How to Calculate Tax Deductions in Canada

The Canadian Parliament where tax laws are made
The Canadian Parliament where tax laws are made (Image: parliament of canada image by Scott Wormington from <a href=''></a>)

For the average Canadian, the tax system is easy enough to understand. The federal and provincial tax forms are well organized and the Canada Revenue Agency issues a useful guide with tips and explanations for most of the line items on the tax return. Tax deductions fall into two main categories: deductions from taxable income and Federal and Provincial Tax Credits. Figuring out which amounts to claim can greatly impact the amount of your tax refund.

Things You'll Need

  • Federal T1 General Tax Form
  • Schedule 1—Federal Tax
  • Provincial Form 428
  • Calculator

Gather your tax receipts. By the end of February you should have received your T4 slip, which summarizes your employment income, Canada Pension Plan/Quebec Pension Plan and Employment Insurance contributions, as well as any contributions to a company Registered Pension Plan and union dues. If you made contributions to a Registered Retirement Savings Plan in the preceding year or in the first 60 days of the current year, make sure you have those receipts as well. Other common deductions for which you should have receipts include charitable contributions, education expenses, medical expenses, and professional dues.

Identify the deductions that reduce your taxable income. Enter them on lines 206 to 256 of the Federal T1 General Tax Return Form (see References). Items you can claim as a deduction from taxable income include things such as RPP and RRSP contributions, union or professional dues, moving expenses, child care expenses and interest expenses. Consult the General Income Tax and Benefit Guide for a list of all deductions from taxable income available (see References..

Identify your Federal Non-Refundable Tax Credits. Add them up and then multiply by the lowest Federal Tax Rate, which was 15 percent in 2009. Find amounts you can claim in the Schedule 1—Federal Tax form, on lines 1 to 27. Examples of amounts you can claim for a Federal Non-Refundable Tax Credit include a basic personal amount ($10,320 in 2009), your CPP/QPP and EI contributions, amounts for dependent children under age 18, and the Canada Employment Amount ($1,044 in 2009). Again, consult the Income Tax and Benefit Guide for a list of all available deductions. Multiply the total of all amounts claimed by 15 percent (under 2009 rules), and report the resulting tax credit on the next page where you calculate your federal income tax.

Identify your Provincial Non-Refundable Tax Credits using form 428 of your province of residence as of Dec. 31 of the most recent year. Amounts you can claim are fairly similar to the federal amounts, with the total amount multiplied by the lowest provincial tax rate. Report these tax credits on the next page of the provincial form 428 where you calculate your provincial income tax.

Tips & Warnings

  • Browse through the General Income Tax and Benefit Guide if you have expenses you're not sure about. The Canada Revenue Agency is not trying to hide tax deduction opportunities from you. On the contrary, they are trying to make it as easy as possible for you to find all available deductions.

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