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Tax Deductions: Tax Tips

Commencing or settling a law suit?

When commencing or settling a law suit consider whether payments can be deductible, if you are the defendant, or non-taxable if you are the plaintiff.  


Child care expenses

The child care expenses you can deduct on your Canadian income tax return include more than day care costs and the nanny's salary. Also deductible are fees for certain baby-sitting expenses, day camps, boarding schools and summer camps.  


Legal fees relating to child support orders

In two recent technical interpretations, Revenue concedes that legal fees relating to child support orders under the Divorce Act are deductible for Canadian income tax purposes.  


Deductions for RRSP contributions

When making your calculations to determine your Canadian income tax deductions for RRSP contributions, remember that certain deductions, such as net losses from rental properties or employment-related expenses including union dues or traveling expenses will reduce your "earned income" which reduces your RRSP contribution limit for the following year. Also excluded from "earned income" are certain types of income including interest, dividends, capital gains, and most pension income.  


Purchase price paid for a domain name

The purchase price paid for a domain name (URL) may not be immediately deductible for Canadian income tax purposes. It may constitute an eligible capital expenditure (ECE) in which case only 50% of the purchase price can be deducted at a rate of 7% per annum.  


Tuition fees deductible for Canadian income tax purposes

Tuition fees deductible for Canadian income tax purposes include fees paid to attend a Canadian university or college; fees for courses taken to obtain or improve occupational skills at an institution approved by the Minister of Human Resources Development (if you're 16 years or older); fees paid for full-time attendance at most universities outside of Canada if the course is more than 13 consecutive weeks long and leads to a degree; fees paid to post-secondary institutions in the United States if you lived in Canada near the border and commute to the university or college.  


Current expenses related to the business are deductible

All amounts which you incur as current expenses related to the business are deductible for Canadian income tax purposes. Capital expenditures can be depreciated. If your business never earns a profit the deductions may be challenged on the basis that you have no real business.  


Self employed may be able to deduct moving expenses

If you are self employed and work out of your home and move to a new home more than 40 kilometres away, a recent Tax Court decision means that you may be able to deduct your moving expenses for Canadian income tax purposes in the same way as an employee who moves to take a new job or an employment transfer.  

Reasonable expenses for meals and entertainment incurred for the purpose of earning business income are deductible

Reasonable expenses for meals and entertainment incurred for the purpose of earning business income are deductible for Canadian income tax purposes. However, only 50 per cent of these costs are allowed as a deduction for tax purposes. The costs of restaurant gift certificates used for promotion are also subject to this limitation.  

Car allowance

A car allowance is taxed as regular income for Canadian income tax purposes. If you require the car for work and your employer gives you a form T2200 you may be able to deduct travel expenses.  


Current expenses directly related to your business are deductible

All amounts that you incur as current expenses directly related to your business are deductible for Canadian income tax purposes. Capital expenditures can be depreciated at the prescribed tax depreciation rates. If your business never earns a profit the deductions may be challenged on the basis that you have no reasonable expectation of profit.  


Child Support Payments

The Canadian income taxation of child support payments changed as of May 1, 1997. If you amend a written support agreement made before that date the tax treatments of payments which were deductible to the payor and taxable to the recipient can change.  


Reasonable salaries to your spouse and children

If you run a business, your spouse and children can be paid reasonable salaries which become a business expense that is deductible for Canadian income tax purposes.  


Moving expenses incurred by a student

If moving expenses have been incurred by a student to move from school back home either for the summer or permanently, these expenses can generally be deducted for Canadian income tax purposes by the student against income earned at the moved-to location.  


Most legal fees incurred in family law situations are not deductible

Most legal fees incurred in family law situations are not deductible for Canadian income tax purposes. The main exception is for fees incurred to enforce a maintenance order. The status of fees incurred to obtain a spousal support order is less clear.  


