Taxes are unavoidable, but there are some ways to bring down the tax you’ll have to pay – and the key is often being prepared and understanding what tax credits or deductions you may be eligible for to make sure you don’t leave any potential benefits on the table.
There are many ins and outs that an accountant or tax professional can help you with, but being aware of your particular situation and keeping track of receipts you think may be useful – from investment statements to tuition or daycare forms – can help make sure you don’t miss any important information.
And while there are certain things you can write-off to reduce your taxable income (or the income your tax rate is calculated off), tax credits can also contribute to lowering your tax burden.
Tax credit
A tax credit is an amount of money that’s subtracted from the tax you owe.
Let’s say you make $90,000 a year and you’re taxed on that amount. That’s your taxable income. At that salary range in Ontario, you’re likely taxed at an average tax rate of about 20 per cent on your income, so you’re paying roughly $18,000 a year in income taxes. But if you received $3,000 in tax credits, you only have to pay $15,000 to the Canada Revenue Agency (CRA) – because that $3,000 is applied to the taxes you owe – kind of like a discount code when you’re shopping.
Types of tax credits
Some credits are non-refundable credits. These are applied to any tax amount you have outstanding, and are designed to bring your tax payable to zero. But if there’s extra money available in that credit (beyond what you owe), you don’t get to keep it or get it as part of a tax refund.
Refundable credits reduce the amount of tax you have to pay (since they are also applied to any tax amount owing) but can also lead to a tax refund.
Who qualifies for tax credits?
To be eligible for tax credits in Canada, you must be a Canadian resident and you must file your income taxes – even if you have no income in that tax year. There are benefits that apply to families, children, goods and services, as well as federal or provincial workers, and people in special circumstances, such as being a caregiver. Programs can also differ by province, while some apply federally. Some are income-based, while others apply across the board.
You can check out the full list of possible tax credits on the CRA website.
