Items you can deduct

Wondering whether that new air conditioning unit you installed is an eligible medical expense for tax purposes? You aren’t alone. The Canada Revenue Agency maintains a list of “common adjustments” resulting from its various tax return review programs.

While you might think there’s no harm in trying to claim a questionable expense, the reality is that not only could the CRA disallow your deduction but it could also hit you with non-deductible arrears interest and, in some cases, a penalty.

Here are three items from the list to pay particular attention to: Line 232 (Other Deductions) and Line 256 (Additional Deductions), interest paid on student loans and eligible medical expenses.

Other/Additional deductions

Each of these have very specific purposes.

The CRA specifically cited the following examples of expenses that are non-deductible but tend to be claimed erroneously on these lines: legal fees you paid to get a separation or divorce or to establish custody for a child, funeral expenses, wedding expenses, bad loans to family members and a loss on the sale of your home.

Before filing your 2013 return, you may wish to peruse the “What You Can Deduct” section of the CRA’s website.

Interest paid on student loans

Student-loan interest is eligible for a tax credit but only for interest paid on a student loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a similar provincial or territorial government law. You can’t claim interest paid on any other kind of loan, including money borrowed under a special student line of credit offered by banks.

Medical expenses

Be sure to check out the list of eligible medical expenses before making your claim. A recent tax case looked at whether the fees paid for processing and storage of cord blood was eligible. Cord blood banking involves collecting stem-cell-containing blood from a baby’s umbilical cord and the placenta for potential future use in stem cell therapy or for leukemia.

Eligible medical expenses must be either directed or recommended by a physician. The taxpayer argued that since her “obstetrician extracted the cord blood, it must be inferred that the physician prescribed the processing and storage of the cord blood.” The judge found that “prescribed” can’t simply be a couple’s choice.

And as for that new air conditioning unit? Yes, if you have a severe chronic ailment, disease or disorder; it’s prescribed by a doctor; and you’re limited to the lesser of $1,000 and 50% of the amount paid.