Canadian Taxation System

This is a transcript of a lecture about the Canadian Tax system. This text is not an official tax guide or recommendation. Any content is informational only.

Today we will discuss the Canadian taxation system, using Ontario as an example, and I will explain the most important points and subtleties that taxpayers encounter.

I began helping people with taxes many years ago. Back then, when I placed a small advertisement for my services in the newspaper “Informato,” no one could have guessed that those first clients would become a large, loyal group who trust me with their tax returns year after year. I had to explain a lot to new immigrants: “What can you deduct from your taxes? Where do you go? How do you fill out a return?” To avoid repeating myself each time, I created a special handout with detailed instructions and distributed it to everyone who asked. Nearly thirty years have passed since then, and I still have relationships with those very first clients.

The Canadian tax system is based on the principle of “self-assessment”—the taxpayer calculates and declares their own tax owing. The government reserves the right to verify any return at any time. In fact, about 15 % of the population still completes their returns on their own, especially those living in rural areas far from major cities. For this, there is the online NETFILE service where you can submit your return yourself. However, from experience, I know that self-filing often leads to mistakes: people misreport income, overlook deductible expenses, or simply don’t understand which documents to attach.

When I started, my first clients were newcomers who needed to save money: I charged only $15 per return. Some even asked for $12 because they needed to take the subway to see me, which cost $1.50 each way. Today, many of those clients still come to me—but they no longer ask for discounts; over the years, we have built a trusting relationship.

The goal of my lecture is to explain which expenses and credits you can claim on your return to reduce your taxable income, and to highlight what the tax authorities pay attention to. I will also share real examples from practice so that you understand how important it is to know your rights and the boundaries of what is allowed.

1. Income and the Duty to Report It

Under Canadian law, every taxpayer must report all income earned both in Canada and abroad. Even if you have a source of income in another country—say, you rent out an apartment in Papua New Guinea or receive royalties from Russia—you must include those amounts in your Canadian return, provided they’re not “under-the-table” cash. I recommend showing all officially received funds, especially those that passed through a bank: if you omit them, it will be seen as bad faith. Expenses, on the other hand, offer a bit more flexibility: if you accidentally forget to list a few dollars’ worth of costs, that can be excused as an error—but hiding income is much harder.

Many of my clients run businesses in both the U.S. and Canada. In that case, the Income Tax Convention between the two countries applies to prevent double taxation. If you paid tax in America (Form W-2 or 1099), then on your Canadian return you report the amount of foreign tax paid, and Canada will credit that amount so that you don’t pay twice. Keep in mind, though, that information-sharing mechanisms exist but only work upon request. The Americans will provide data to the Canada Revenue Agency (CRA) only if CRA submits a formal request—and usually only for substantial amounts. So hiding income “under the rug” is pointless: you risk penalties, interest, and possibly criminal charges—although for criminal prosecution, it generally takes a serious violation.

Pension payments from abroad—say, from Israel—are another special category. If you receive a monthly pension directly into your Canadian bank account, banks must inform CRA of any transfers over $10 000. Every year, dozens of people “get caught” this way: they think $10 000 in cash is a lot, but electronic transfers are also monitored. If you deposit $10 000 in cash, the bank will ask for documentation proving the source of the funds. Those records may be forwarded to the police, although usually it’s a formality; large transactions are tracked to prevent money laundering and other illegal schemes.

2. Main Categories of Expenses and Tax Deductions

2.1 RRSP (Registered Retirement Savings Plan)

The RRSP is one of the best-known tools for reducing taxable income. Every dollar you deposit into an RRSP is recorded, and you can deduct it from your income for the current year. For example, if your income is $50 000 and you contributed $5 000 to an RRSP, you pay tax only on $45 000. If you are employed, the reduction in tax happens automatically through a refund of some withheld tax. If you are self-employed, you reduce your base yourself. Later, when you withdraw money from your RRSP, you pay tax on those amounts—but typically at lower rates, because you’ll often withdraw when your income is lower (e.g., in retirement).

My advice today is that I no longer recommend putting too much money into an RRSP. If you want to invest, it’s better to buy tangible assets—real estate, gold, stocks—things you can “touch,” rather than rely on RRSP growth, which often ends up modest.

