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Tax season brings plenty of confusion—and costly mistakes. Here are some commonly misunderstood expenses Canadians often try (but fail) to claim on their tax returns.
I come across frequent questions from taxpayers about expenses they think they can claim as a tax deduction or credit. Often, they cannot be claimed, or there are strict criteria that apply.
Back in the olden days, investors sometimes kept stock certificates in their safety deposit box at the bank. As a result, taxpayers could claim a deduction for their annual safety deposit box fee as a carrying charge to earn investment income.
Some older taxpayers mistakenly believe this deduction still applies; however, it was eliminated in 2013.
Registered education savings plans (RESPs) are tax-preferred accounts. The investments grow tax deferred, and withdrawals are only partially taxable to the beneficiary child or grandchild.
Unlike registered retirement savings plan (RRSP) contributions, RESP contributions are not tax deductible. There is a 20% government grant—and for low-income contributions, there may also be government bonds deposited to the account, as well.
Learn what they are and how to fund them
In the U.S., American taxpayers can claim mortgage interest deductions on up to $750,000 of mortgage debt, or $1 million for older mortgages. The loan must have been used to buy, build, or renovate your main home or a secondary property, and the taxpayer must choose to “itemize” their deductions.
Canadians sometimes stumble upon U.S. tax rules when searching online, talking to friends or family, or when artificial intelligence answers give incorrect information. The deductibility of interest in Canada is more limited.
If you borrow money for investment purposes, like buying taxable investments, a rental property, or for a business, the interest is generally tax deductible. However, interest for an RRSP loan, for example, is not tax deductible since the RRSP income earned is not taxable.
Interest on a rental property is not automatically tax deductible, either. If you borrow against your rental property to buy a car or go on a vacation, the fact that the debt is secured by your rental property alone does not make it tax deductible. It is the use of the borrowed funds that matters for deductibility.
Driving to and from your regular place of business is not considered tax deductible; it is a personal expense, not an employment expense or business expense.
When you work primarily from home, travel between your home and a client site or a temporary work location can be deductible if all other employment expense conditions are met.
Specifically, for your home to be considered your principal place of employment, you must work there more than 50% of the time. Your employer must also certify this on Form T2200 – Declaration of Conditions of Employment.
The Canada Revenue Agency (CRA) expects you to keep a record of business travel, including dates, destinations, and purposes. They may request supporting documentation, such as a logbook, in the event of an audit.
The cost of clothing, even if you wear it only for work, is not deductible. An exception may apply to specialized clothing required for your job, such as safety gear for certain trades.
Similarly, personal grooming expenses like haircuts or makeup are not deductible unless you are a performer and the items are used exclusively for your work.
As a result, dry cleaning—which is unlikely to apply for safety gear—does not result in tax savings.
Fees or dues for clubs whose main purpose is to provide dining, recreational, or sporting facilities are not deductible, even if used for business purposes. This includes golf clubs, gyms, and social clubs.
When these expenses are paid by your employer, the use of a recreational facility or club is usually considered a taxable benefit that gets added to your T4 slip as income. CRA provides a few specific examples of situations where a benefit may be non-taxable.
Deadlines, tax tips and more
Annual dues necessary to maintain a professional status recognized by statute (such as a professional engineer or lawyer) may be deductible if required for your employment and not reimbursed by your employer, or if you are self-employed.
You may be able to deduct 50% of business meals and entertainment, but only when incurred for business purposes directly related to earning income. For an employee, they must be required to pay for these expenses by their employer and not be reimbursed.
Personal meals and entertainment do not become tax deductible simply because you are self-employed or because you are sometimes required to entertain by your employer.
You cannot deduct tuition fees paid for your children or other relatives on your own tax return. That said, if your child or spouse does not need their entire tuition tax credit to reduce their own tax to zero, they may be able to transfer up to $5,000 of tuition to you.
Tuition is eligible for a non-refundable tax credit, typically saving the taxpayer about 20% of the tuition claimed.
The CRA’s rules are technical and change over time. Claiming expenses that you think are reasonable but are not eligible can result in denied deductions, CRA reassessments, and interest or penalties. When in doubt, you should confirm eligibility rather than assuming an expense will qualify.
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