While tax season isn’t until the end of the year, there are some benefits to planning ahead so you have a clearer idea if you will receive a bill or a refund. One of the best ways to plan ahead is to be aware of the tax deductions and credits you may qualify for.
We’ve rounded up some popular options for 2024 to help investors try to maximize their tax savings.
Tax deductions vs. tax credits
So what’s the difference between a tax deduction and a tax credit, anyway? Both can help lower the amount of tax you might have to pay, but they go about it differently.
Deductions work to lower your taxable income, so less of your earnings are subject to tax in the first place, potentially dropping you into a lower tax bracket.
Tax credits, by comparison, reduce the amount of tax you pay, potentially lowering your tax bill. There are two types of tax credits: refundable and non-refundable. Refundable credits are paid out even if you don’t owe any income tax. Non refundable tax credits, however, can only be used to offset income tax you owe. While non-refundable tax credits can reduce your tax bill to zero, they won’t qualify you for a tax refund.
Popular tax deductions in Canada
Registered Retirement Savings Plan (RRSP) contributions
RRSP contributions are arguably the best-known tax deduction. They are so popular that a whole event has been built around the filing deadline. But it’s important to remember there’s a limit on how much you can contribute each year. For 2024, the contribution limit is $31,560, or 18% of your income earned the previous year, whichever is less. That said, unused contribution room carries over, so you may be able to contribute more if you haven’t maxed out your available contribution room from the previous year. Although you can make contributions at any time, the deadline to be able to apply those tax credits to your previous year’s earnings is typically 60 days after the end of the calendar year.
First Home Savings Account (FHSA)
Launched in 2023, the FHSA is a registered account that allows first-time homebuyers to save money that can be put toward building or buying a house. The contribution room grows by $8,000 per year, with a lifetime contribution limit of $40,000. Remember, you don’t start earning contribution room until a FHSA account is opened. These contributions work a little like RRSPs, by lowering your taxable income, and unused contribution room also carries over to the next year. Still, there is one notable difference: unlike the RRSP contribution deadline, the filing deadline for FHSA contributions is the end of the calendar
year.
Investment expenses
Did you borrow money to buy investments inside a taxable account (meaning outside an RRSP or TFSA)? If so, the interest you paid on those loans can be deducted from your taxable income – as long as it’s used to try to earn investment income such as dividends or interest. There’s a caveat: if the only earnings your investment can produce are capital gains, you cannot claim the interest you paid. Also keep in mind that there are special rules in Quebec.
Home office expenses
If you work from home, there are certain expenses you can deduct, such as your home internet and a portion of your utilities. In 2023, Ottawa eliminated the simplified method of calculating expenses in favour of the detailed method, which requires you to list specific expenses and amounts. Your employer will have to fill out a form, too.
Notable tax credits
There are dozens of potential tax credits that can help you reduce your taxes, like those related to moving expenses or child care. Here are just a few of the more common ones to highlight their potential.
First-Time Home Buyers’ Tax Credit (HBTC)
If you bought your first home in 2024, you could receive up to $1,500 through this non-refundable credit.
Multigenerational Home Renovation Tax Credit (MHRTC)
If you renovated your home to build a secondary unit to house someone over the age of 65 or an individual between 18 and 64 with a disability who is eligible for the disability tax credit, you could receive this refundable tax credit. Those who qualify can claim up to 15% on certain costs of up to $50,000.
Digital News Subscription Tax Credit
If you’re a big consumer of news, this one’s for you. Anyone who pays for a subscription to a qualifying news organization after 2019 and before 2025 can claim this non-refundable tax credit of up to $500.
Canada Training Credit
If you’re between 26 and 65 and spent money on training fees this year, you may qualify for this refundable tax credit. To claim this credit, your working income must be more than $10,100, and your individual net income can’t exceed $150,473. The credit accumulates at a rate of $250 per year, up to a lifetime limit of $5,000.
Federal Political Contribution Tax Credit
Did you or your spouse contribute to a registered federal political party or association this year? You could claim up to $650 through this non-refundable credit (except in Ontario).
Medical Expense Tax Credit (METC)
If you paid for any medical expenses this year, you may want to hold onto your receipts. You can claim some of them (there are more than 100 that qualify) on your tax return with this non-refundable tax credit. Examples include ambulance service, prescription drugs, cancer treatment and hearing aids.