Writing off something on your taxes simply means deducting an amount — permitted by the Canada Revenue Agency (CRA) — to reduce your taxable income. You can write-off numerous items on your taxes, ranging from child support payments to employment expenses.
Some tax write-offs also come in the form of non-refundable credits, which reduce the amount of tax you owe. Tax write-offs are beneficial to you as a taxpayer because they can save you money on your tax bill.
Tax Write-Offs and Taxable Income
Your taxable income determines your tax bracket.
When you write-off expenses that reduce your taxable income, you can potentially lower your tax bracket. As an example, say that for the year 2016 you earned $50,000. With a $50,000 taxable income, your tax rate would be 20.5 percent, based on your tax bracket.
If you deduct $8,000 in tax write-offs, you lower your taxable income to $42,000, lowering your tax rate to 15 percent. Even if you are already in the lowest income tax bracket, your taxable income is used to calculate your tax liability.
Tax Write-Offs in the Form of Credits
Non-refundable credits are write-offs that lower the amount of tax you owe.
If you have enough of these credits, they can reduce your tax owed to $0. In contrast to income deductions, credits “do not correlate with the income tax bracket or with the rate paid,” Rajiv Juneja, CGA in Edmonton explains.
“A student working part-time receives the same 15 percent federal rate” as a wealthy individual. When you add up the credits for which you qualify, you are allowed to subtract 15 percent of that amount from your federal tax bill. The 15 percent rate is the same, regardless of your income, your provincial rate or the amount of credits for which you qualify.
For instance, say you have $4,500 worth of tax liability, prior to writing off your non-refundable credits. You add up all the credits for which you are eligible, which might be $30,000. The CRA permits you to subtract 15 percent of that $30,000 amount from your $4,500 tax liability. Your tax payable would be reduced to $0.
Common and Uncommon Write-Offs
Juneja explains that many write-offs are common expenses in everyone’s lives. “Medical expenses, public transit passes, RRSP contributions, child care expenses, and interest from student loans” are among the most common deductions taxpayers often take.
These expenses reduce the amount of money in your pocket throughout the year, and writing them off allows you to account for the reduction.
Some taxpayers may not know about all the write-offs available. For instance, new college and university students may not be unaware of education write-offs, such as credits for tuition and textbook expenses, association membership fees and examination fees.
Medical expenses also can be written off, many of which are not commonly known. Unlikely medical expenses may include, but are not limited to:
- air conditioning
- eye glasses
- a furnace
- travel expenses
Please note that these things can only be written off if they are bought for medical purposes. For example, a cancer patient who has lost their hair due to their treatment can write-off the cost of a wig, but a person who buys a wig just to look fashionable can’t.
Other Beneficial Write-Offs
You may be eligible for other tax write-offs based on your province of residence. In Alberta, for instance, write-offs include the basic personal amount, adoption expenses and dependant write-offs. If you are a small business owner, you may be able to write-off some business expenses.
According to the CRA, you can write-off any reasonable expense you incur to earn business income, such as advertising, office space and supplies. However, there are some limits and rules that apply. For example, if you use your car for both work and personal trips, you can only write-off the costs for the work trips, and you’ll need to keep a log of your work trips (as well as any receipts) to do so.
Things to Consider
- If you are going to write-off expenses on your taxes, hold onto receipts as the CRA may request them.
- The CRA also sets the requirements for each type of deduction and credit.
For instance, the CRA requires you to register your court order or written agreement to receive a deduction for your spousal or child support payments.
To register your agreement, you would send it to your tax centre, along with a form “T1158 Registration of Family Support Payments.”
References & Resources
- Rajiv Juneja, CGA; Edmonton, Alberta
- Canada Revenue Agency: What You Can Deduct
- Canada Revenue Agency: Canadian Income Tax Rates for Individuals
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