2.2 Professional Dues and Membership Fees

If you belong to a professional association or union (Engineers Canada, College of Nurses, CPA, Law Society, REALTORS, etc.), and your employer does not pay these dues for you, you can deduct them as expenses. CRA recognizes that these fees are necessary to maintain your professional qualifications. It’s important to keep the receipt detailing which organization and the period for which you paid the membership fee.

2.3 Tuition Tax Credit

2.3.1 Your Own Education

If you pay for your own continuing education—university or college courses—you may receive a tuition tax credit. To claim it, you need to have an official T2202A (or TL11A, if studying abroad) from the educational institution confirming your student status.

2.3.2 Your Children’s Education

When your son or daughter attends university or college, the Tuition Tax Credit goes to the student who is enrolled. The university issues Form T2202A directly to the student. If the student has little or no income (for instance, not working), they can transfer up to $5 000 of unused tuition credits to a parent (usually the higher-income spouse). For example, if you paid $15 000 for your child’s yearly tuition, up to $5 000 can be transferred to the parent; the remaining $10 000 is carried forward to subsequent years until the student begins earning income and can use them on their own return.

2.4 Medical Expenses

All out-of-pocket medical expenses (beyond what insurance covers) can be claimed on your tax return. This includes doctor and dentist visits (implants, orthodontics included), prescription eyeglasses and contact lenses, physiotherapy, massage (if prescribed by a doctor), prescription medications, in-home care, special dietary products, installing a wheelchair ramp at home, and so on. The total amount exceeding 3 % of your net income or the minimum threshold (in 2023, about $2 630) qualifies for a tax credit. It’s crucial to keep all receipts and doctor’s notes, because CRA can challenge any expenditures that lack proper justification.

Example from Practice

One client spent approximately $80 000 on complete plastic surgery. She quietly expected to deduct the entire amount, but I explained that breast augmentation is considered a cosmetic procedure and not deductible—whereas breast reduction can qualify. The list of exclusions is extensive: cosmetic treatments, haircuts, fitness memberships—anything not prescribed by a doctor for medical treatment. However, this client obtained a psychiatric report stating that changing her appearance was the only way to overcome severe psychological issues. CRA demanded full documentation, and ultimately they allowed the full $80 000 because she had a prescription from a licensed physician. So be careful: any nonstandard procedures require clear medical justification.

2.5 Childcare and Children’s Activity Credits

Until 2017, federal tax credits existed for children’s sports and arts activities, but provinces have gradually phased them out. In Ontario today, the specific “Child Fitness Tax Credit” and “Arts Tax Credit” no longer exist. However, the province still recognizes expenses for sports or developmental camps for children as eligible childcare expenses. If a child under age 7 attends daycare or a day camp, you may claim up to $8 000 per year per child. For children aged 7–16, the limit is $5 000. If the child is disabled, the limit rises to $11 000. These amounts reduce your net income, so you pay tax on a smaller base.

2.6 Moving Expenses

If you moved at least 40 km closer to a new workplace or school, you can deduct moving expenses. Eligible items include:

• Actual kilometers driven on public roads (not “as the crow flies”) to get to the new job.

• Transportation of furniture (hiring movers, renting a truck).

• Costs of selling the old home (realtor commission).

• Costs of buying a new home (commission, legal fees, land transfer tax).

• Temporary storage fees (up to 30 days).

• Temporary accommodations (hotel) up to 15 days.

• House-hunting trip expenses (flights, hotels, transportation costs).

If your moving expenses totaled, say, $50 000, that’s a large claim, though most immigrants spend far less. The key is to meet the 40 km requirement and document new addresses and dates precisely.

2.7 Public Transit Tax Credit

The federal public transit tax credit was eliminated in 2017, but Ontario maintained a similar deduction for seniors over 65. If you purchase a monthly pass or pay for public transit (subway, bus, commuter train), you reduce your taxable income.

2.8 Spousal and Child Support

• Spousal Support: If you pay spousal support to a former spouse under a court order or written agreement, you deduct that amount from your income, and the recipient must include it as income on their return.

• Child Support: Child support payments are neither deductible by the payer nor taxable by the recipient. They do not affect your taxable base.

