It’s likely an accountant’s worst nightmare: A client walks into the office carrying bags that are bursting at the seams from both the crumpled receipts they contain and the wishful thinking that these expenses will be tax deductible.
While this may be an exaggeration, there are plenty of claims that many taxpayers believe are eligible for tax deductions but simply do not qualify.
Here’s a look at these misconceptions, according to two experts from the field:
Jamie Golombek, managing director of tax and estate planning with CIBC, told Yahoo Finance Canada that medical bills are the most commonly denied expense, as taxpayers often try to claim the costs of vitamins, supplements, bandages, shoe inserts and over-the-counter medicines.
“They just don’t qualify,” he said.
“There’s a very specific list of medical expenses that (count) under the income tax rules.”
A searchable index of expenses that are eligible is available on the Canada Revenue Agency’s website.
Figuring out what is eligible can also be tricky because medical expenses can vary from province to province. For example, massage therapy is eligible to be claimed in B.C. and Ontario, but not Alberta.
Another area where Canadians seem to get mixed up is over what is eligible for the public transit credit.
Under the rules, only passes that are used for unlimited travel within Canada on buses, streetcars, subways and other commuter forms of transportation are eligible.
Golombek said taxpayers can only submit monthly or a series of weekly passes.
He said people often try to submit single-use tickets, or summaries, which don’t qualify.
“The rules are very, very specific,” he said.
“So, if you don’t follow the rules you’re not going to be allowed to credit.”
Golombek said many young Canadians also mistakenly believe that all student loans are eligible to be claimed on a tax return.
When, in fact, it needs to be a loan recognized by the Canada Student Loans Act, or fall under federal or provincial jurisdiction.
“If you go to the bank and get a student line of credit and you pay interest on that, that’s not deductible. That’s not eligible for the tax credit, “said Golombek.
“So people sometimes get mixed up with that one.”
Personal versus business expenses
For Canadians who are self-employed, the lines between personal and business expenses can often become blurred – sometimes intentionally — also resulting in denied claims.
Golombek said people can get “very creative” in terms of the expenses that they’re trying to get deducted.
He cited examples of a Future Shop salesman who tried to claim more than $2,400 in employment expenses under the title of “boots and gloves,” and an insurance salesman who tried to write off a Magic Bullet blender, vacuum, women’s clothing and driveway sealing, among other things.
While there’s no golden rule, Golombek said self-employed Canadians who plan to file their taxes on their own need to visit the CRA website and use “common sense.”
“You have to use a reasonableness test: Is this an expense that was incurred with the purpose of earning income and is not otherwise a personal expense?”
“Everyone has to wear clothes to work, so unless you’re in the fashion business — in other words, you’re modeling fashion — you’re not going to write off your clothing,” he added, as an example.
Valorie Elgar, a tax expert at H&R Block, echoed Golombek’s advice about clothing.
She said many taxpayers who have dress codes at work believe this means they can claim their clothes as an expense.
Specifically, she said salespeople often think they can claim their clothes. But they’re not the only offenders, Elgar said police often think their haircuts and dry cleaning are tax deductible.
“Although this may not seem unreasonable, the courts have held that they cannot be claimed,” Elgar told Yahoo Finance Canada in an email.
Elgar said many employees who use their phones or computers for work think they claim the cost.
She said that for the most part, employees can’t claim the cost of capital items, or expenses that provide a lasting benefit.
However, she added that they might be able to claim the cost of airtime spent making work calls.
Lastly, Elgar said some parents make the mistake of claiming childcare expenses when one of them does not work or attend school. That is not eligible.
Deductions you may not know about
Apologies if your hopes of saving some money on your tax bill just went out the window, but there is some hope.
Both Golombek and Elgar said there are some possible deductions that taxpayers may not be aware of.
Moving expenses for students
Golombek said many university or college students may be able to claim their expenses incurred when moving back home from school to work at a summer job.
They may also be able to deduct their moving expenses against the income they earned while working part-time during the school year.
In-vitro fertilization comes with a hefty price tag of about $10,000 per cycle. So, many hopeful parents will be relieved to hear that the treatment is eligible to be claimed as a medical expense, according to Golombek.
Elgar also said many parents are unaware of the fact that trips to the dentist and orthodontist can be claimed.
Another deduction that could help parents deal with a difficult financial burden is private school. Golombek said the tuition, which can cost tens of thousands of dollars, can be claimed if an institution is qualified to help a taxpayer’s child with a disability.
Meanwhile, teachers can also take advantage of the fact that a new credit will allow them to claim for the cost of school supplies they paid for out of their own pocket. They’re now eligible if they spend up to $1,000 of their own money.
According to Elgar, there are two deductible housing expenses that Canadians may not be aware of.
First, there is a new credit that allows seniors to claim up to $10,000 in renovations made to their home in order to make it more accessible.
First-time homebuyers may also be eligible to claim $5,000, which slashes $750 from their tax bill.
Elgar said they might be entitled to the deduction even if they didn’t actually purchase the home. For example, if their parents transferred the title to them without consideration.
Ultimately, Golombek advised Canadians to spend five or 10 minutes reading the tax form to find out of what credits and deductions may be available to them.
“There about 40 lines there and it might trigger some thoughts of ‘Wait a minute I took public transit this year. Wait a minute I had moving expenses,’” he said.
“Then you can read more about it go on to the CRA website.”
Or, when in doubt, you can consult with a tax preparer.
Click here to see our previous article about how to know when you should do taxes yourself or get professional help.