Knowing how tax credits work in Canada is essential if you are looking to get informed and take full advantage of the economic incentives offered by the government. Tax credits can directly reduce the amount of tax payable, providing a significant financial benefit.
So, by clearly understanding how these tax credits work and your requirements to access them, you can optimize your financial situation to start your life as a responsible adult on the right foot. And you, are you ready to make the most of the tax credits available? Find everything you need with Superprof and navigate the tax season stress-free!
What is a tax credit?
A tax credit is an incentive or economic advantage that taxpayers may deduct totally or partially from the total taxable income, income obtained from exercising a particular activity, or income generated in a specific territory.
It is essential to mention that tax credits differ from tax deductions since tax credits directly reduce the amount of taxes payable. In contrast, tax deductions reduce the amount of taxable income. Tax credits consist of reductions, exemptions, deductions, or allowances.
Discover the most common tax deductions for businesses in Canada here.
How do tax credits work?
A tax credit is a benefit that reduces income tax due. Federal and state governments may grant tax credits to encourage behaviors that benefit the economy, citizens, and the environment. The tax reduced by such a tax credit is calculated based on the lowest tax bracket, which refers to the income level at which Canada's lowest federal and provincial tax rate applies.
The tax credits you are eligible for are divided into refundable and non-refundable. Non-refundable tax credits reduce the amount of tax due in a given period. Some non-refundable tax credits include the credit for medical expenses and charitable donations.
On the other hand, refundable tax credits also reduce the amount of tax you owe, but this money will be refunded to you. Some types of refundable tax credits are GST/HST credits.
If you want to be refunded on time, be aware of tax deadlines in Canada.
Examples of common tax credits
Canada Child Benefit (CCB)
The Canadian Child Benefit (CCB) is administered by the Canada Revenue Agency (CRA) and is a tax-free monthly payment that benefits families who qualify for support with the costs of raising children under 18.
CCB benefits may include Child Disability Benefits and provincial and territorial programs. To be eligible for CCB, you must live with a child under the age of 18, be the child's guardian or primary caregiver, and, for example, be a resident of Canada.
GST/HST credit
The Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit is a quarterly tax-free payment that supports low-income families or individuals in offsetting the GST or HST they owe. As soon as you file your Canadian taxes, you can access the GST/HST credit depending on your net income, whether you have a family, your marital status, and whether you have children.
The GST/HST credit often changes, but according to the most recent data, you can receive up to $496 if you are single, $650 if you are married, and $171 for each child under the age of 19.
To qualify for the GST/HST credit, your net family income must be below $52,255, you must be a Canadian resident, and you must be at least 19 years old.
Canada Dental Benefit
Although most Canadian citizens receive dental coverage through their employer, Canadians also pay directly for their oral health care. Although employers cover some or even all of the costs, the patient must sometimes pay the difference.
The Canada Dental Benefit helps reduce dental expenses for families earning less than $90,000 a year who do not have access to a private dental insurance plan. Benefit payments are administered by the Canada Revenue Agency (CRA).
Provincial and territorial benefits
In Canada, the federal, provincial, and territorial governments offer various tax credits that provide financial assistance to low-income individuals and families to cover child expenses, offset the cost of sales and property taxes, and, for example, provide financial assistance to primary caregivers and to cover living expenses.
Each province and territory may offer different credits and benefits to suit its citizens' specific needs and priorities, and these tax credits tend to change from province to province.
Disability tax credit (DTC)
The disability tax credit (DTC) is a non-refundable tax credit that helps people with disabilities or their supporting family members reduce the amount of income tax.
If you have a severe, long-term disability that limits your walking and mobility, mental functions, face challenges with everyday actions such as dressing, feeding, hearing, speaking, or seeing, or if you require life-sustaining therapy, you can apply for the DTC, which you can claim at tax time.
The DTC reduces the income tax you may have to pay, intended to offset some additional disability-related expenses.
Canada Carbon Rebate (CCR)
The Canada Carbon Credit is a tax-exempt amount intended to help eligible individuals and families offset the cost of federal pollution pricing and is targeted at residents of small and rural communities. To be eligible, you must meet certain conditions, such as:
- Be a resident of Canada and live in the provinces of Alberta, Manitoba, New Brunswick, Newfoundland, Labrador, Nova Scotia, Ontario, Prince Edward Island, or Saskatchewan.
- Be at least 19 years old.
- Have a spouse or husband.
- Live with your children.
Canada Workers Benefit (CWB)
The Canada Workers' Benefit (CWB) is a refundable tax credit to help low-income working individuals and families. It aims to put more money in workers' pockets to help them cope with the rising cost of living.
You are eligible for the CWB if your net income is below the net income set for your province or territory of residence, if you reside in Canada for the entire year and if you are 19 or live with your spouse, common-law partner, or child.
How do I get tax credits in Canada?
If you are interested in claiming any of the above tax credits, we recommend that you visit the official website of the Government of Canada, where you will find much more updated and accurate information regarding your case.
All you have to do is go to Canada.ca, click on Taxes, then on Income Tax and Personal Income Tax, and then on Claiming Deductions, Credits, and Expenses.
Check all the deductions, credits, and expenses you can apply for when completing your income tax return to reduce the taxes you owe, and mainly receive financial assistance on:
- Deductions and credits for family, child care, and caregivers.
- Education deductions and credits
- Disability deductions and credits
- CPP, QPP, and RRSP savings and pension plan deductions and credits
- Employment expenses and credits
- Provincial and territorial taxes and credits for individuals
For further information on provincial or territorial taxes and credits, we recommend visiting your provincial and territorial tax credit directory to discover the credits available.
Are you self-employed in Canada? Discover everything about taxes as a gig worker!
How are tax credits calculated in Canada?
To check your Canadian tax refund and determine if you are due one, we recommend that you file your income tax return with the Canadian Revenue Agency (CRA).
However, you can also calculate an approximate refund by determining how much income you earned during the Canadian tax year, whether you are entitled to the Canadian tax-free allowance, your Canadian income tax, and your eligibility for employment tax deductions.
Wrap up!
In conclusion, maximizing tax credits in Canada is a fundamental process for taxpayers looking to ease their tax burden and improve their financial situation. From child credits to disability deductions, the Canadian tax system offers various incentives to support vulnerable demographics.
Taxpayers can optimize their personal and family finances by understanding how these credits work, who is eligible, and how to apply for them. In addition, the government's assistance and online resources can be invaluable to those who wish to take full advantage of these tax benefits.
Always consider contacting a tax professional or accountant specializing in tax credits to ensure you are as informed as possible about how these incentives work in Canada and how to take advantage of them. Superprof's online platform allows you to find the best accountants across Canada to help you plan your tax obligations and learn all about tax credits.
Plus, if you want to understand your tax obligations and take proactive steps to manage them, you can minimize the stress and hassle associated with tax season with the best accounting professionals in the country. Learn more and become an expert on Canadian tax credits with Superprof and the best expert accountants closer to you! Good accounting classes are just a few clicks away.
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