Canadian taxes are calculated based on income at both the federal and provincial levels. But what you owe based on your tax bracket may not be what you have to pay in the end. If you meet certain personal or financial requirements, you may be eligible for various tax credits, which act like a discount on your total income tax bill.
» MORE: What are Canada’s tax brackets?
What are tax credits and how do they work?
Tax credits are incentives offered by federal, provincial, and territorial governments of Canada that directly reduce the amount of tax that you owe. Tax credits are different from tax deductions, which reduce the amount of your income that can be taxed in the first place.
There is no limit to the number of tax credits that you can use, assuming you qualify for them. Tax credits can increase your chance of receiving a tax refund from the government, but don’t guarantee it.
» MORE: What are Canada’s tax brackets?
Types of tax credits
There are two types of tax credits available to on a federal and provincial level: refundable and non-refundable.
Refundable tax credits will be given to you no matter how much income tax you owe. So, even if you owe no income tax at all, you can still receive a credit for that amount.
Non-refundable tax credits, on the other hand, can only help cancel out your payable taxes. If you don’t owe any taxes, or your total non-refundable tax credits exceed what you owe, you will not be credited any leftover amounts.
How to find tax credits in Canada
One way to find potential federal tax credits is to visit the Government of Canada website and search for topics that apply to you.
You can also browse the provincial and territorial tax credit directory to uncover more potential credits. While it’s handy to know what you might be eligible for and what to expect, keep in mind that this research may not be necessary unless you’re preparing your own tax return by hand.
If you hire a tax professional to prepare your return, they should locate and claim all of the credits that apply to you. Likewise, if you use an online tax software program, you should be alerted to any tax credits that might fit your situation.
How to actually claim these tax credits depends on the tax credit itself. Some tax credits are automatically paid out to eligible individuals, while other tax credits need to be applied for so eligibility can be verified. Again, you can do your own research using the resource links above or speak to a professional about your options.
» MORE: What is a tax return?
Common Canadian tax credits
These are a few of the most popular tax credits to take note of, although eligibility will vary depending on your circumstances.
Basic Personal Amount
This non-refundable tax credit allows all taxpayers to claim a basic personal amount, which changes every year based on inflation. A percentage of this amount can then be claimed as a credit to reduce taxes payable. For example, the maximum federal 2021 basic personal amount is $13,808. The Canadian government allows eligible taxpayers to claim 15% of that amount — or $2071.20 — as a tax credit. There are also provincial basic personal amount credits that can be claimed to reduce provincial taxes.
Home Buyer’s Amount
First-time home buyers can claim the Home Buyer’s Amount, a non-refundable tax credit which can reduce the federal taxes you owe by up to $750. Note that there are several rules surrounding eligibility for this credit.
GST/HST Tax Credit
Eligible Canadians who file a tax return will automatically receive the goods and services tax/harmonized sales tax credit, more commonly referred to as the GST/HST tax credit. This tax credit is given to Canadians with low to moderate incomes and is to help offset the taxes they pay on products and services throughout the year. It is paid out four times per year.
Child care credits
There are also a number of tax credits at both the federal and provincial level for parents of young children. Federal tax credits that may help parents include the Canada caregiver amount, disability tax credit and working income tax benefit. Your province or territory may have child care tax credits as well.
Other categories in which you may be able to find tax credits that can help reduce your income tax payable include:
- Pension income.
- Charitable donations.
- Medical expenses.
- Work from home expenses.
- Education expenses.
- Union dues.
- Moving expenses.
Again, if you’re unsure of what you can claim to help reduce the income tax you owe, use online tools from the government of Canada to help research potential tax credits and deductions.
Alternatively, it might be worth your while to arrange a meeting with a trusted accountant or tax preparation professional who can help you determine what credits you may qualify for.