Canadian Tax Credits 101 — What They Are and How to Claim Them
Whether you're a Canadian citizen by birth or you're new to the country, knowing what tax credits are available and how to claim them can increase your tax savings.
No matter how many years you've paid taxes in Canada, tax season always seems to feel like a maze of forms and a mess of numbers, especially if you're new to the country. Below, we cover everything from federal personal tax credits to special incentives and provincial credits.
1. What Are Tax Credits and Benefits?
The Canadian government offers tax credits and benefits to encourage certain behaviors that align with government objectives or to provide financial relief to specific groups of people. We can divide these incentives into two categories: refundable tax credits and nonrefundable tax credits.
Before we go any further, it's important to understand that the availability of a tax credit in Canada, or the amount of a credit received, is based on your income. Here are the income brackets and their associated tax rates for Canada's 2023 tax season:
|Income Range (CAD)||Tax Rate (%)|
|Up to $53,359||15%|
|$53,359 – $106,717||20.5%|
|$106,717 – $165,430||26%|
|$165,430 – $235,675||29%|
Refundable Tax Credits
Refundable tax credits result in a tax refund if the credit amount exceeds what you owe in taxes. To put it simply, you get extra cash from the government. For example, let's say you owe $500 in taxes, but you have a $700 refundable tax credit from the Goods and Services Tax/Harmonized Sales Tax (GST/HST). You'd not only wipe out that $500 tax bill but also get a $200 refund from the government.
Non-Refundable Tax Credits
Non-refundable tax credits can potentially bring your tax bill down to 0, but won't result in a refund. Say you owe $1,000 in taxes, and you have a $1,200 non-refundable credit for tuition fees. That credit would eliminate your $1,000 tax bill, making it zero. But the extra $200? You don't get that back in cash; it just disappears.
2. Federal Personal Tax Credits
Federal personal tax credits apply to a wide range of circumstances and can significantly lower the amount you owe to the Canada Revenue Agency (CRA). Here are some of the most common:
Basic Personal Amount (BPA)
Every Canadian taxpayer is entitled to claim a Basic Personal Amount. This is a non-refundable tax credit that reduces your federal tax liability. The BPA has been scheduled to rise incrementally since 2019, and has reached $15,000 for the 2023 tax year.
This increase will be indexed for inflation in subsequent years. Individuals with net incomes too high to benefit from the increased BPA will continue to claim the existing amount, which will also be indexed for inflation annually.
Spousal and Common-Law Partner Amount
You may be eligible for the Spousal and Common-Law Partner Amount non-refundable tax credit if you're supporting a spouse or common-law partner with a lower income. The amount you can claim depends on your partner's net income.
Amount for an Eligible Dependant
The Amount for Eligible Dependent, also known as the "equivalent-to-spouse" amount, is a non-refundable credit for single, separated, or divorced individuals who are supporting a dependent.
Disability Tax Credit
The Disability Tax Credit is a non-refundable credit designed to help individuals with severe and prolonged physical or mental impairments by reducing the federal tax they owe.
Canadian taxpayers over 65 years of age on December 31, 2022 could claim the Age Amount non-refundable tax credit if their net income is less than $92,480.
3. Popular Tax Deductions and Credits
Some tax credits and deductions have gained popularity due to their wide availability and substantial impact on reducing tax liability. Here are some that you definitely don't want to overlook:
Goods and Services Tax/Harmonized Sales Tax GST/HST Credit
This is a quarterly, tax-free payment that helps individuals and families with low or modest incomes offset all or part of the GST or HST they pay.
Ontario Trillium Benefit
If you're a resident of Ontario, the Ontario Trillium Benefit includes the Ontario Sales Tax Credit, the Ontario Energy and Property Tax Credit, and the Northern Ontario Energy Credit.
Charitable Tax Credit
Donating to registered charities not only helps a good cause but also earns you a non-refundable tax credit. The more you give, the bigger your credit.
If you're self-employed, you can deduct qualified business expenses from your income, effectively lowering your tax bill. This includes costs like office supplies, travel, and even a portion of your home expenses if you have a home office.
Work from Home Expenses
The pandemic has made working from home more common, and the CRA has introduced a simplified method to claim home office expenses. You can claim $2 for each day you worked from home due to the pandemic during 2020, 2021, and 2022, up to a maximum of $400 for the year.
4. Special Credits and Incentives
Canada offers a variety of special tax credits and incentives aimed at encouraging particular behaviors or helping certain groups of people. Here's a look at some that might be relevant to you:
Canada Workers Benefit (CWB)
This refundable tax credit is designed to support low-income workers and encourage more people to join the workforce. It can provide a significant boost to your annual income.
Registered Retirement Savings Plan (RRSP) Deduction
Contributing to an RRSP not only helps you save for retirement but also offers immediate tax benefits. The contributions are deductible, which can lower your taxable income for the year.
Home Buyers' Amount
First-time homebuyers can claim a $10,000 non-refundable tax credit for the purchase of a qualifying home in 2022 ($5,000 if the home was purchased before 2022).
If you moved for work or school and your new home is at least 40 kilometers closer to your new work or school location, you can deduct eligible moving expenses.
Climate Action Incentive
Residents of certain provinces can claim this refundable tax credit, which is intended to offset the cost of the federal carbon tax.
5. Provincial and Territorial Personal Tax Credits
While federal tax credits apply across the board, each province and territory in Canada has its own set of tax credits. These can vary widely and are designed to address the unique needs and priorities of each region. Here's what you need to know:
Provincial Basic Personal Amount
Just like the federal basic personal amount, each province and territory has its own basic personal amount that residents can claim to reduce their provincial tax liability.
Provincial Tuition and Education Credits
Some provinces still offer tuition and education credits, even though the federal education and textbook amounts have been phased out.
Provincial Home Renovation Credits
Certain provinces offer tax credits for home renovations that improve energy efficiency, accessibility, or both.
Provincial Cultural and Recreational Credits
Check if your province offers credits for children's participation in cultural, recreational, or sports activities.
Provincial Seniors' Credits
Many provinces offer additional tax credits for seniors, such as property tax credits or credits for home accessibility modifications.
6. How to Claim These Credits and Benefits
Now you have a broad overview of the most popular tax credits and benefits, but how do you actually claim them? Don't worry, we've got you covered:
Filing Your Tax Return
The first step is, of course, to file your tax return. You can claim most credits and benefits by filling out specific lines on your tax return form. You can do this manually, use tax software, or hire a professional.
Make sure you have all the necessary documents to support your claims. This could include receipts, T4 slips, or medical records. Keep these documents for at least 6 years in case the CRA wants to review your return.
Be mindful of tax deadlines to avoid late filing penalties. The deadline for most Canadians is April 30, but if you or your spouse are self-employed, you have until June 15.
If you realize you've missed claiming a credit or benefit, you can amend your tax return. You can do this online through the CRA's "Change My Return" service or by mail.
For quicker refunds, especially for refundable credits, consider setting up direct deposit with the CRA.
Many of us don't feel confident doing our taxes on our own. Are we missing a tax credit or benefit that can save us hundreds of dollars? Have we forgotten to claim something? Are we going to get an unexpected bill from the CRA because we did something wrong?
After reading this article you should have gained some confidence in how to take full advantage of Canadian federal personal tax credits, special incentives, or even provincial and territorial credits. As you prepare for the next tax season, keep this guide handy, employ a Canada-specific salary calculator, and make the most of the opportunities the CRA provides.