Most taxpayers don’t sit down to prepare their tax return for the 2025 tax year – or meet with a tax preparer to get that return done – before early in the month of March, after T4 slips have been received from their employer and the CRA’s online filing services are up and running for 2025 returns. Unfortunately, by that time, the most significant opportunities to reduce or minimize the tax bill for 2025 are no longer available. Almost all such tax planning or saving strategies, in order to be effective for 2025, must have been implemented by the end of that calendar year and the deadline for the last such major tax saving opportunity – making an RRSP contribution – was March 2, 2026.
The fact that the clock has run out on most major tax planning opportunities for 2025 doesn’t, however, mean that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2025 – by claiming all available deductions and credits on the return, and also by making sure that those deductions and credits are structured and claimed in the way which will give the taxpayer the greatest tax benefit.
In some cases, a claim for a tax deduction or credit can only be made on the return for the year in which the expense is incurred, while in other cases claims can be made for expenses incurred in the previous tax year, or even as far back as five years previously. In other cases, the availability and the amount of a tax deduction or credit which can be claimed depend, in whole or in part, on the income (and tax payable) of the taxpayer making the claim.
Getting the best tax result on one’s return requires an assessment of which deductions and credits are available to claim in the current year, whether claims to be made by each spouse can be combined on a single return, whether some or all credit and deduction claims can be carried forward and claimed in a future year (or claimed in the current year by another family member), and whether it even makes sense to make the claim. To most taxpayers, it would seem that the logical approach, and the one guaranteed to create the best tax result, would be to claim every available deduction and credit as soon as it is available and to the maximum extent possible. It may seem counterintuitive, or even illogical, to not do so, but in some cases (albeit for different reasons) there are situations in which it makes sense to defer an available claim to a future year, or to transfer the claim to another family member.
Those considerations apply to two of the most common tax credit claims made by Canadian taxpayers – the charitable donation tax credit and the medical expense tax credit, and the decision on how to structure such claims doesn’t need to be made until the tax return for the year is prepared.
Charitable donation tax credit
Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (that is, 2025) year or any of the previous five years. The reason it can sometimes make sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured in order to encourage higher donations.
For most taxpayers that credit, at both the federal and provincial/territorial levels, is a two-tier credit. Federally, the first $200 in donations receives a credit of 14.5% of the total donation, or $29. However, donations above the $200 level receive a credit equal to 29% of the donation amount over $200. (There is a third-level donation credit percentage of 33%, but that is available only to the minority of taxpayers whose taxable income for 2025 is over $253,414.)
Take, for example, a taxpayer who makes a regular contribution to a favourite charity of $100 each month, or $1,200 per year. Where they claim that donation on the annual return for 2025, that claim will result in a federal tax credit of $319 ($200 times 14.5%, plus $1,000 times 29%). Where, however, the same taxpayer defers the claim to the following year and claims a total of $2,400 in donations on a single return, they will receive a federal credit of $667 ($200 times 14.5%, plus $2,200 times 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,711 ($200 times 14.5%, plus $5,800 times 29%). Under each scenario, the total charitable donation made is the same, but the amount of credit received increases with each year that the claim is deferred. Since each of the provinces and territories provide a two-tier credit (at different rates, depending on the jurisdiction), the same result will be seen when calculating the provincial/territorial credit.
As well, charitable donations made by either spouse can be combined and claimed on the return for one of those spouses, thereby increasing the amount of charitable donations available to claim and possibly the amount of credit which can be received.
It’s important, as well, to remember that the charitable donation tax credit is a non-refundable credit, meaning that it can reduce tax payable but cannot create, or increase, a refund. Consequently, in deciding which spouse will make the claim for the credit for charitable donations made by both spouses, it’s necessary to make sure that that spouse has tax payable for the year of at least the amount of the available charitable donation tax credit. Any credit amount in excess of tax payable for the year cannot be claimed and is simply lost.
Medical expenses
Notwithstanding our publicly funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs.
For 2025, the federal credit for such expenses is 14.5% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, albeit at different rates.
Many taxpayers, with some justification, find the rules on the calculation of a medical expense tax credit claim confusing. First, there is an income threshold imposed. Medical expenses eligible for the credit are qualifying expenses which exceed 3% of net income, or (for 2025) $2,834, whichever is less. Put more practically, for 2025, taxpayers who have net income of $94,467 or more can claim medical expenses incurred over $2,834. Those with lower incomes can claim medical expenses which exceed 3% of that lower net income. For instance, a taxpayer having $35,000 in net income could claim qualifying medical expenses incurred over $1,050 (3% of $35,000).
The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most tax credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, such rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and therefore the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed, and, of course, any expenses which were claimed on a previous return cannot be claimed again.
While only expenses which exceed the $2,834/3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for each child who was under the age of 18 at the end of 2025. While medical expenses incurred by a single family member might not be enough to allow them to make a claim, aggregating those expenses can mean (especially for a family that does not have private medical insurance coverage) that total expenses will exceed the applicable threshold.
In determining who will make the medical expense tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income/$2,834 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower net income makes the claim for total family medical expenses. However, like the charitable donation tax credit, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit.
Finally, the number and variety of medical expenses which an individual or family might have to pay for out of pocket are almost limitless, and the rules governing which can be claimed and in what circumstances are very specific and, often, not necessarily intuitive. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. The very long list of medical expenses eligible for the credit, and any ancillary requirements, such as obtaining a prescription from a medical professional, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.
If you would like help with dealing with the CRA or would like to know more about taxable benefits, please feel free to call us at (905) 305-9722 or email us at info@eigenmachtcrackower.com and we will help you out!