If a direct link can be drawn between the borrowed money and an eligible use, the interest expense is deductible

The Supreme Court of Canada decision in the income tax case of Singleton confirmed the principal that in determining whether interest is deductible, if a direct link can be drawn between the borrowed money and an eligible use, the interest expense is deductible.  


Legal fees incurred in child support application

Legal fees incurred in respect of a child support application are deductible for Canadian income tax purposes.  


Current expenses related to the business

All amounts that you incur as current expenses related to the business are deductible for Canadian income tax purposes. Capital expenditures can be depreciated. If your business never earns a profit the deductions may be challenged on the basis that you have no reasonable expectation of profit.  


Interest on money borrowed for investment

Interest on money borrowed for investment purposes is deductible for Canadian Income Tax purposes for as long as you own the investment or a replacement investment. Once you dispose of the investment the interest ceases to be deductible.  


Sales commissions, sales related expenses

An employee who earns sales commissions and incurs sales related expenses is permitted to deduct those expenses, including related reasonable automobile expenses, in computing income for Canadian Income Tax purposes. The employer must provide the sales rep with a completed form T2200.  


Deduction, for a bonus paid

In order for a corporation to claim a deduction for a bonus paid to an employee, or a shareholder, it must validly document the bonus. Once it does so it is required to withhold and remit source deductions.    


Deduction for attendant care expenses

A Canadian taxpayer who is disabled may be entitled to an income tax deduction for attendant care expenses. For nursing home residents, attendant care expenses include a portion of the monthly fees paid to the nursing home.  


Payments made to a company hired to provide employment advice

In the Tax Court of Canada decision in Morin v. The Queen, 2005 DTC 813 the taxpayer was able to deduct payments made to a company hired to provide employment advice to maximize his financial benefits from income earned on the exercise of employee stock options.  


Child support payments

The Canadian Income Tax Act was amended effective April 1997 so that child support payments are no longer deductible to the payer or taxable to the recipient. While payments made under a written agreement or court order made before May 1997 are subject to the old rules (deductible to the payor and taxable to the recipient), any change to that agreement or court order will mean that the new rules apply.  


Medical related expenses must be prescribed by a medical professional

For medical related expenses to be deductible for Canadian income tax purposes they must be prescribed by a medical professional.  


Personal Services Business

A Canadian employee cannot simply resign his employment and start billing for his services through a corporation. Such an arrangement may be considered to be a “personal services business” with the result that most corporate expenses will be disallowed.  


Capital Cost Allowance

If you acquire a depreciable asset for business purposes you can claim tax depreciation, called capital cost allowance for Canadian income tax purposes. The rate depends on the type of asset. In the year of acquisition only 50% of the normal depreciation can be claimed.  


Keep moving expense receipts

When computing Canadian income tax students can deduct moving expenses from the taxable amount of scholarships, bursaries or research grants that they receive, or against employment or business income, so moving expense receipts should be kept.  


Employers are required to deduct and remit Canadian income taxes from their employees

Employers are required to deduct and remit Canadian income taxes (as well as Canada Pension Plan and Employment Insurance premiums) from their employees. If they fail to do so they are subject to interest and penalties. If they hire workers as independent contractors the risk and liability is with the employer if the Canada Revenue Agency (the Canadian income tax department) determines that the worker is in fact an employee.


Stop Loss Rules

The Canadian Income Tax Act has “stop loss” rules that limit a taxpayer’s ability to claim losses in certain specific situations.

Disclaimer:
"This article provides information of a general nature only. It may no longer be current. It does not provide legal advice nor should it be relied upon. If you have specific legal questions you should consult a lawyer."



David J.Rotfleisch,C.A., J.D.
Tax And Business Lawyer,

David J. Rotfleisch, C.A., J.D.
Rotfleisch & Samulovitch Professional Corporation
Barristers & Solicitors
2822 Danforth Avenue
Toronto, Ontario
M4C 1M1, PH :- 416-367-4222 Fax 416-367-8649