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Registered retirement savings plan (RRSP) contributions and child care deductions are the biggest line items to lower net income on tax returns that can push Canadians into a lower tax bracket. But missed opportunities to reduce that net income even further still abound, tax professionals say.
“Deductions are important and in a different category than credits,” says Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants in Victoria. “In many cases, the deductions available show how tax planning overlaps with investments used.”
Here are four deductions taxpayers may overlook on their tax returns.
1. Using spousal RRSPs to split income
Spousal RRSPs work as follows: one spouse makes the RRSP contribution (using their own contribution room), but the money goes into the account in the name of the lower-income spouse, Mr. Burkett says.
“The benefit is that in the longer term, you are able to draw that out as income to the lower-income spouse,” he notes.
Tax legislation introduced in 2017 limited the ability for many incorporated business owners to split income with their spouses. These rules contained several exceptions, including when the business owner is over age 65.
Mr. Burkett says spousal RRSPs may provide relief for those under 65 who have available RRSP contribution room to achieve some degree of income splitting.
“Provided the contribution stays in the spouse’s account two more years before the money is withdrawn, the income is taxable to the plan [owner],” he notes.
2. Fees paid to advisors
Are fees that clients pay to advisors tax deductible? The short answer is it depends, says Wilmot George, vice-president, tax, retirement and estate planning at CI Global Asset Management in Toronto.
Taxpayers cannot claim commissions paid on investments or fees for advice given on registered accounts, for example. But if they have a non-registered account in which the advisor is paid for advice or management of their investments, those fees can be claimed under “carrying charges, interest expenses and other expenses” – line 22100 on the tax return.
What about fees paid for financial planning? Unfortunately, they don’t qualify to be claimed, Mr. George says.
3. Fees for borrowing money to invest
For non-registered accounts, the interest paid on borrowing money for investment purposes is generally tax deductible, Mr. George notes.
“If the money is used to generate investment income, interest, dividends, rental income … as long as there’s potential to earn income from the investment,” it can be claimed under the same place as advisor fees, he says.
4. Moving expenses
Taxpayers can write off their transport, storage, related insurance, travel expenses and other related items if they move, but there are some specific terms and conditions about who is eligible, Mr. George says.
“It matters how far you move and for what purpose,” he says.
The main qualifiers for this deduction are if the person is moving to earn income for an employer, going to school full-time or starting a business, he says.
Another sticking point is the move must be a minimum of 40 km closer to your new work location or school.
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