“This is the time of year that people tend to find out about inadvertent overcontributions to their registered retirement savings plans (RRSPs). If you want to know where you stand, an income tax notice of assessment will show your:
- RRSP deduction limit for the year
- Unused RRSP contributions previously reported and available to deduct this year
- Available RRSP contribution room (#1 minus #2)
If your unused RRSP contributions carried forward from past years exceed your RRSP deduction limit for the current year, that means you have an RRSP overcontribution.”
Learn more: What to do if you overcontributed to your RRSP
5. Interest payments: When to claim a tax deduction for your investments
Can you claim a deduction for the interest paid on money you’ve borrowed for investment purposes? You can for a mortgage on a rental property you earn income from or a loan to purchase investments in non-registered accounts. Know, though, that there are restrictions:
“According to the Canada Revenue Agency (CRA), ‘most interest you pay on money you borrow for investment purposes [can be deducted] but generally only if you use it to try to earn investment income. … If the only earnings your investment can produce are capital gains, you cannot claim the interest you paid.’ … An example of when interest may not be tax deductible is when you buy land that does not produce rental income and can only produce capital gains. Buying a stock that has no history of paying dividends (or the class of shares does not allow dividends) is another potential example.”
More on claiming a deduction on interest payments: Are interest payments tax deductible?
6. Working from home? Know exactly what you can claim in a tax deduction
Working from home has both pros and cons. One of the pros is that employees can deduct a certain pro-rated percentage of expenses, such as electricity, water, home internet, etc. What’s different for the 2023 tax year is how you can claim them.
“The Canada Revenue Agency (CRA) introduced a temporary flat-rate home-office expense deduction for the 2020, 2021 and 2022 tax years. [For 2022], a taxpayer could claim $2 per day worked from home, up to a maximum of $500, as a deduction. This simplified method is no longer available for 2023. The detailed method for claiming home-office expenses now applies for all eligible employees, so you can still claim a deduction if you qualify.”
For more information on claiming home-office expenses: Work-from-home tax credit: What Canadians can claim for 2023
7. Self-employed? How much are you setting aside for taxes?
If you’re self-employed, taxes are not deducted from your income since you don’t have a paycheque—it’s your responsibility to allocate funds to cover your tax bill.
“Unlike salaried workers, gig workers don’t have taxes withheld from a paycheque. That may seem like a good thing—more money in your pocket!—but in fact it’s another thing to be wary of, because you might not have enough funds available at tax time. Make sure you’re setting aside some of your income for tax, preferably at the time you earn it.
Typically, setting aside 15% to 25% of the income you earn from driving or other gig work will be enough. Don’t touch it until tax time. The more you save, the safer you’ll be, but it’s not necessary to go above 25%.”
Learn about filing taxes when you work for yourself: How are Uber drivers and other gig workers taxed in Canada? More info: Self-employed? Here’s how to file taxes for a side hustle
8. The tax deductions available for small business owners
There are several business expenses that may be eligible for tax deductions, if you’re a business owner. It helps to have a solid tracking system for your operating costs.
