases, the amount of the benefit decreases. The benefit is typically paid on a monthly basis, and the specific amount you receive depends on your individual or family circumstances.

To qualify for the Ontario Trillium Benefit, you generally need to be a resident of Ontario and file your income tax return for the previous year. The information from your tax return is used to determine your eligibility and calculate the amount of the benefit you're entitled to receive.

Keep in mind that the eligibility criteria, payment amounts, and application process may vary from time to time. So, it is recommended that you check the official website – Ontario Ministry of Finance or contact their office to get the latest and most accurate information.

3. Charitable Tax Credit

By contributing to a charitable organization, you become eligible for tax advantages linked to your donations. The Charitable Donation Tax Credit is accessible to individuals who provide financial support to a recognized recipient (such as a registered charity).

Entities with registered charity status encompass entities like The Canadian Red Cross or numerous amateur athletic associations. To ascertain whether a charity holds registration, you can refer to the Canada Revenue Agency (CRA) website. Equipping yourself with knowledge about the prerequisites for charitable donations allows you to aid others while also benefiting yourself.

4. Self-Employment Expenses

Self-employed means when you work for yourself. The CRA considers you self-employed if you function as an autonomous contractor, a sole proprietor, or participate as a partner in a business partnership, delivering a service or product with the anticipation of profit, there are typically three categorizations for self-employment –

• Independent Contractor: You offer a distinct service to another entity based on a contractual arrangement.
• Sole Proprietor: You manage your business individually, and your business remains unincorporated.
• Partnership: Your self-employed enterprise is operated collaboratively by two or more individuals.

Your income will depend upon the type of work you do as a self-employed professional. Claiming business-related expenses on your tax return is essential for several reasons. It not only helps reduce your taxable income and lowers the amount of tax you owe but also provides a clearer and more accurate representation of your business's financial health. Deducting eligible expenses can lead to significant savings and better financial planning. Some of the most common expenses for self-employed people are –

• Advertising
• Vehicle expenses
• Office supplies
• Bank fees
• Mobile cost
• Inventory management
• Business-use-of home expenses

5. Work from home tax credit

Ever since the pandemic, the CRA introduced work from home tax credit for Canadians to save on their taxes. For the tax year 2021, the Canada Revenue Agency (CRA) permits all employees working from home to claim an increased flat-rate employment expense of up to $500, a rise from the $400 allowed in the previous year.

If you possess the recently introduced T2200-s form, titled "Declaration of Conditions of Employment for Working at Home Due to COVID-19," with your employer's signature, you could potentially claim beyond the standard flat rate. This form provides a comprehensive breakdown of eligible expenses you can seek reimbursement for, including any already compensated amounts.

In response to the COVID-19 pandemic, the Canadian government introduced temporary simplified methods for claiming home office expenses for the 2020 tax year. These methods were designed to make it easier for individuals who were required to work from home due to the pandemic.

The two methods introduced are –

• Temporary Flat Rate Method: This method allows eligible employees to claim a flat-rate deduction of $2 for each day they worked from home during a period of at least four consecutive weeks in 2020 due to COVID-19. The maximum claim under this method was $400 (200 working days).
• Detailed Method: With the Detailed Method, you would need to keep track of actual home office expenses, such as utilities, rent, and other eligible costs. However, under this method, only a portion of these expenses that can be attributed to your work space would be deductible. This method requires more documentation and calculations but may be more advantageous if your actual expenses exceed the temporary flat rate.

6. Canada Workers Benefit

The Canada Workers Benefit (CWB) serves as a refundable tax credit aimed at providing support to individuals and families with modest incomes earned through employment. Comprising two components, the CWB consists of a fundamental sum along with a supplement for individuals with disabilities. Claiming the CWB can be done during the process of filing your annual income tax return.

Commencing in July 2023 and rooted in the 2022 tax year, the CWB will introduce advance payments via the Advanced Canada Workers Benefit (ACWB). These prepayments, amounting to half of the CWB, will be spread across three installments. This innovative approach aims to place more funds directly into the hands of workers, assisting them in managing the escalating costs of daily living.

Eligibility

You are eligible for the fundamental CWB if you meet these conditions -

• Generate income from employment, and your net income falls beneath the net income threshold specified for your province or territory of domicile.
• Maintain Canadian residency for the entire fiscal year.
• Attain the age of 19 or older by December 31, or cohabit with either your spouse or common-law partner, or your dependent child.

You are not eligible for CWB in the following circumstances –

• You are a full-time student at a designated educational institution for over 13 weeks during the year, unless you possess an eligible dependent on December 31.
• You are incarcerated in a prison or comparable facility for a minimum duration of 90 days within the year.
• You are exempt from Canadian taxation due to your role as an officer or representative of another nation, such as a diplomat, or if you are a family member or employee of such an individual.

7. Registered Retirement Savings Plan Deductions

The Registered Retirement Savings Plan Deduction represents the highest sum a Canadian taxpayer can yearly invest in a savings plan and subtract from their taxable income for that specific year. When you contribute to your RRSP, the amount you contribute is deducted from your taxable income for the year. This means that the income on which you're taxed is reduced by the amount of your RRSP contribution.

