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David A. Townsend, CPA, Professional Corporation

"Some Tax Deductions to Consider"   an article by David A. Townsend

It is of course impossible to provide anything close to a complete list of tax deductions in a brief article. The below is merely intended to provoke some thought on expenses and other deductions that might be missed.

The general rule is that you can deduct expenses incurred for the purpose of earning income. Personal expenses are obviously non-deductible, but you are the best judge of whether an expense is for income-earning or personal purposes. It could also be that a portion of an expense is deductible and a portion is personal. It is not an all or nothing concept.

Taxpayers generally fall into more than one of the following categories; e.g. they are both employees and investors. However, it may simplify things if you consider expenses relating to each category.

  1. Employees — The rules for employees deducting expenses against their employment (T4) income are strict. To deduct such things as vehicle or home office, an employee should have a Form 2200 filled out and signed by their employer. This form states that the employee is responsible for incurring some expenses in connection with his or her employment and specifies the expenses.

    Employees are also entitled to deduct moving expenses to take a new job if the employer does not reimburse them. CRA has a thing about moving expenses so expect to be checked on this. Make sure that you have proper receipts! Note that the real estate commission on sale of your previous residence is a deductible moving expense.
  2. Self-employed Business or Professional Income — This is where it gets more judgmental. I recommend reviewing the different expense categories on the CRA business and professional income statement form — it may jog your mind as to additional deductible expenses.

    A word of caution — large business losses will undoubtedly attract CRA attention, especially if they reduce other income and result in a tax refund. If you are in this situation, it is best to get some competent tax advice.
  3. Investors and Property Owners — Again there are CRA forms for claiming rental and investment expenses. Reviewing these will give you the basic deductions and hopefully some ideas.

    Investment expenses include accounting, investment management fees, and interest paid on funds borrowed for investment purposes. As an example of a sometimes-missed expense, be aware that when you purchase a bond, you pay for the bond plus accumulated interest to date of purchase. The amount you paid for accumulated interest should be included as an expense.

    Capital gains and losses are reported when investments are sold. The gain or loss is calculated based on the original cost of the investment, including commission. You are responsible for tracking this cost. For stocks, bonds and mutual funds, your broker should have records of the "cost base" of the investment. However, if you have changed brokers, the amounts may not be accurate.

    There was a capital gains election in 1994. If you made this election, be sure that the elected value is used as the cost amount when the investment is sold.

As mentioned previously, hopefully the above will spark some ideas for tax deductions. If you have a questionable item, please ask.

Contributing Editor to Canadian Money Saver Magazine