Updated March 2024
Personal tax credits are programs and incentives that help Canadians save money and reduce taxes. They are intended to keep money in the hands of those who need it and to encourage specific behaviour.
To understand your personal tax credits, first, you need to understand how the Canada Revenue Agency (CRA) taxes you.
Tax Deductions for Working Canadians
Every time you get paid, your employer holds a portion back. So Canadian employers must hold your income tax, CPP and EI contributions and pay them to CRA. On your T4, box 22 shows the amount of taxes deducted for the year. You might not get a tax refund if you haven’t paid any taxes.
Taxes Owing
On April 30, every year, the CRA collects the remaining taxes owing after all the deductions are made throughout the year. If you owe more tax, you have a balance owing. If you paid too much, you get a refund. As such, non-refundable tax credits help reduce your taxes owing on April 30 but won’t increase a refund. Refundable tax credits can help you get a bigger refund. Read on to learn the details.
Non-Refundable Tax Credits
Non-refundable tax credits reduce the amount of tax owing for you. But they don’t create a tax refund on their own. Instead, these tax credits can reduce your taxes payable to zero but cannot create a refund.
Example of Non-Refundable Tax Credits
Let’s say that your taxes owing before your non-refundable tax credits are $15,000. Your non-refundable tax credits add up to $15,500. Theoretically, this would create a refund of $500. However, since they are non-refundable, it lowers your taxes payable to $0. As a result, the $500 difference is lost because it can’t be applied to a refund. But some can be carried forward to use in future years.
Some examples of non-refundable tax credits include:
- The basic personal amount
- The age amount
- Spousal or common-law partner amounts
- Disability amount
- Canada caregiver credit
- Caregiver amount (for in-home care)
- Dependent amounts
- Medical expenses
- Charitable donations
- Education and textbook amounts
How non-refundable tax credits can be used varies depending on each individual’s situation. For instance, a dual-income family below the age of 65 will not be eligible for the spousal or age amount.
With certain tax credits, such as medical, only a portion of the credit is received after a certain minimum level of spending. For 2023 medical expenses, this amount is $2,635 or three percent of your income, whichever is higher. This means that medical expenses below these minimum levels create no tax credit. Beyond this amount, a 15% non-refundable tax credit is awarded up to a maximum amount. Maximum amounts will vary depending on your province of residence.
For the Disability Tax Credit, your family doctor will have to submit paperwork to CRA for you to be eligible.
It’s important to note that if you have remaining non-refundable tax credits after they reduce your taxes owing below zero, they may be transferable to future years. Get in touch with KATA to learn more.
Refundable Tax Credits
These are the best personal tax credits. Refundable tax credits reduce the amount you owe and create potential additional refunds. Even if this drops your taxes owing below zero, the negative amount will be refunded to you.
Example of Refundable Tax Credits
Your taxes payable are zero, but once you apply your refundable tax credits, the balance becomes negative $500. In this case, since they are refundable tax credits, you will get this refunded to you.
Some examples of refundable tax credits include:
- Canada Workers Benefit
- GST/HST Tax Credit
- Medical Expenses Supplement
Many refundable tax credits are for low-income individuals and seniors who truly need it.
Other Tax Credits
Political contributions
Your political contributions may create refundable or non-refundable tax credits depending on your province of residence. In Ontario, political contributions create refundable tax credits. In all other provinces and territories, they create non-refundable tax credits. If you are using a tax service, you must provide receipts from registered political parties to qualify.
Comprehensive List of Tax Credits
The official Government of Canada site’s comprehensive list of tax credits will tell you any and every tax credit available. However, note that the province you reside in will impact your tax credits.
Other Programs
The Government of Canada has tax programs to help you. As a result, it’s important to submit your taxes, even if you don’t expect a refund or didn’t work during the year. As such, the government uses the information from your tax return to qualify you for additional benefits. The Canada Child Benefit pays you a monthly amount to support your children. Benefits like the Ontario Trillium Benefit pay you a small monthly amount for rent or property tax paid in the previous year.
Changes to Tax Credits
Governments change—the public changes what it wants. Tax credits change with the times. That’s why keeping up to date with your tax filing is important. Working with professionals who keep up to date on changes to tax credits can save you money. You may miss opportunities to save money and get more benefits if you don’t learn about these changes.
There are recent changes for the 2023 tax year. The COVID-19 credits such as Ontario Staycation Tax Credit applied to tax year 2022 are no longer available for tax year 2023. The Basic Personal Amount (BPA) has been increased to $15,000.00 for the 2023 tax year.
The government has introduced new credits and deductions. Ensure you determine which ones you qualify for.