What are Tax Deductions?

Tax deductions are a way to reduce your taxable income and, consequently, your tax bill. You must meet eligibility criteria to claim a tax deduction.

Woman seated at her desk reviewing receipts and tax documents to claim a deduction.

If you’re looking to reduce your income tax bill — and who isn’t? — one way to do it is by taking advantage of tax deductions.

A tax deduction, sometimes referred to as a tax write-off, is any legitimate expense that can be subtracted from your taxable income.

Lowering your taxable income reduces the amount of tax you have to pay. Generally, multiple deductions can lower your income and out you in a lower tax bracket. In Canada, both federal and provincial deductions can help reduce your tax liability.

How to claim a tax deduction

When you fill out your tax return, you must enter a variety of information on specific lines of the T1 General form. Line 15000, for example, is for your total income from all sources, including paid work, self-employment, pensions, investments and government benefits.

Once you’ve calculated your total income, you’ll find a series of deductions (from approximately line 20600 to line 23500) you can potentially subtract from your total income to arrive at your net income.

Deductions may include things like child-care expenses, moving expenses and professional dues, to name just a few. Once you’ve subtracted all your eligible deductions from your total income, you will arrive at your net income, which is line 23600 of your tax return.

After calculating your net income, you may still be eligible for a few more deductions that you can claim to reduce your income further.

Deductions from net income are listed from line 24400 to line 25600. These deductions are more limited in scope and will not be relevant to most Canadians. They include northern residents deductions, limited partnership losses and a Canadian Forces personnel deduction.

Once you’ve subtracted the applicable deductions from your net income, you will arrive at your taxable income, which is line 26000 of your tax return.

Common tax deductions in Canada

Some frequently-used deductions that will reduce your taxable income may include:

Contributions to a registered pension plan you have through an employer.
Employment Insurance premiums and Canada Pension Plan contributions.
Registered retirement savings plan contributions, including those made to a spousal RRSP.
Eligible union or professional dues.
Child-care expenses resulting from earning a living or going to school.
Support payments, like spousal support.
Moving expenses related to work, starting a small business or furthering your education.

Self employment deductions

Some deductions are exclusive to individuals who qualify as self-employed. These deductions, including business costs like advertising, bank fees, interest accrued on a business credit card, office supplies and home office expenses, reduce a self-employed person’s overall professional income.

If you’re self-employed and you have calculated the total income, including net professional income after deducting expenses, you can use the personal deductions mentioned above to reduce your taxable income further.

If you are uncertain what deductions you might qualify for, it’s wise to consult a professional tax expert or accountant or visit the CRA’s website.

Tax deductions and tax credits perform different functions. Tax deductions are used to reduce your taxable income. RRSP contributions are tax deductions. Tax credits reduce the amount of tax you pay on your taxable income. Charitable donations are tax credits.

Mortgage interest is only deductible if you use your property to generate rental, professional or business income. However, this type of deduction is complex, and the process varies based on factors such as the rental agreement and how long it takes you to repay the mortgage.