Typically, this amount equals 18% of the individual's earned income from the preceding year, capped at an annual threshold. In the 2021 tax year, the annual ceiling stands at C$27,830, while for 2022, it is set at C$29,210.

8. Home Buyers’ Amount

The Home Buyers' Amount (HBA) is a non-refundable credit designed to benefit individuals purchasing their first homes or those with disabilities. It enables them to claim up to $5,000 in the year they acquire a home. To qualify for the Home Buyers' Tax Credit, you must fulfill both of the following conditions –

• You, your spouse, or your common-law partner have bought a qualifying home.
• You are a first-time home buyer, meaning you have not lived in a property owned by you, your spouse, or common-law partner in the year of purchase or the four years preceding it.

The condition is that you need to be classified as a first-time home buyer, a term outlined by the Canada Revenue Agency (CRA) as someone who has not resided in a different property owned by you or your partner during the year of purchase or any of the four years prior.

In the context of the 2022 federal budget, there's a proposed enhancement from $5,000 to $10,000 for the tax credit. Once this proposal is ratified, the tax credit will amount to $1,500.

9. Moving expenses

In case you have relocated more than 40 km for work in Canada, you can claim moving expenses.

Individuals who have relocated and set up a new residence for the purpose of employment or operating a business at a different location can claim deductions for qualifying moving costs. It's necessary to qualify as either a deemed or factual resident of Canada, and the move should involve transitioning from your usual place of residence to a new place where you intend to establish your new normal residence.

It encompasses individuals who have relocated within Canada, shifted from another country to a new employment site in Canada, moved from Canada to a new job location outside the country, and certain individuals who have transitioned between two non-Canadian locations.

Full-time students might also meet the criteria to deduct eligible moving expenses from a portion of their scholarships, fellowships, bursaries, and research grants that are considered taxable income.

10. GST/ HST Residential Rental Property Rebate

The GST/HST Residential Rental Property Rebate is designed for proprietors and landlords who own new residential rental properties. This rebate potentially enables you to request a refund for a portion of the GST and/or the federal share of HST paid upon acquiring a new or significantly renovated housing complex within a residential structure. You are eligible to get this rebate if –

• A landlord who has purchased a newly constructed or substantially renovated residential rental property.
• A landlord who has constructed your own residential rental property.
• A landlord who has made an addition to a multi-unit residential rental complex.
• A builder or individual who was required to account for GST/HST under the self-supply or change-in-use regulations.

The fair market value of the residential unit at the time the tax was payable on the property should be below $450,000. For land or a site in a trailer park, the fair market value should be less than $112,500.

The rental accommodation or land must have the intended purpose of being used as a long-term residence.

11. Climate Action Incentive

The Climate Action Incentive Payment (CAIP) is a recurring payment provided quarterly to residents of Alberta, Manitoba, Ontario, and Saskatchewan. Its purpose is to assist in mitigating the expenses linked to the federal pollution pricing. Before 2021, this incentive, referred to as the Climate Action Incentive (CAI), was an annually claimed refundable tax credit on personal income tax filings.

Only one credit is permitted per household, and the sum you receive is determined by your family's size.

For individuals residing in British Columbia, there's the option to apply for the BC Climate Action Tax Credit, which is provided alongside the GST/HST Tax Credit. This credit serves to aid low-income families and individuals in mitigating the carbon taxes they incur.

12. Home Accessibility Tax Credit

The Home Accessibility Tax Credit (HATC) is a tax credit available in Canada to help individuals with disabilities or those who support individuals with disabilities make their homes more accessible. This credit allows eligible individuals to claim expenses related to home renovations or improvements that increase accessibility and mobility within the residence.

The HATC provides a non-refundable tax credit for eligible expenses, which means it can reduce the amount of income tax you owe but cannot result in a tax refund beyond the taxes owed. The credit is calculated as a percentage of the eligible expenses incurred in a tax year. Eligible expenses for the Home Accessibility Tax Credit might include costs associated with modifications to accommodate a person with a disability, such as –

• Installing ramps or elevators
• Widening doorways and hallways
• Adding handrails and grab bars
• Lowering counters and sinks
• Installing non-slip flooring
• Building accessible bathrooms

13. Medical expenses

You can have a lot of medical expenses if you stay in Canada. But did you know that medical expenses can earn you a credit at the time of filing your taxes? Whether it is just a regular visit to the dentist or seeing a specialist, there are certain factors that you need to keep in mind to file for a claim. For optimal benefits from your claim, it's generally advisable to assign one spouse the responsibility of claiming all medical expenses for the immediate family, including yourself, your spouse, and children under 18, as well as any dependents you provide support for. Some of the most common overlooked medical expenses include –

• Private medical insurance premiums
• Tutoring for children with disabilities
• Home renovations that improve mobility or access
• Travel expenses to seek medical treatment (over 40 km one-way)
• Prescription contact lenses or glasses
• Dentures and dental implants
• Fertility Expenses (In vitro and surrogacy-related expenses and procedures, has an expanded list of eligible expenses, and will be covered under the federal budget, once approved.)

