Most-overlooked tax breaks

There are more than 400 separate tax credits and deductions that can significantly reduce the amount of tax Canadians owe. But many of us don't take full advantage of the existing breaks. We asked a couple of tax experts to highlight the ones we miss the most.

Lucrative tax credits, deductions Canadians often miss

Politicians love to create popular tax breaks for their constituents. The perception in the federal and provincial capitals is that there are real votes to be had by letting us hang on to more of our money.

So, over the years, it comes as no surprise that the tax rules have grown to include more than 400 separate tax credits and deductions that can significantly reduce the amount of tax Canadians owe.

The problem is, many of us don't take full advantage of the existing breaks — or even worse — don't take advantage of them at all.

We asked prolific tax author Evelyn Jacks, president of the Winnipeg-based Knowledge Bureau, and chartered accountant James Gustafson of Victoria-based Gustafson Accounting, to come up with some tax breaks they see Canadians regularly missing out on.

Disability tax credit

This is the most lucrative non-refundable tax credit offered in Canada — worth more than $1,500 a year in real money, depending on the province. Our experts both cited this as an often-overlooked break. The credit is intended for those with severe and prolonged physical or mental impairments. To be eligible, the disability must significantly restrict activities of daily living. A physician or licensed practitioner must complete and certify the medical section on form T2201.

"In my experience, the disability tax credit has been frequently missed by Canadians who may otherwise qualify, particularly when they are infirm themselves, as another relative will typically have to become involved to obtain the necessary medical certification," says James Gustafson.

 Other commonly overlooked tax credits

  • Equivalent-to-spouse tax credit.
  • Children's fitness tax credit.
  • Public transit tax credit.
  • First-time home buyers' tax credit .

What's more, in the case of progressive illnesses like cancer or Alzheimer's disease, people who don't qualify for the tax credit in one year may qualify in subsequent years, so it's worth it to reapply, said Jacks.

She also points out that people can go back and adjust previously filed tax returns for the 2001 to 2009 tax years if they feel they could have qualified years ago but never filed for the credit. You need to get the doctor to certify that the disability was present earlier.

"Missing this [credit] over a 10-year period — and many families do — [can] leave you $15,000 short," Jacks said.

Moving expenses

Most people have heard that moving costs qualify as deductible expenses. If you move more than 40 kilometres to be closer to work or school, you may be able to deduct moving expenses from income you earn at your new job. Some big moving expenses are often overlooked, says Jacks, and that can be costly.

"That's because real estate commissions — which can run into five figures — are included in the deduction," she says. "Assuming those commissions were $20,000, at a 40 per cent marginal tax rate, that's worth $8,000 to you. That might pay your legal fees or some of the landscaping costs," she points out.

Another often overlooked moving expense is the penalty you paid to your bank to break a mortgage when you sold your old home.

"If you do not have sufficient income at the new location to claim all the expenses, they may be carried forward to the following year," adds James Gustafson.

The Canada Revenue Agency (CRA) has put out an information sheet on moving expenses.  

Medical expenses

Many people don't even bother to add up and claim their medical expenses because they don't think the effort will pay off. After all, the expenses must exceed the lesser of $2,024 or three per cent of net income for someone to have any claim at all. So, for a person with a $40,000 net income, the first $1,200 of allowable medical expenses are excluded from the calculation. 

Both of our tax experts point out that many people miss out on this tax break because they're just unaware of the vast array of expenses that qualify.

Travel medical expenses

If you need to travel because medical treatment isn't available within 40 kilometres of your home, you may be able to deduct travel expenses. Full details of that measure can be found here.

"Although the CRA has been tightening rules in this area recently (such as eliminating expenses for strictly cosmetic procedures), people still tend to miss some eligible payments," says James Gustafson. As one example, Gustafson points out that premiums paid to a private health insurance plan qualify as medical expenses, as long as your employer didn't pay them on your behalf.

"There is, in fact, a very long list of medical expenses that people miss every year — common items like batteries for hearing aids, glasses and treatments from naturopaths," Jacks said. "Even modifications to the family van required to accommodate a person in a wheelchair may be claimed on a limited basis."

People with a gluten allergy can even claim the higher cost of gluten-free products if a doctor prescribes them, says Jacks. The difference between the cost of the gluten-free product and a similar non-gluten-free product is the allowable medical expense.

The full list of eligible medical expenses can be found here. If that's not enough information, the CRA also has a 19-page interpretation bulletin on the subject.

One other tip: a family's medical expenses can be combined and claimed by the lower-income spouse. This would create a bigger tax credit because the lower-income spouse would have a lower three-per-cent-of-net-income threshold. This strategy won't work in Quebec, however, where the threshold is three per cent of net family income.  

Carrying charges

The reference to "carrying charges" on line 221 of your return is one of those vaguely amorphous terms that you may be inclined to just skip over. That could end up costing you a lot of money. Line 221 allows you to deduct the interest you paid on money you borrowed to earn investment income (excluding loans for RRSPs and other registered plans). But it doesn't stop there.

"Fees paid to an investment adviser are deductible as carrying charges, so if you have a portfolio manager who charges a fee, such as a percentage of assets under management, these fees are deductible in the year they are incurred," Gustafson said. 

Don't tax programs catch all those tax breaks?

While most tax software programs do a good job of prompting you about available credits and deductions, they don't know the specifics of your particular situation. So, they will ask you about medical or moving expenses, for instance, but you still have to know what to claim.    

An even more common carrying charge that often gets overlooked is the rental of a safety deposit box. Jacks says that in her experience, the safety deposit box is the most often missed tax deduction. Assuming a yearly cost of $75 and a 40 per cent marginal tax rate, that produces $30 of tax savings every year, she says.

Retroactive adjustments

Many people think that if you forgot to claim a credit or a deduction in years past, you're out of luck. "I hear this with some regularity," said Gustafson. "The CRA is quite willing to consider valid adjustments when Canadians have simply made a mistake in omitting a claim."

In fact, missed claims or deductions may be claimed for up to 10 years. "In calendar year 2011, one can go back and adjust prior filed returns for tax years 2001 to 2009," Evelyn Jacks says.

Just don't file a second tax return, she warns. You simply write a letter to the CRA and enclose the paperwork to back up your adjustment claim. Be sure to add your social insurance number and state the tax year you want adjusted. You can also file a T-1 adjustment request. You have to file a separate request for each year you're requesting an adjustment.

"You may be able to recover thousands by adjusting those returns," Jacks says. That makes it well worth [your] while to go back and check over your earlier filings. 

After all, it's not the CRA's job to make sure you pay the least amount of tax.