If you pay support to someone other than a former spouse—say, to your parents—there is a way to claim those payments via a special form. But typically, it’s limited to former spouses and children.

2.9 Home and Rental Property

2.9.1 Home Office Expenses

If you run a small business or are self-employed and use part of your home exclusively as an office, you can deduct a portion of:

• Utilities (electricity, heat, water).

• Rent or mortgage interest (if you own the home).

• Home insurance.

• Security.

• Repairs and maintenance.

• Internet and telephone.

The deductible percentage depends on square footage: if your office occupies 10 % of the total area, you can deduct 10 % of those expenses. CRA generally accepts up to 10 % without extensive questioning; up to 15 % is still fairly routine. Anything above 15 % triggers more scrutiny: they will ask for a floor plan and justification for the dedicated workspace.

2.9.2 Rental Business

If you rent out a property, you must report all rental income. From that, you can deduct expenses specific to that property:

• Property taxes.

• Mortgage interest (interest on the loan, not the principal).

• Insurance (property insurance).

• Repairs and maintenance.

• Utilities (when you pay utilities on behalf of tenants).

• Management and administration fees (if you hire a property manager or agency).

• Legal and accounting fees related to the rental.

• Advertising (listing the property for rent).

• Depreciation (Capital Cost Allowance): Buildings are depreciated at 4 % per year (Class 1), furniture and appliances at 20 % per year (Class 8), computer equipment at 55 % per year (Class 50).

When calculating depreciation, the law requires that any asset costing more than $200 be depreciated over its useful life rather than being expensed immediately. For example, if you buy a printer for $500, by law it must be placed in Class 8 (20 % per year). In practice, some auditors allow small items to be written off outright. However, if a strict auditor (sometimes colloquially referred to as a “Pakistani auditor” in local slang, because auditors from that community are perceived as especially thorough) handles your case, they will insist on formal depreciation schedules and may disallow any incorrect write-off.

2.9.3 Motor Vehicle Expenses

If you use a vehicle for business, you can deduct the business-use portion of:

• Lease payments or financing interest (both treated similarly for tax purposes).

• Depreciation (CCA, Class 10 is usually 30 % per year).

• Insurance.

• Maintenance and repairs.

• Fuel.

• Registration, licenses, and permits.

• Parking and tolls.

You must track total kilometers driven and kilometers driven for business. If you drive 20 000 km in a year and 10 000 km are for business, you can deduct 50 % of all vehicle expenses.

2.10 Other Business Expenses

If you operate a business (sole proprietorship, partnership, or corporation), you can deduct almost any expense related to doing business:

• Advertising and promotion: Online ads, print ads, signage.

• Bad debts: Unpaid amounts owed by customers (when you delivered goods or services and never got paid).

• Delivery, freight, courier: Shipping costs.

• Insurance: Business-related insurance (general liability, professional liability).

• Licenses, dues, memberships: Permits, professional association fees.

• Office expenses: Stationery, paper, printer cartridges.

• Rent: Office, warehouse, or equipment rental.

• Salaries, wages, commissions: Payments to employees and sales commissions.

• Travel: Business travel—airfare, hotels, meals (for client meetings or conferences). You must document who you met with and for what purpose; if you fly to Las Vegas for a trade show but have no proof of a business purpose, CRA may disallow those expenses.

• Telephone and utilities: Phone, internet, and utility bills for a rented commercial space (not home office).

• Professional fees: Fees paid to lawyers, accountants, consultants.

• Property taxes: If you own an office property.

• Interest and bank charges: Loan interest, overdraft fees, bank service charges.

• Management and administration fees: Fees for a management company.

• Meals and entertainment: Only 50 % of costs for food and entertainment at business meetings.

• Computer and office equipment: Purchase of computers, printers, office furniture, supplies.

• Utilities for business premises: Electricity, water, heating for a commercial location.

• Repairs and maintenance: Repair costs for business property.

If you spend money on cryptocurrencies, NFTs, or other assets as part of a bona fide business (for example, you mine Bitcoin at a commercial scale), those expenses count too—provided you can prove they were business-related.