14. Canada Child Benefit

The Canada Child Benefit (CCB) is a monthly tax-free payment provided to qualifying families as assistance for the expenses associated with raising children who are under 18 years old. The CCB might encompass the child disability benefit and potential provincial and territorial programs associated with it.

The maximum Canada child benefit you could get is $6,765 per year for children under 6, and $5,708 per year for children aged 6 to 17. Your Canada child benefit is based on your family income from the previous year, the number of children in your care, and the age of your children.

15. Child Disability Benefit

The Child Disability Benefit (CDB) is a component of the Canada Child Benefit (CCB) program that provides additional financial assistance to families caring for children with disabilities. It is designed to help offset the extra costs associated with raising a child with a disability. The CDB is a tax-free monthly payment provided to eligible families, and it's meant to provide additional support beyond the regular Canada Child Benefit payments.

To qualify for the Child Disability Benefit, the child must have a severe and prolonged impairment in physical or mental functions that is expected to last for at least 12 months. This impairment must also significantly restrict the child's ability to perform the daily activities that children of the same age typically do.

Families with eligible children can receive the Child Disability Benefit in addition to the regular Canada Child Benefit. The amount of the benefit varies depending on factors such as the severity of the child's disability and the family's income.

16. Canada Caregiver Credit

The Canada Caregiver Credit (CCC) is a non-refundable tax credit available in Canada to provide financial assistance to individuals who provide care or support to family members with physical or mental impairments. This credit replaces and combines three previous credits: the Caregiver Credit, the Family Caregiver Credit, and the Credit for Infirm Dependents.

The Canada Caregiver Credit is intended to acknowledge the efforts of caregivers who support family members with various challenges. It's available to individuals who are providing care or support for –

• A spouse or common-law partner
• A child under 18
• A parent or grandparent

To be eligible for the Canada Caregiver Credit, the person being cared for needs to have an impairment in physical or mental functions. The degree of impairment determines the credit amount. The credit is generally higher for individuals with more severe impairments.

Remember that the person receiving the care must reside in Canada and must be dependent on the caregiver for assistance with their daily living needs.

Like other non-refundable tax credits, the Canada Caregiver Credit can be used to reduce the amount of income tax you owe. However, it cannot result in a tax refund beyond the taxes you owe.

17. Child Care Expenses

You have the option to deduct child care expenses that qualify for tax benefits. These eligible expenses include payments made to day nursery schools, daycare centers, caregivers like nannies and babysitters, overnight boarding schools and camps offering lodging, day camps, and day sports schools.

However, there are restrictions on who can make these claims. For instance, in a household with two parents, only the spouse or common-law partner with the lower net income is eligible to claim child care expenses. It's essential to thoroughly review the criteria before you proceed with filing your tax returns.

18. Tuition Tax Credit

The tuition tax credit is a non-refundable tax credit accessible to students pursuing post-secondary education. This implies that if you cover tuition and other qualifying educational expenses (subject to specific conditions), you can inform the Canada Revenue Agency (CRA) when you file your tax return. Consequently, they will reduce your tax liability, either immediately or in subsequent years.

If you are 16 years old or older and engaged in education beyond high school, whether on a full-time or part-time basis, you qualify for the tuition tax credit. Here are a few specifics –

• If you're pursuing your studies within Canada, they should be at a recognized post-secondary institution or another establishment where you're acquiring or enhancing job-related skills, such as a trade school
• If your studies are taking place outside Canada, you need to be enrolled in full-time courses for a minimum of three weeks
• Your expenses for each educational institution must be at least $100

19. Disability Tax Credit

The disability tax credit (DTC) is a non-refundable tax credit designed to assist individuals with impairments, or their eligible family member providing support, in lessening the potential income tax they might need to pay. In case you possess a significant and enduring impairment, you have the option to apply for this credit. If your application is approved, you can then claim the credit during the tax filing process.

If a medical practitioner confirms that you experience a severe and extended impairment in one category, substantial limitations in two or more categories, or require therapy to sustain a crucial function, you could potentially meet the criteria for the DTC. The categories are –

• Walking
• Hearing
• Mental functions
• Eliminating (bowel or bladder functions)
• Speaking
• Vision
• Life-sustaining therapy
• Dressing
• Feeding

Significant limitation means that 2 or more limitations exist together all or almost all of the time (generally at least 90%).

20. Interest paid on student loan

The credit for interest paid on a student loan is frequently disregarded. To assist students and graduates in alleviating a portion of the financial stress linked to repaying student loans, the CRA provides a deduction for eligible interest payments on student loans. The student loan tax credit provides a 15% reimbursement on any funds you contribute to your government student loans.

You have the option to carry over any unclaimed student loan interest to any of the subsequent five years. Therefore, it's important to maintain proper documentation for reference. In order to qualify for this credit, you must be a Canadian citizen, permanent resident, or protected person, and you need to possess an eligible student loan.

The federal and numerous provincial governments collaborate to provide grants and loans to students facing financial constraints. To qualify, you need to meet the following criteria –

• You must be a Canadian citizen, permanent resident, or protected person
• You should hold permanent residency in a province or territory that disburses student loans
• You must be capable of demonstrating your financial need