We all know the seasonal favourite The Twelve Days of Christmas. Only slightly less popular is the song The 12 Claims for Taxes – which is sung to the same tune. The words to the latter are below, along with some insight into each deduction. Sing it with your family this year – preferably at the dinner table on Christmas Day. It’ll be both fun and educational. Here we go.
On the first day of Christmas, my true love gave to me:
Danny Partridge on a TV. I’m talking about entertainment costs here. You know, Netflix, Spotify, the entire first season of Star Trek on Blu-ray, and the like. Can you deduct these costs? Not typically, but if you can argue that the costs were necessary for the purpose of earning income from a business, you can deduct them.
Two turtlenecks. Some people try to deduct the cost of their personal clothing. Sorry, this won’t work. Now, if there’s clothing specific to, and used solely for, your work (a uniform or specialized equipment that you wear) that you’re required to pay for, you can generally justify a deduction.
Three fine pens. What about supplies such as paper, pens, ink, etc.? Whether you’re an employee or self-employed, if you’re required to pay for your own supplies, you should be able to deduct these costs.
Four calling cards. Can you deduct prepaid phone cards, or the cost of your cellphone? You can deduct the minutes or data that you can substantiate as being used for your work, if you weren’t reimbursed. But you can’t deduct connection fees or the cost of the phone itself.
Five onion rings. What about food? Generally, just one half of these costs can be deducted against business income if you were dining for work purposes. You can’t deduct costs for meals consumed while not working.
Six children playing. Incurred eligible child-care costs? The lower-income spouse must make the claim (with some exceptions). You can even pay a child 18 or older in the year to look after those under 16 in the year. There’s a limit on the amount you can deduct for each kid, depending on their ages and whether they have a disability.
Seven bucks I’m giving. Are you donating to charity this year? Then you’ll be able to claim a donation tax credit (a deduction if it’s a corporation making the donation) if you donate to a registered charity. Be sure to claim all the donations on the tax return of one spouse to maximize the tax savings.
Eight bankers milking. That is, milking me for all the interest they can possibly collect. Interest costs are deductible if the interest was paid or payable in the year, and was incurred on borrowed money used to produce income from property (investments) or a business.
Nine ladies moving. In order to claim moving expenses, you must earn income in your new location, and your new home must be 40 kilometres closer to your place of work than your old home. Check out Form T1-M for a list of deductible expenses. If you received a reimbursement or allowance from your employer, you can only deduct moving expenses if you include that amount in your income.
Ten Fords are beeping. I’m talking about your vehicle. Keep track of the percentage of your kilometres driven for work; that percentage of vehicle costs can be deducted, including: Gas, oil, repairs, insurance, depreciation (capital cost allowance), licence fees, auto club dues, car washes and detailing, interest on a car loan (within limits), and lease costs (within limits). If you received a reasonable allowance from your employer, then it’s generally tax-free. But if you want to claim a deduction for costs, you’ll have to include your allowance in your income.
Eleven pipers vaping. Vaping is the new smoking, which some say can harmful to your health. That leads me to medical expenses: Check out the growing list of things you can claim (including medical cannabis) in CRA publication RC4065 at www.cra.gc.ca. You’ll be limited to claiming eligible expenses that exceed $2,302 (for 2018) or 3 per cent of your income, whichever is less. It’s best to claim medical expenses on the lower-income spouse’s tax return.
Twelve drums for printing. What about computer equipment such as printers, laptops, desktops, etc.? You can deduct the cost if you’re using it in a business. You deduct it by claiming depreciation, or capital cost allowance. Rules were changed on Nov. 21 that make the deduction a little more generous than in the past.
There you have it. Move over golf clubs. This year, I’m looking for these 12 great gifts that can provide tax savings.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at email@example.com.