3. Provincial Tax Specifics in Ontario

In addition to federal tax, Ontario residents pay provincial tax, which is levied on a progressive scale. In 2023, the Ontario rates are roughly:

• Up to $49 231 — 5.05 %

• $49 232 to $98 463 — 9.15 %

• $98 464 to $150 000 — 11.16 %

• $150 001 to $220 000 — 12.16 %

• Over $220 000 — 13.16 %

Combine these with the federal rates (15 % up to $53 359; 20.5 % up to $106 717; 26 % up to $165 430; 29 % up to $235 675; 33 % above), and your effective rate climbs quickly. For example, a $80 000 income yields about 27 % total tax (federal plus provincial) before credits. At $120 000, the combined rate is around 40 %.

The deductions we discussed earlier—RRSP, tuition, medical, childcare, pension contributions, etc.—help lower your taxable income and thus reduce the total tax owing.

4. Audits and Tax Reviews

From experience, the strictest auditors often come from cultural backgrounds where career advancement is viewed as a top priority (for instance, auditors of Pakistani heritage). They are known for “scraping you to the bone”: demanding a floor plan for a home office, original receipts for every expense, and precise depreciation schedules. Other auditors (for example, Indian auditors from higher castes or white Canadian auditors) may be more flexible: they sometimes overlook minor discrepancies. If you receive a formal audit notice, I often advise complying with their initial documentation requests and then filing an appeal if the outcome is unfair. Appeals go to the Tax Court, where an impartial judge reviews the case—your chances of winning are significantly higher than disputing matters directly with the auditor.

5. Examples of Unusual Situations

1. Georgians without documentation. A Georgian couple once came to me asking for a way to repay money. They had been working “cash-in-hand” and never filed returns, but suddenly a court judgment demanded payment. We found the best way to legalize part of their income, paid the minimum tax, and avoided huge fines.

2. Central Asian builder. A man had worked in Canada for over 30 years “off-the-books,” built several houses, and owned apartments for his children, but he spoke English only minimally. One day, his nephew asked for his SIN to help him register for official employment, and the uncle gave it. Later, the nephew filed a return showing $0 income under the uncle’s SIN. When I calculated, it turned out the uncle owed a large sum—even though he’d worked all year “for cash.” I explained, “The day you claim zero income, the government expects you to pay tax on what you didn’t claim!” He was shocked: “How can that be? I worked my whole life!” In such cases, I recommend reporting cash income honestly and then maximizing legitimate deductions to reduce taxes, rather than hiding money.

3. Italian hairstylist. An Italian hairstylist who had worked in Canada for twenty years built several houses and bought apartments for his children, yet he spoke English only at a “yes-no” level. He gathered all his expense receipts, and when we fi led his return, it turned out he had overpaid taxes by tens of thousands of dollars. We applied for a refund, and CRA returned a significant overpayment. This shows that even if your language skills are limited, you can still get your numbers right and recover your money.

6. Tips for Preparing Your Return

1. Keep all receipts and invoices. No matter how small an expense seems, keep the receipt. In an audit, even minor details can matter.

2. Track vehicle expenses. If you use your car for business or deliveries, record total kilometers and business kilometers, and keep fuel and repair receipts.

3. Contribute to your RRSP on time. If you have surplus funds, deposit them by the RRSP deadline (usually 60 days after year-end) to reduce your taxable income.

4. Document your home office correctly. Prepare a floor plan showing square footage to support your deduction if audited.

5. Use all available credits. If your child has unused education credits, have them transfer up to $5 000 to the higher-income parent. Check annual limits for childcare and medical credits, as thresholds and amounts can change each year.

6. Be careful with “grey” income. This includes rental income from abroad, cryptocurrency gains, or miscellaneous fees. Even if there’s no direct information exchange with Canada, it’s better to declare the income, pay a small tax, and avoid the risk of penalties.

7. Gather documents in advance. The more organized you are before starting your return, the less time you spend and the fewer errors you make.

7. Conclusion

The tax system in Canada—especially in Ontario—is complex but predictable. By knowing key categories of expenses and credits, you can legally reduce your taxes. The main thing is to keep all documentation, file your return on time, and consult a professional if you have any doubts. The tax authorities aren’t “monsters”; you can work with them. Act honestly and transparently, and they will be reasonable.

If you have questions about specific situations, feel free to contact me directly: I am always ready to help analyze particular cases or provide additional advice.

Thank you for your attention!