Canada

Employment expenses

In computing income from employment, an individual can claim only limited, specified deductions. Taxes and interest (except interest related to the earning of business and property income), most life insurance premiums, and casualty losses are not deductible. Allowable deductions in computing employment income include travelling and certain other expenses of officers or employees required as a condition of employment.

Registered plans

A deduction is available with respect to an employee's contributions to a Registered Pension Plan (RPP), a Pooled Registered Pension Plan (PRPP), or to a Registered Retirement Savings Plan (RRSP), within certain limits. Income earned in these plans is taxed only on withdrawal. In certain cases, individuals can deduct their contributions to an employer-sponsored foreign pension plan if they participated in the plan before moving to Canada.

Self-employed individuals can also make deductible contributions to RRSPs.

For both employed and self-employed individuals, the deductible contribution to an RRSP is generally 18% of the total employment, self-employment, and rental income that was subject to Canadian tax in the preceding year, to a maximum annual contribution amount (CAD 31,560 in 2024). The allowable contribution is further limited when an individual is a member of an RPP, PRPP, or a foreign pension plan while working in Canada.

Pooled Registered Pension Plans (PRPPs)

The federal PRPP is a voluntary savings plan aimed at individuals who do not have access to employer-sponsored pension plans. The tax rules for PRPPs complement the existing RPP and RRSP framework, and operate in a manner similar to multi-employer defined contribution RPPs. The provinces and territories must introduce their own enabling legislation to implement provincial and territorial PRPPs.

First Home Savings Account 

Starting 1 April 2023, a new registered account, the First Home Savings Account (FHSA), is available to Canadian residents aged 18 and over who have not lived in a home that they owned during the year the FHSA is opened (or the preceding four calendar years). They can contribute up to CAD 8,000 each year (lifetime limit of CAD 40,000) to an FHSA. Contributions are deductible, and income earned in an FHSA is not subject to tax. Contributions made in the year can be deducted in a future year. Unused annual contribution room, up to a maximum of CAD 8,000, can be carried forward to the following year. Individuals can also transfer funds from an RRSP to an FHSA on a tax-free basis, subject to the contribution limits. Withdrawals from an FHSA to make a qualifying first home purchase are non-taxable. The FHSA must be closed within one year of the first non-taxable withdrawal to purchase a home or if the FHSA funds have not been used to purchase a home within 15 years of opening the FHSA.

Personal deductions

Deductible non-business expenses include alimony and maintenance payments (if taxable to the recipient), certain child-care expenses, and eligible moving expenses for relocation within Canada (usually in connection with a change of employment).

Alimony and child support payments

Periodic alimony payments made by a taxpayer under a divorce decree (or under the terms of a written divorce or separation agreement) to a former or separated spouse (or for the spouse's benefit) are generally deductible, subject to restrictions as to the precise nature of these payments. Also, certain supporting documentation usually must be filed with the first Canadian tax return in which the taxpayer claims a deduction for alimony payments. The payments constitute taxable income to the recipient spouse or former spouse if the individual is a resident of Canada.

Generally, child support payments made under the terms of an agreement cannot be deducted by the payer and need not be included in the income of the recipient spouse.

Neither alimony nor child support is subject to WHT if paid to a non-resident.

Child-care expenses

Canada allows working parents to deduct child-care expenses if certain conditions are met. To qualify, the expenses must be incurred by the taxpayer (or a person supporting the child) to earn employment or business income, or to pursue training or research activities. The deduction can be claimed for a variety of child-care services, such as babysitting, day nursery, and attendance at a boarding school or camp. To qualify, the services must be provided in Canada and satisfy rules that govern who provides them. If more than one person is supporting a child, the deduction generally must be taken by the supporting person with the lowest 'earned income' (generally employment and/or self-employment income). The maximum annual deduction is generally CAD 8,000 per child under seven years old and CAD 5,000 per child from seven to 16 years old.

Interest expense

Interest on money borrowed to acquire investment property or to invest in a business is usually deductible. Interest on loans used for personal purposes, including mortgage interest on a loan to purchase a home for personal use, is not deductible.

Personal allowances

Unlike countries that permit personal exemptions and allowances in determining taxable income, Canada has adopted a system of tax credits. See the Other tax credits and incentives section for more information.

Business deductions

Business deductions for self-employed individuals generally include all reasonable expenses that have been incurred to earn business income. Business expenses include costs of goods sold, advertising, bad debts, insurance, office expenses, and capital cost allowance. A self-employed individual can also deduct expenses for the business use of a work-space in the individual's home, if the home is the individual's principal place of business, or the individual uses the work-space only to earn business income and it is used on a regular and ongoing basis to meet business clients, customers, or patients. Home expenses that may be deducted include utilities, home insurance, property taxes, mortgage interest, and capital cost allowance.

Immediate expensing of capital property for individuals and partnerships

Unincorporated businesses carried on directly by certain individuals and partnerships can, in the year that the eligible property becomes available for use, immediately expense up to CAD 1.5 million per taxation year of eligible property acquired after 31 December 2021 that becomes available for use generally before 2025. Eligible property consists of capital property subject to the capital cost allowance (CCA) rules, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 29, and 51 (see Depreciation and amortisation in the Deductions section of the Corporate tax summary for more information on CCA).

Capital losses

Capital losses are deductible, but generally only against capital gains. Any excess of allowable capital losses over taxable capital gains in the current year can be carried back three years and forward indefinitely, to be applied against net taxable capital gains from those years. No particular holding period is required. Intent is a major factor in determining whether the gain or loss is income or capital in nature. Draft legislative proposals clarify that the inclusion rate for net capital losses carried forward and applied against capital gains is adjusted to reflect the inclusion rate of the capital gains being offset.